The Official History of Britain and the European Community, Volume III: The Tiger Unleashed, 1975–1985 0815378750, 9780815378754

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The Official History of Britain and the European Community, Volume III

Volume III of The Official History of Britain and the European Community covers the divisions over Europe of the Labour Government (1975–79) and the controversies surrounding Britain’s relations with her EEC partners under Margaret Thatcher. As the UK prepares to leave the European Union, this book is the story of the stresses, quarrels, compromises and ambitions which contributed to an unhappy relationship between the United Kingdom and her European partners. Immediately after the 1975 referendum, when the British people voted by a large majority to stay in the European Community, the divisions in the Labour Party over Europe, which had caused the referendum in the first place, resurfaced as if nothing had changed. They dogged the beleaguered Government of James Callaghan and contributed to the defeat of the Labour Party in the General Election of 1979. Margaret Thatcher proclaimed herself a pro-European Prime Minister but her premiership, too, was governed by a succession of crises in Britain’s relations with her partners as Thatcher fought to redress the unfair budget deal Britain had been forced to accept on accession, and then to secure her vision of a reformed, outwardlooking, economically liberal Europe. This is also the story of personal relationships between Thatcher and the successive leaders of Germany, France and the United States. It is told through the contemporary accounts of the period, in the words, ideas and emotions of politicians and officials at the heart of Government. This work will be of much interest to students of British politics, European Union history, diplomacy and International Relations in general.

Stephen Wall is a former British Ambassador to the EU and the Official Historian of Britain’s membership of the European Community.

WHITEHALL HISTORIES: GOVERNMENT OFFICIAL HISTORY SERIES ISSN: 1474-8398

The Government Official History series began in 1919 with wartime histories, and the peacetime series was inaugurated in 1966 by Harold Wilson. The aim of the series is to produce major histories in their own right, compiled by historians eminent in the field, who are afforded free access to all relevant material in the official archives. The Histories also provide a trusted secondary source for other historians and researchers while the official records are not in the public domain. The main criteria for selection of topics are that the histories should record important episodes or themes of British history while the official records can still be supplemented by the recollections of key players; and that they should be of general interest, and, preferably, involve the records of more than one government department. The Official History of North Sea Oil and Gas Vol. I: The Growing Dominance of the State Vol. II: Moderating the State’s Role Alex Kemp The Official History of Britain and the European Community Vol. II: From Rejection to Referendum, 1963–1975 Vol. III: The Tiger Unleashed, 1975–1985 Stephen Wall The Official History of the Joint Intelligence Committee Vol. I: From the Approach of the Second World War to the Suez Crisis Michael S. Goodman The Official History of the Cabinet Secretaries Ian Beesley The Official History of the UK Strategic Nuclear Deterrent Vol. I: From the V-Bomber Era to the Arrival of Polaris, 1945–1964 Vol. II: The Labour Government and the Polaris Programme, 1964–1970 Matthew Jones The Authorised History of British Defence Economic Intelligence A Cold War in Whitehall, 1929–90 Peter Davies For more information about this series, please visit: https://www.routledge. com/Government-Official-History-Series/book-series/SE0789

The Official History of Britain and the European Community, Volume III Volume III: The Tiger Unleashed, 1975–1985 Stephen Wall

First published 2019 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 Crown Copyright The right of Stephen Wall to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Wall, Stephen, 1947- author. Title: Official history of Britain and the European Community. Vol. III, The tiger unleashed, 1975–1985 / Stephen Wall. Other titles: Tiger unleashed, 1975–1985 Description: Abingdon, Oxon ; New York, NY : Routledge, 2019. | Series: Whitehall histories: government official history series, ISSN 1474-8398 | Includes bibliographical references and index. Identifiers: LCCN 2018029078 (print) | LCCN 2018037753 (ebook) | ISBN 9781351228015 (Web PDF) | ISBN 9781351228008 (ePub) | ISBN 9781351227995 ( Mobi) | ISBN 9780815378754 (hardback) | ISBN 9781351228022 (e-book) Subjects: LCSH: European Economic Community--Great Britain. | Great Britain--Politics and government--1964–1979. | Great Britain--Politics and government--1979–1997. | Great Britain--Foreign relations--1964–1979. | Great Britain--Foreign relations--1979–1997. | Great Britain--Foreign relations--European Economic Community countries. | European Economic Community countries--Foreign relations--Great Britain. Classification: LCC HC241.25.G7 (ebook) | LCC HC241.25.G7 W26 2019 (print) | DDC 337.1/42094109047–dc23 LC record available at https://lccn.loc.gov/2018029078 ISBN: 978-0-815-37875-4 (hbk) ISBN: 978-1-351-22802-2 (ebk) Typeset in Bembo by Integra Software Services Pvt. Ltd.

For my partner, Ted, and in loving memory of my sister, Sue Yardley (1944–2017)

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Contents

Acknowledgments List of Abbreviations Notes on Principal People Introduction

viii ix xi 1

1

The Spoils of Victory: 1975–1976

2

Callaghan: The Lapsed Heretic: 1976

37

3

The Problematic Presidency and Old Wounds Reopened: 1977

64

4

Britain, France and Germany: The End of the Affair: 1977–1979

95

5

The Tiger Unleashed: May 1979–May 1980

136

6

Uneasy Truce: 1980–1981

178

7

Conflict: 1982–1983

214

8

Thatcher Victorix?: 1983–1984

258

9

Thatcherism on a European Scale: The Single Market, 1984–1985

289

Conclusion Appendix 1 Appendix 2 Bibliography Index

6

335 339 342 361 362

Acknowledgements

The Cabinet Office series of Official Histories has been conducted under the authority of successive Prime Ministers and I am grateful to the then Prime Minister, Gordon Brown, and the then Cabinet Secretary, Gus (now Lord) O’Donnell, for appointing me to write this volume and its predecessor. I was given access to all the official documents I asked to see. I had excellent help in securing from The National Archives (TNA) a seemingly endless supply of Government files sent to the Cabinet Office from Kew. I was given all other essential support by the Knowledge and Information Management Unit of the Cabinet Office under the leadership of Roger Smethurst, and by Tessa Stirling and Sally Falk, the Head and Deputy Head, respectively, of the Official Histories Team. I am very grateful to them for their expertise, help and tolerance. When the Cabinet Office ran out of space to accommodate me and other Official Historians, my old parent Department, the Foreign and Commonwealth Office, kindly both took pity on me and took me under their wing. I am especially grateful to Professor Patrick Salmon, the Chief Historian of the FCO, to Dr Richard Smith, Senior Historian and to Jim Daly—who generously went beyond his role of sensitivity reviewer to point out the typing and other mistakes in my drafts, as I sent them to him. When, in 2005, I rashly set out to write a book about Britain’s role in the European Community, the then Chief Historian at the Foreign Office, Gill Bennett, gave me huge help. I have taken advantage of both her friendship and her eagle-eyed expertise since then. I alone am responsible for the views in this book. Had it not been for Gill, I would, in addition, have had to take shamefaced responsibility for numerous errors of clarity, style, syntax and punctuation which she corrected patiently and painstakingly when she had many better things to do. I have drawn on the expertise and recollections of many other people. I especially want to thank David (Lord) Owen who was the most stimulating of bosses, the most rigorous of critics and has been the staunchest of friends. My partner, Dr Edward (Ted) Sumner, had a distinguished medical career that can in no way have prepared him for ministering to my various entirely nonmedical complaints as I researched and wrote the book. To his loving support, and occasional prodding, I owe the fact that I knuckled down and finished the job.

Abbreviations

AUSS BAOR CAP CDU CFP CO COREPER CSU DES DHSS DUSS ECJ EEC EMS EMU ERDF ESF EU EUA FAC FCO FCS FDP FRG

Assistant Under Secretary of State British Army of the Rhine Common Agricultural Policy Christian Democratic Union (Germany) Common Fisheries Policy Cabinet Office Committee of Permanent Representatives of the European Community Christian Social Union of Bavaria Department of Education and Science Department of Health and Social Security Deputy Under Secretary of State European Court of Justice European Economic Community European Monetary System Economic and Monetary Union European Regional Development Fund European Social Fund European Union European Unit of Account Foreign Affairs Council Foreign and Commonwealth Office Foreign and Commonwealth Secretary Free Democratic Party (Germany) Federal republic of Germany

All references in the book are to FRG (West Germany) unless otherwise stated GDP GNP HMG HMT

Gross Domestic Product Gross National Product Her Majesty’s Government Her Majesty’s Treasury

x Abbreviations IBRD IMF JET MAFF MCA MEP MP MSP NATO NEC OR ORD PLP PPS PUS SDP SPD

International Bank for Reconstruction and Development [the World Bank] International Monetary Fund Joint European Torus Ministry of Agriculture, Fisheries and Food Monetary Compensatory Amount Member of the European Parliament Member of Parliament Minimum Selling Price [for oil] North Atlantic Treaty Organisation National Executive Committee [of the Labour Party] Own Resources [the European Community financing mechanism] Own Resources Decision Parliamentary Labour Party Principal Private Secretary or Parliamentary Private Secretary Permanent Under-Secretary of State Social Democratic Party Social Democratic Party (Germany)

Notes on the Principal People Who Feature during the Years Covered by this Book

Acland, Antony b.1930 PUS at the FCO, 1982–1986 Alexander, Michael 1936–2002 FCO Private Secretary to the Prime Minister, 1979–1982 British Ambassador to Austria, 1982–1986 Andreotti, Giulio 1919–2013 Minister of Foreign Affairs of Italy, 1983–1989 Prime Minister of Italy, 1972–1973, 1976–1979 and 1989–1992 Andropov, Yuri 1914–1984 Chairman of the Committee for State Security of the USSR (KGB), 1967–1982 Chairman of the Presidium of the Supreme Soviet, 1983–1984 General Secretary of the Communist Party of the USSR, 1982–1984 Armstrong, Robert b.1927 PPS to PM, 1970–1975 Permanent Secretary Home Office, 1977–1979 Cabinet Secretary, 1979–1987. Attali, Jacques b.1943 Special Adviser to President Mitterrand, 1981–1991 Barre, Raymond 1924–2007 Minister of Economy and Finance of France, 1976–1978 Prime Minister of France, 1976–1981 Benn, Anthony (Tony) 1925–2014. Secretary of State for Industry, 1974–1975 Secretary of State for Energy, 1975–1979 Bullard, Julian 1928–2006 HM Diplomatic Service, 1953–1988 Minister, British Embassy Bonn, 1975–1979 DUSS, FCO, 1979–1984

xii Notes on Principal People Deputy PUS and Political Director, FCO, 1982–1984 British Ambassador to the Federal Republic of Germany, 1984–1988 Bush, George H W b.1924 US Director of Intelligence, 1976–1977 Vice-President of the United States, 1981–1989 President of the United States, 1989–1983 Butler, Michael 1927–2013 Assistant (later Deputy) Under-Secretary of State for European Community questions, FCO 1974–1979 UK Permanent Representative to the European Community, 1979–1985 Carrington, Peter 1919–2018 Opposition Leader in the House of Lords, 1964–1970 Foreign and Commonwealth Secretary, 1979–1982 Carter, James (Jimmy) b.1924 Governor of Georgia, 1971–1975 President of the United States, 1977–1981 Cartledge, Bryan b.1927 Head of East European and Soviet Department, FCO, 1975–1977 FCO Private Secretary to the Prime Minister, 1977–1979 British Ambassador to Hungry, 1980–1983 AUSS, FCO, 1983–1984 Deputy Secretary of the Cabinet, 1984–1985 British Ambassador to the USSR, 1985–1988 Castle, Barbara, 1910–2002 MP for Blackburn, 1945–1979 MEP for Greater Manchester, 1979–1989 Secretary of State for Health and Social Services, 1974–1976 Cheysson, Claude, 1920–2012 French Member of the European Commission responsible for Development Policy, Cooperation, Budgets and Financial Control, 1973–1977; and for Development, 1977–1981 Minister of Foreign Affairs of France, 1981–1984 French Member of the European Commission responsible for Mediterranean Policy and North/South relations, 1985–1989 Chirac, Jacques b. 1932 Prime Minister of France, 1974–1976 and 1986–1988 President of France, 1995–2007 Clappier, Bernard 1913–1999 Deputy Governor Banque de France, 1964–1973 Governor Banque de Franc, 1974–1979

Notes on Principal People xiii Clinton Davis, Stanley b.1928 Labour MP for Hackney Central, 1970–1983 PUSS for Companies, Aviation and Shipping, 1974–1979 Opposition spokesman on Trade, Prices and Consumer Protection, 1979–1981 and on Foreign Affairs, 1981–1983 European Commissioner for Transport, Environment and Nuclear Safety, 1985–1989 Cockfield, Arthur 1916–2007 Secretary of State for Trade, 1982–1983 Chancellor of the Duchy of Lancaster, 1983–1984 European Commissioner for Internal Market and Services, 1985–1989 Coles, John b.1937 Joined HM Diplomatic Service, 1960 FCO Private Secretary to the Prime Minister, 1981–1984 British Ambassador to Jordan, 1984–1988 Couzens, Ken 1925–2004 Deputy Secretary HM Treasury, 1973–1977 Second Permanent Secretary HM Treasury, 1977–1983 Permanent Secretary, Department of Energy, 1983–1985 Craxi, Bettino 1934–2000 Secretary of the Italian Socialist Party and Member of the Italian Chamber of Deputies, 1976–1983 Prime Minister of Italy, 1983–1987 Crosland, Anthony 1918–1977 Secretary of State for the Environment, 1974–1976 Foreign and Commonwealth Secretary, 1976–1977 Davies, John 1916–1979 Shadow Foreign Commonwealth Secretary, 1976–1978 Davignon, Etienne b.1932 Head of International Energy Agency, 1974–1977 European Commissioner for Internal Market, Customs Union and Industrial Affairs, 1977–1981 European Commissioner for Industry and Energy, 1981–1985 Delors, Jacques b.1925 Member of the European Parliament 1979–1981 Finance Minister of France 1981–1984 President of the European Commission 1985–1995 Denman, Roy 1924–2006 Head of the European Secretariat, Cabinet Office 1975–1977

xiv Notes on Principal People Director–General for External Affairs European Commission, 1977–1982 European Commission Representative in Washington 1982–1989 Donoughue, Bernard b.1934 Member (later Head) Policy Research Unit 10 Downing Street, 1974–1979 Dooge, James 1922–2010 Minister of Foreign Affairs of the Republic of Ireland, 1981–1982 Leader of Fine Gael in the Irish Senate. 1982–1987 Chair of the European Community Committee on the Single European Act, 1985 Duisenberg, Wim 1936–2005 Minister of Finance of the Netherlands, 1973–1977 President of the Central Bank of the Netherlands, 1982–1997 Dumas, Roland b.1922 French Minister of European Affairs, 1984 French Minister of Foreign Affairs, 1984–1986 and 1988–1993 Ertl, Josef 1925–2000 Head of the Bavarian branch of the FDP, 1971–1983 Minister of Food and Agriculture of the FRG, 1969–1983 President of the German Agricultural Society, 1984–1990 Fabius, Laurent b.1946 Minister of the Budget of France, 1981–1983 Prime Minister of France, 1984–1986 Fitzgerald, Garrett 1926–2011 Fine Gael MP for Dublin SE, 1969–1992 Irish Minister of Foreign Affairs, 1973–1977 Taoiseach, 1981–1982 and 1982–1987 Foot, Michael 1913–2010 Secretary of State for Employment, 1974–1976 Lord President of the Council and Leader of the House of Commons, 1976–1979 Shadow Leader of the House of Commons, 1979–1980 Deputy Leader of the Labour Party, 1976–1980 Leader of the Labour Party and Opposition Leader, 1980–1983 Ford, Gerald 1913–2006 President of the United States, 1974–1977 Fraga Iribarne, Manuel 1922–2012 Spanish Ambassador to the UK, 1973–1975 Vice-President of the Spanish Government and Minister of the Interior, 1975–1976 Franklin, Michael b.1927 Deputy Director-General for Agriculture, European Commission, 1973–1977

Notes on Principal People xv Deputy Secretary and Head of European Secretariat, Cabinet Office, 1977–1981 Permanent Secretary, Department of Trade, 1982–1983 Fretwell, John 1930–2017 Head of European Integration Department, FCO, 1973–1976 AUSS for European affairs, FCO, 1976–1979 Minister British Embassy Washington, 1980–1981 British Ambassador to France, 1982–1987 Genscher, Hans-Dietrich 1927–2016 Chairman (Leader) of the German Free Democratic Party (FDP), 1974–1985 Foreign Minister of Federal Republic of Germany, 1974–1985 Giscard d’Estaing, Valéry b.1926 President of France, 1974–1981 Gonzalez, Felipe b.1942 Secretary-General Spanish Socialist Workers Party (PSOE), 1974–1997 Leader of the Opposition, 1979–1982 and 1986–1997 Prime Minister of Spain, 1982–1996 Gromyko, Andrei 1909–1989 Minister of Foreign Affairs of the USSR, §957–1985 Guiringaud, Louis de 1911–1982 Foreign Minister of France, 1976–1978 Hancock, David 1934–2013 Under-Secretary, HM Treasury, 1975–1980 Deputy Secretary, HM Treasury, 1980–1982 Head of the European Secretariat, Cabinet Office, 1982–1983 Permanent Secretary, DES, 1983–1989 Hannay, David b. 1935 Chef de Cabinet to Sir Christopher Soames, European Commission Brussels, 1973–1975 Assistant Under-Secretary of State for European Community issues, 1979–1984 Minister British Embassy Washington, 1974–1975 UK Permanent Representative to the European Community, 1985–1990 Hattersley, Roy b.1932 Minister of State Foreign & Commonwealth Office, 1974–1976 Secretary of State for Prices and Consumer Affairs, 1976–1979 Shadow Secretary of State for the Environment, 1979–1980 Shadow Chancellor of the Exchequer, 1983–1987 Deputy Leader of the Labour Party, 1983–1992 Hayes, Brian b.1929 Deputy Secretary MAFF, 1973–1978 Permanent Secretary MAFF, 1979–1983

xvi Notes on Principal People Healey, Denis 1917–2015 Chancellor of the Exchequer, 1974–1979 Shadow Chancellor of the Exchequer, 1979–1980 Deputy Leader of the Labour Party, 1980–1983 Shadow Foreign Secretary, 1980–1987 Heath, Edward 1916–2005 Prime Minister of the United Kingdom, 1970–1974 Leader of the Opposition, 1974–1975 Henderson, Nicholas (Nicko) 1919–2009 British Ambassador to the Federal Republic of Germany, 1972–1975 British Ambassador to France, 1975–1979 British Ambassador to the United States, 1979–1982 Hibbert, Reginald 1922–2002 Minister HM Embassy Bonn, 1972–1975 AUSS, later DUSS, FCO, 1975–1979 British Ambassador to France, 1979–1982 Hunt, John 1919–2008 Cabinet Secretary, 1973–1979 Hurd, Douglas b.1930 Conservative MP for Mid Oxfordshire, 1974–1983 and for Witney, 1983–1997 Minister of State for Europe at the FCO, 1979–1983 Minister of State, Home Office, 1983–1984 Secretary of State for Northern Ireland, 1984–1985 Home Secretary, 1985–1989 Ingham, Bernard b. 1932 Government Press and Public Relations Officer, 1967–1979 Chief Press Secretary to the Prime Minister, 1979–1990 Jenkins, Roy 1920–2003 Home Secretary, 1974–1976 President of the European Commission, 1977–1981 Jopling, Michael b.1930 Conservative MP for Westmorland, 19164–1983 and for Westmorland and Lonsdale, 1983–1997 Government Chief Whip, 1979–1983 Minister of Agriculture, Fisheries and Food, 1983–1987 Joseph, Keith 1918–1994 Conservative MP for Leeds North East, 1956–1987 Shadow Home Secretary, 1974–1975 Secretary of State for Industry, 1979–1981 Secretary of State for Education and Science, 1981–1986

Notes on Principal People xvii Judd, Frank b.1935 Labour MP for Portsmouth North, 1966–1979 Under-Secretary for the Navy, 1974–1976 Minister for Overseas Development, 1976–1977 Minister of State FCO, 1977–1979 Karamanlis, Konstantinos 1907–1998 Leader of New Democracy Party, Greece, 1974–1980 Prime Minister of Greece, 1974–1980 President of Greece, 1980–1985 Kinnock, Neil b.1942 MP for Bedwellty 1970–1983 MP for Islwyn 1983–1995 Shadow Secretary of State for Education, 1979–1983 Leader of the Labour Party and Leader of the Opposition, 1983–1992 Kohl, Helmut 1930–2017 Minister President of Rhineland-Palatinate, 1969–1976 Leader of the Christian Democratic Union (CDU), 1973–1998 Chancellor of the Federal Republic of Germany, 1982–1998 Lawson, Nigel b.1932 Conservative MP for Blaby, 1974–1992 Financial Secretary to HM Treasury, 1979–1981 Secretary of State for Energy, 1981–1983 Chancellor of the Exchequer, 1983–1989 Legras, Guy b.1938 Head of European Community Affairs, French Ministry of Foreign Affairs, 1982–1985 Director-General for Agriculture, European Commission, 1985–1989 Lever, Harold 1914–1995 Labour MP for Manchester Central, 1974–1989 Chancellor of the Duchy of Lancaster, 1974–1979 Levitte, Jean-David b.1946 Adviser on European Community issues, Elysée, 1975–1981 Macmillan, Harold 1894–1986 Prime Minister 1957–1963 Maitland, Donald 1922–2010 UK Permanent Representative to the European Community, 1975–1979 Matthoefer, Hans 1925–2009 Federal German Minister of Research and Technology, 1974–1978 Federal Minister of Finance, 1978–1982 Federal Minister of Posts and Telecommunications, 1982

xviii Notes on Principal People Maudling, Reginald 1917–1979 MP for Barnet, 1950–1974, and Chipping Barnet 1974–1979 Shadow Foreign and Commonwealth Secretary, 1975–1976 McCaffrey, Tom 1922–2016 Head of News Department FCO, 1974–1976 Chief Press Secretary to the Prime Minister, 1976–1979 Chief of Staff to Jim Callaghan (Leader of the Opposition), 1979–1980 Chief Assistant to Michael Foot (Leader of the Opposition), 1980–1983 McMahon, Christopher (‘Kit’) b. 1927 Executive Director, Bank of England, 1970–198 Deputy Governor of the Bank of England, 1980–1985 McNally, Tom b.1943 Political Adviser to Jim Callaghan, 1976–1979 Head of the Political Office 10 Downing Street, 1976–1979 Labour MP for Stockton South, 1981–1983 Mitterrand, Francois 1916–1996 First Secretary of the French Socialist Party, 1971–1981 President of France, 1981–1995 Morel, Pierre b.1944 Conseiller Technique at the Elysée, 1981–1985 Noel, Emile 1922–1986 Secretary General of the European Commission, 1967–1987 Nott, John b.1932 Conservative MP for St Ives, 1966–1983 Secretary of State for Trade, 1979–1981 Secretary of State for Defence, 1981–1983 Ortoli, Francois-Xavier 1925–2007 President of the European Commission, 1973–1977 Owen, David b.1938 MP for Plymouth Sutton (Labour 1966–1981, SDP 1981–1992 Minister of State at the DHSS, 1974–1976 Minister of State at the FCO, 1976–1977 Foreign and Commonwealth Secretary, 1977–1979 Shadow Foreign and Commonwealth Secretary, May to July 1979 Shadow Energy Secretary, 1979–1980 Deputy Leader of the SDP, 1982–1983 Leader of the SDP, 1983–1987 Papandreou, Andreas 1919–1996 President of the Panhellenic Socialist Movement, 1974–1996

Notes on Principal People xix Leader of the Opposition of Greece, 1977–1981 Prime Minister of Greece, 1981–1989 Palliser, Michael 1922–2012 UK Permanent Representative to the European Community, 1973–1975 Permanent Under-Secretary FCO and Head of HM Diplomatic Service, 1975–1982 Peart, Fred 1914–1988 Labour MP for Warrington, 1945–1976 Minister of Agriculture, Fisheries and Food, 1974–1976 Lord Privy Seal and Leader of the House of Lords, 1976–1979 Shadow Leader of the House of Lords, 1979–1982 Poncet, Jean-François 1928–2012 Secretary of State [equivalent to Minister of State in UK] at the Ministry of Foreign Affairs of France, 1974–1976 Secretary General of the Elysée, 1976–1978 Foreign Minister of France, 1978–1981 Senator for Lot-et-Garonne, 1983–2010 Powell, Charles b. 1941 HM Diplomatic Service, 1963–1991 FCO Private Secretary to the Prime Minister, 1984–1991 Pym, Francis 1922–2008 Shadow Minister of Agriculture, 1975–1976 Shadow Leader of the House of Commons, 1976–1978 Shadow Foreign Secretary, 1978–1979 Secretary of State for Defence, 1979–1981 Paymaster General and Chancellor of the Duchy of Lancaster, 1981 Leader of the House of Commons and Lord President of the Council, 1981–1982 Foreign and Commonwealth Secretary, 1982–1983 Rees, Merlyn 1920–2006 MP for Leeds South, 1963–1983 MP for Morley and Leeds South, 1983–1992 Secretary of State for Northern Ireland, 1974–1976 Home Secretary, 1976–1979 Shadow Home Secretary, 1979–1980 Shadow Secretary of State for Energy, 1980–1982 Renwick, Robin b.1938 First Secretary, British Embassy Paris, 1972–1976 Counsellor, Cabinet Office, 1976–1978 Head of Rhodesia Department FCO, 1978–1980

xx Notes on Principal People Head of Chancery, British Embassy Washington, 1981–1984 AUSS FCO, responsible for European Community issues, 1984–1987 Richard, Ivor 1932–2018 Labour MP for Barons Court, 1964–1974 British Ambassador to the United Nations, 1974–1979 European Commissioner for Employment and Social Affairs, 1981–1985 Richardson, Gordon 1915–2010 Governor of the Bank of England, 1973–1983 Ridley, Nicholas 1929–1993 Conservative MP for Cirencester and Tewkesbury, 1959–1992 Minister of State FCO, 1979–1981 Financial Secretary to the Treasury, 1981–1983 Secretary of State for Transport, 1983–1986 Rifkind, Malcolm b. 1946 Conservative MP for Edinburgh Pentlands, 1974–§997 PUSS, FCO, 1982–1983 Minister of State for Europe, FCO, 1983–1986 Rodgers, Bill b.1928 MP for Stockton-On-Tees, 1862–1983 Minister of State for Defence, 1974–1976 Secretary of State for Transport, 1976–1979 Shadow Secretary of State for Defence, 1979–1980 Rutherford, Malcolm 1939–1979 Bonn Correspondent Financial Times, 1969–1974 Defence and Diplomatic Correspondent Financial Times, 1974–1977 Chief Political Commentator FT, 1977–1987 Author Can We Save the Common Market? (Wiley Blackwell, 1981) Santer, Jacques b.1947 Member of the Luxembourg Chamber of Deputies, 1974–1995 Prime Minister of Luxembourg, 1984–1995 President of the European Commission, 1995–1999 Sauvagnargues, Jean 1915–2002 French Ambassador to the Federal Republic of Germany, 1970–1974 French Foreign Minister, 1974–1976 French Ambassador to the United Kingdom, 1977–1981 Schmidt, Helmut, 1918–2015 Deputy Chairman Social Democratic Party of Germany (SPD), 1968–1984 Chancellor of the Federal Republic of Germany, 1974–1982

Notes on Principal People xxi Silkin, John 1923–1987 Minister of Local Government and Planning, 1974–1976 Minister of Agriculture, Fisheries and Food, 1976–1979 Soames, Christopher 1920–1987 European Commissioner for External Relations, 1973–1977 Soares, Mario 1924–2017 Secretary General of the Portuguese Socialist Party, 1973–1986 Minister Without Portfolio, March – August 1975 Minister of Foreign Affairs, 1974–1975 and 1977–1978 Prime Minister, 1976–1978 and 1983–1985 President of Portugal, 1986–1996 Steel, David b.1938 Liberal MP for Roxburgh, Selkirk and Peebles, 1965–1983 Liberal MP for Tweeddale, Ettrick and Lauderdale, 1983–1997 Liberal Chief Whip, 1970–1976 Leader of the Liberal Party, 1976–1988 Stoltenberg, Gerhard 1928–2001 CDU Minister-President of Schleswig Holstein, 1971–1982 Federal German Minister of Finance, 1982–1989 Stowe, Kenneth 1927–2015 Principal Private Secretary to the Prime Minister, 1975–1979 PUS Northern Ireland Office, 1979–1981 PUS DHSS, 1981–1987 Taylor, Jock 1924–2002 British Ambassador to Venezuela, 1975–1979 British Ambassador to the Netherlands, 1979–1981 British Ambassador to the Federal Republic of Germany, 1981–1984 Tebbit, Norman b.1931 Conservative MP for Epping, 1970–1974 and for Chingford and Woodford Green, 1974–1992 PUSS for Trade, 1979–1981 Secretary of State for Employment, 1981–1983 Secretary of State for Trade and Industry, 1983–1985 Chairman of the Conservative Party, 1985–1987 Teltschik, Horst b.1940 State Chancellery Mainz, 1972–1977 Chair of the CDU/CSU in the Federal German Bundestag, 1977–1982 Head of the Department of Foreign Affairs, Federal German Chancellery, 1982–1983 Deputy Head of the German Chancellery, 1983–1989

xxii Notes on Principal People Thatcher, Margaret 1925–2013 Leader of the Conservative Party, 1975–1990 Leader of the Opposition, 1975–1979 Prime Minister, 1979–1990 Thomson, George 1921–2008 European Commissioner for Regional Policy, 1973–1977 Thorn, Gaston 1928–2007 Prime Minister of Luxembourg, 1974–1979 President of the European Commission, 1981–1985 Thorpe, Jeremy 1929–2014 Member of Parliament for North Devon, 1959–1979 Leader of the Liberal Party, 1967–1976 Tickell, Crispin b. 1930 Chef de Cabinet to European Commission President Roy Jenkins, 1977–1980 British Ambassador to Mexico, 1981–1983 DUSS, FCO, 1983–1984 Permanent Secretary, Overseas Development Administration, 1984–1987 Tindemans, Leo 1922–2014 Prime Minister of Belgium, 1974–1978 Foreign Minister of Belgium, 1981–1989 Tugendhat, Christopher b. 1937 Conservative MP for Cities of London and Westminster, 1970–1977 Member (latterly Vice President) of the European Commission, 1977–1985 Von Hase, Karl Gunther b.1917 Ambassador of the Federal Republic of Germany to the United Kingdom, 1970–1977 Wahl, Jacques b.1932 Secretary-General of the Elysée, 1978–1981 Walker, Peter 1932–2010 Conservative MP for Worcester, 1961–1992 Shadow Secretary of State for Defence, 1974–1975 Minister of Agriculture, Fisheries and Food, 1979–1983 Secretary of State for Energy, 1983–1987 Wicks, Nigel b. 1940 HM Treasury, 1968–1975 Private Secretary to the Prime Minister, 1975–1978 HM Treasury 1978–1983

Notes on Principal People xxiii Economic Minister, British Embassy Washington and UK Executive Director, IMF and IBRD, 1983–1985 Principal Private Secretary to the Prime Minister, 1985–1988 Williams, Shirley b. 1930 Secretary of State for Prices and Consumer Affairs, 1974–1976 Secretary of State for Education and Science, 1976–1979 President of the Social Democratic Party, 1982–1987 Williamson, David 1934–2015 MAFF 1958–1977 Deputy Director-General for Agriculture, European Commission, 1977–1983 Head of the European Secretariat, Cabinet Office, 1983–1987 Secretary-General, European Commission, 1987–1997 Wilson, Harold 1916–1995 Leader of the Labour Party, 1963–1976 Prime Minister, 1974–1976 Wilson, John 1924–2014 British Ambassador to Hungary, 1973–1976 British Ambassador to Portugal, 1976–1981 Wright, Oliver 1922–2009 British Ambassador to the Federal Republic of Germany 1975–1981 British Ambassador to the United States 1982–1986 Wright, Patrick b.1931 Private Secretary (Overseas Affairs) to Prime Ministers Wilson and Callaghan, 1974–1977 British Ambassador to Luxembourg, 1977–1979

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Introduction

It may have been an error of judgement that led the Governments of Attlee, Churchill and Eden to remove themselves from the negotiations culminating in the Treaty of Rome and the formation of the European Community. But it was not done by inadvertence. Professor Alan Milward, in the first volume of the Official History of Britain and the European Community, pointed to one of the paradoxes of the European Community. While the whole project arose from the determination to control dangerous nationalism, and while its objective was “ever closer union”, the effect of the creation of the Community was to make the nation state once again respectable. Far from abolishing national identity, the Community, as Milward described it, was not primarily the outcome of an emotional and political programme to replace the long domination of separate nation states over the European continent by some form of federal, supranational governance, but a set of high-level, political bargains between states whose primary purpose was to enhance the position of the nation state itself.1 The United Kingdom emerged from World War II with its economy all but shattered but with its political institutions proudly vindicated. There was no sense in Britain of a state that needed political repair. There was a feeling that the nascent European project held within it too many potential conflicts of size and interest to be sustainable. Britain’s political interests (by virtue of the wartime alliance, the common language, the North Atlantic Treaty Organisation (NATO), the struggle against Soviet communism, the remnant of empire and the global nature of British trade) were perceived as overlapping, but not coinciding, with those of “the rest of Europe”. Then, as now, most Britons would simply have said “Europe”, and not considered Britain to be part of the single entity implied by the words “the rest of”. In addition, UK political suspicions of the supranational aspects of the European Community ran deep. Britain’s sense of national identity was wrapped up closely with the significance of Parliament, both real and symbolic, in the nation’s life. Much of the history of England had been that of the struggle between the crown and the barons, and later the crown and Parliament, for power in the land. Parliament had cut the head off a king to assert its rights over taxation. When, in 1962, the Labour leader, Hugh Gaitskell, told his Party

2 Introduction Conference that membership of the European Community would spell “the end of a thousand years of history”, he had no need to explain to anyone in Britain what he meant. With rare exceptions, the decision to seek membership of the Community and the subsequent experience of that membership, were affairs of the head rather than the heart. Within a short time, following the creation of the European Community, the British concluded that they had failed to foresee the speed with which the UK’s trade with the Commonwealth would diminish, the extent and rapidity of economic growth in the EEC Member States and the degree to which the United States would see the European Community as an important democratic force of which, in their view, the UK should be a member. Prime Minister Harold Macmillan convinced a reluctant Cabinet in 1961 that the United Kingdom should apply for membership of the EEC, which had already been in existence for four years. Part of the motivation lay in that significantly faster growth in the Community countries, who had been compelled to reform by the requirements of the new customs union. Part of it lay in Macmillan’s appreciation of the “wind of change” that was sweeping away the empire; part in the painful lesson of the Suez crisis that the United States was a superpower and Britain was not. “We have to consider the state of the world as it is today and will be tomorrow, and not in terms of an outdated past”, Macmillan wrote in 1962, in a pamphlet entitled Britain, the Commonwealth and Europe.2 But Macmillan’s vision of Britain as part of an Atlanticist Europe in which the free world stood up politically against the menace of Soviet Russia, while that same Europe could compete economically with the United States, Japan and eventually China, was brought to ruins by the veto on Britain’s accession cast by President Charles de Gaulle of France in January 1963. Harold Wilson, the Labour leader who won the General Election of October 1964, was no instinctive European.3 The Labour Party in Opposition had opposed the terms of membership then being negotiated by the Conservatives. But, within months of coming to power Wilson, like Macmillan, became convinced that the United Kingdom could only advance its political and international interests through membership of the EEC. Even so, it was only after Wilson had massively increased the Labour majority in the General Election of 1966 that he was able to persuade the Party and a majority of his Cabinet to agree to renew Britain’s bid for membership. Once again, in 1967, President de Gaulle cast his veto, arguing, in effect, that Britain’s global, liberal trading policies and her close alliance with the United States made her unable to “moor alongside” the continent. The barely concealed sub-text was that the protectionist EEC customs union, whose central policy was the subsidisation of agricultural production, suited France admirably and would not withstand the accession of Britain and those other countries which would seek to join along with her. Moreover, the equilibrium of a Europe dominated by France and Germany would be upset by the accession of Britain. France’s five European partner countries disapproved of de Gaulle’s stance, but the Franco-German reconciliation on whose foundations the

Introduction 3 Community rested was of overriding importance to them. Moreover, the parlous state of the British economy made the UK a potentially problematic partner. When de Gaulle lost office in 1969, Wilson, whose policy in the face of the French veto had been “not to take no for an answer”, again pursued the British bid. The new French President, Georges Pompidou, was persuaded by the West German Chancellor, Willy Brandt, to open negotiations with Britain. But Pompidou first insisted on agreement being reached among the six founder members on what would be the definitive financing arrangements of the Community. The nature of those arrangements was such that it was clear that, if Britain joined, she and Germany would be the only members to make a net contribution to the Community budget. All the others would be net beneficiaries from the Budget. Such an arrangement was acceptable to Germany because it was the wealthiest Member State. Britain, on a per capita basis, was poorer than every one of the Six apart from Italy. The Wilson Government, and then the Heath Government that came to power in June 1970 after Wilson had lost a snap General Election, decided that the prize of membership was too important to allow it to founder on this inequity. They persuaded the Six to acknowledge that, should the financial costs to Britain of membership turn out to be as high as the British feared, then remedial action would have to be taken. For their part, the British privately concluded that, if necessary, they would renegotiate the terms of entry from within the Community once membership had been achieved. In negotiating British membership, Heath faced dissent from within his own Party and the outright opposition of the Labour Party, whose conversion to the European cause had always been tenuous. It was only by neutralising some of his internal opposition, and with support from Labour rebels, that Heath won support for the terms of UK accession. To prevent the Labour Party from adopting a policy of outright opposition to membership, and from committing a future Labour Government to leaving the EEC if returned to power, Wilson was obliged to promise that, if re-elected, Labour would renegotiate the terms of membership and put the results to the British people in either a fresh General Election or a national referendum. In February 1974, Heath called a General Election during a crippling coal miners’ strike in order to establish “who governs Britain”. The answer given by the electorate was to vote in the Labour Party under Wilson, albeit without an overall majority, though Labour did secure a tiny overall majority in yet another General Election in October 1974. Jim Callaghan, who had served as Chancellor of the Exchequer and Home Secretary in the Labour Governments of 1964-1970, was appointed Foreign and Commonwealth Secretary and, at his own request, was put in charge of the renegotiation of the terms of British membership. Wilson had promised that the British people would vote on the outcome of the renegotiation, and that undertaking soon took the form of a commitment to a nationwide referendum, the first in the United Kingdom’s history.

4 Introduction The motivation behind the renegotiation was rooted more in Labour Party politics than in national discontent with the terms of Britain’s membership. But the Labour Government did achieve some minor policy changes, none of which involved amendment to the Treaty of Rome or the UK Treaty of Accession. The most prominent concession made to Britain was the introduction of a mechanism to reduce the UK’s net contribution to the European Community budget if that contribution rose above a certain threshold. Unfortunately, the threshold was set at a level that meant that a mechanism which could in principle have reduced Britain’s growing budget burden was never triggered and therefore produced no practical benefits. Nonetheless, Wilson and Callaghan had done enough to convince the Labour Cabinet that they should recommend to the British people that the UK remain in the European Community. The Labour Party, at a special conference, voted against the deal negotiated by its own Government. In the 1975 referendum campaign, the three main political leaders, including the new Leader of the Conservative Party, Margaret Thatcher, all campaigned in favour of a “Yes” vote. They were supported by the bulk of the British Press. In the June referendum, 66% of those who voted (roughly two thirds of those eligible) voted so stay in. Harold Wilson resigned in the spring of 1976. Jim Callaghan was elected by the Labour Party as its leader and became Prime Minister. Labour had a waferthin majority in the House of Commons and soon lost that majority. The Labour Party and Government remained divided over Europe and, as this history will relate, Callaghan was heavily constrained in his aim of pursuing an active and positive European policy. By the time the Callaghan Government was forced, by a vote of confidence which they lost, into an election in May 1979, the European issue at the top of Callaghan’s agenda was the growing size of the UK’s net contribution to the Community Budget. Callaghan had raised the issue prominently in public and at a meeting of EEC Heads of Government. It was not, therefore, Margaret Thatcher who put it at the top of her agenda: it was an issue with which she had to deal as soon as she walked through the door of No. 10. This book tells the story of the last months of Wilson’s premiership, of the two years in which Callaghan was Prime Minister and of the first six years of Margaret Thatcher’s tenure. Those years were among the most combative, but also productive, periods of Britain’s membership of the European Community. They give their title (The Tiger Unleashed) to this volume. Those words came from Sir John Fretwell, a senior FCO official and later Ambassador to France, who experienced at first hand the ferocity of the Thatcher onslaught: “What we did not realise was that we were . . . unleashing a tiger”.4 The story has been told before, especially from the perspective of the principal protagonists. If you read the autobiographies of Margaret Thatcher and of Geoffrey Howe (Chancellor of the Exchequer and then Foreign and Commonwealth Secretary) you get two very different perspectives, coloured by time, political differences and personal animus.

Introduction 5 This Official History is not a retrospective attempt to gild the lily—to justify what was done. Its principal sources are the Government documents of the time, now publicly available. Those documents contain the thoughts, words, and actions of the key actors: officials and politicians. It is their story, not just as it happened, but as experienced by them, with all the uncertainties and emotions which surround big decisions and negotiations, in particular never knowing—but always trying to assess—what tomorrow will bring. I was a Foreign Office official and witness to some of these events. My experiences have informed what I have written but not, I hope, distorted it. The relationship between officials and Ministers is not that of equals. Civil Servants do not set policy. They provide the evidence on which Ministerial decisions are made and they advise on the implications of different courses of action. Sometimes, they give personal opinions. The relationship is a symbiotic one. The documents I have drawn on illustrate these relationships, their frictions and their intimacy. As an erstwhile practitioner, I like to think they also show that those involved in the business of Government were—as I am sure they still are—motivated by a sense of professional and patriotic duty which they mobilised in the service of the United Kingdom.

Notes 1 Alan S. Milward: The United Kingdom and the European Community Volume I: The Rise and Fall of a National Strategy, 1945-63 (London: Routledge, 2002). 2 See Stephen Wall: A Stranger in Europe: Britain and the EU from Thatcher to Blair (Oxford University Press, 2008) p.2 3 See Stephen Wall, The Official History of Britain and the European Community, Volume II: From Rejection to Referendum, 1963-75 (London: Routledge, 2013), 4 British Diplomatic Oral History Programme – Churchill College

1

The Spoils of Victory: 1975–1976

“The United Kingdom is in Europe, virtually for good” opined The Times on the morning of Saturday, 7 June 1975, and that comment reflected the general mood. By a two-thirds majority, the British people had voted in a referendum two days earlier to stay in the European Community that their country had joined a little over two years previously. The people, said Conservative leader Margaret Thatcher, “have looked at what really counts and they have voted that way. It is really thrilling.” As the relatively new Leader of the Opposition, Margaret Thatcher had played a significant role in the campaign. Prime Minister Harold Wilson was less euphoric, commenting, doubtless with relief after the years of internal division over Europe within the Labour Party, that “fourteen years of national argument are over”. His opponents in the Labour Party (indeed in his own Government) agreed with him. The most controversial of them, Tony Benn, accepted the outcome: “I have always said that the referendum would be binding. There can be no going back”.1 The referendum had been used by Wilson to manage what might otherwise have become an irreversible split within the Labour Party over Europe. The Labour Government had, as one commentator observed, brought in the people to defeat Labour vested interests that could not be defeated in any other way and, in doing so, Wilson himself had in effect called in the Conservative Party to redress the balance in the Labour movement.2 In the House of Commons, on 10 June, Wilson noted not only the high turn-out in the referendum and the clear and unmistakeable nature of the decision, but also the consistent pattern of voting over almost every county and region of the United Kingdom. “The debate”, he concluded, “is now over.” Margaret Thatcher joined “with Mr Wilson in rejoicing”. Jeremy Thorpe, the young, charismatic leader of the Liberal Party, caught the mood when he observed that “sometimes those who have been against us have been as much help as those who have been for”.3 It had always been uppermost in Wilson’s mind that, whatever the referendum outcome, he would have to deal with the wounds in his own Party and repair the damage between pro- and anti-Marketeers who, from within the same Cabinet, had campaigned on opposite sides. He effected only a minimal Cabinet reshuffle, moving Tony Benn from Industry to Energy and Eric Varley from Energy to Industry.

The Spoils of Victory: 1975–1976 7 At Cabinet on 9 June, Wilson affirmed the Government’s intention to play a full and constructive part in the European Community, including in its institutions. This would mean, so long as they agreed, that members of the Parliamentary Labour Party (PLP) should take up their seats in the European Assembly. The Foreign Secretary, James (Jim) Callaghan, was invited to prepare a paper for Cabinet in order to indicate the way in which the Government should approach the main issues of Community business. The more constructive the Government’s stance, Wilson said, the less likely it would be that the Government would be forced into a defensive posture on the less easy issues and the more likely they would be to handle matters to their advantage.4 Just such a paper was, needless to say, already drafted within the Foreign and Commonwealth Office, and duly landed on the Prime Minister’s desk four days later. It was characteristically cautious: Britain’s EEC partners were greatly relieved at the referendum result, but might now be inclined to expect too much of Britain, especially on institutional questions. Britain’s economic situation would impose constraints. The best way, therefore, to avoid giving the impression of foot-dragging would be to look for areas where the UK could play a positive part, and then to give a lead. The Community’s external policies offered the best opportunity, and the Foreign Secretary had, he wrote to Wilson, asked officials to study the scope for improving the arrangements for political cooperation (i.e. coordination of foreign policy). Not only, the paper argued, was this desirable in itself but it would help the Government to deal with the expected recommendations from the Belgian Prime Minister, Leo Tindemans, who was due to report to the December European Council on the future evolution of the Community. Tindemans was likely to focus, in particular, on progress towards direct elections to the European Assembly, to which the EEC was committed by its founding Treaty. Callaghan did not wish to be rushed into conceding an early move to direct elections. The first step must be to get delegated Labour members to take up their seats under the existing system, whereby members of the Assembly were nominated from their national parliaments. Thereafter, “we must make a thorough examination of the position we want to take up on the substance and timing of the matter, taking account of such wider factors as our devolution policy”. Callaghan also identified energy policy as an area where Britain’s own strong position (as North Sea oil came on stream) provided an opportunity to lead Community policies in a realistic and fruitful direction. “As you will have gathered”, Callaghan concluded, “the main drift of this is that we should be active and not passive; should give a lead in areas where our interests and our experience fit us to do so; and as there will be some institutional areas where we cannot agree with others, hope than an active policy will divert criticism”. Wilson did not respond, but his Private Secretary recorded that he had not dissented, which implies that he had at least glanced at a document which, in reality, told him nothing he did not know already know.5 Tindemans duly visited London on 30 June 1975, telling Wilson and Callaghan that he was interested in three main questions: In what fields

8 The Spoils of Victory: 1975–1976 should common European policies be developed? How should the institutions and the relations between them be developed? What should the final objective be? Of these three questions, the second was, said Tindemans, the most difficult. Most people, in Britain and in other European countries, were in favour of more common policies in energy, foreign policy and defence. But he had so far received very few satisfactory replies as to what the relationship and relative powers should be between the European Council, the European Commission and the European Parliament. The conversation between the three men proceeded amicably, and Tindemans was in any case there to take soundings, not to propound a thesis. Even so, he would have gone away with a very different perspective on the Community from the one he would have received from many continental Governments. Wilson asked about Economic and Monetary Union (EMU) which the EEC was formally committed to achieve by 1980. Tindemans commented that the date had always been over-ambitious. Wilson “agreed that the objective had proved to be overambitious”, which was not, of course, the same thing. Callaghan set out a typically British intergovernmental view of how the Community should be managed. The Commission was “a fifth wheel on the coach. Its competences derived from the Treaty but the Council was constantly encroaching on them since only the Council had the political strength deriving from the votes behind them.” Callaghan disputed the provision whereby the Commission alone could make legislative proposals. The Council too should have that right. The power that had already been lost by the Commission would be absorbed and exercised elsewhere, and that “elsewhere” should be the Council of Ministers. Tindemans noted that there were differing views around the Community. The French regarded the Commission as a kind of Civil Service, whereas others in the Community were strongly in favour of the Commission having its full powers as originally conceived. Callaghan thought this was a reflection of a difference of view between large and small Member States. The smaller Member States regarded the Commission as protecting them from the larger ones. He himself shared the French view. Callaghan also favoured joint meetings between the different formations of the Council of Ministers, with a view to preventing Agriculture Ministers from taking decisions unacceptable to their Governments as a whole. Wilson recalled that, at one European Council (Paris) German Chancellor Helmut Schmidt had virtually accused his own Minister of Agriculture of being responsible, not to the German Cabinet, but to an EEC-wide farm bloc. Tindemans noted a trend, as the Community prepared for direct elections to the European Parliament, to look for candidates who were fully independent and not members of their national Parliaments. Callaghan doubted if that would be acceptable in Westminster, where MPs would see directly elected members of the European assembly as a challenge to their own position. Westminster would guard its position very jealously. In any event, under the British constitution, the chain of authority would still be from the UK

The Spoils of Victory: 1975–1976 9 Parliament to Cabinet and thence to the Council of Ministers. If Europe was to work, authority had to be exercised where the power lay.6 This conversation took place as the European tectonic plates were shifting. On 19 July 1975, the British Ambassador in Bonn, Sir Nicholas (‘Nicko’) Henderson, reported a conversation with German Minister of State Hans-Jürgen Wischnewski. Wischnewski had spoken in the gloomiest possible way about what he called the underbelly of Europe. The Soviet Union was giving support in every way possible to the communist bid for power in Portugal (where the longstanding dictatorship had been overthrown in a military coup a year earlier). Money was being channelled to the Portuguese Communist Party through the German Democratic Republic. As regards Spain (where the regime of General Franco was teetering as the old man’s health failed), there were one hundred thousand underground members of the Communist party poised to take over. The situation in Spain might become even more rapidly worse than that in Portugal. Nor was Wischnewski sanguine about the outlook for Yugoslavia when Marshal Tito went. He thought that the Russians would be gloating over the prospect of undermining NATO without having to lift a hand.7 Henderson’s report was timely. The Swedish Prime Minister, Olof Palme, had just issued an invitation to Socialist leaders to meet in Stockholm to discuss the situation in Portugal. Callaghan’s Special Adviser, Tom McNally (in the days when only one Special Adviser per senior Cabinet Minister was the norm) had written a paper, which was sent on to Wilson, on the issue of Communism and West European Social Democracy. After tracing the history, McNally foresaw difficulty in obtaining a concerted Western approach to what were, in reality, a number of separate but related problems, varying according to the individual circumstances of each country, the differing strengths of individual national Communist parties and the varying moods of public opinion. France was a classic case of the difficulty of generalisation. The French Socialist Party had done all the dangerous things. It had worked out a common programme with the Communist party and had gone into an electoral alliance with it. It had offered to bring the Communist party with it into government. By the end of the 1960s, the French Socialist party had been moribund and in danger of extinction. Yet, now, it was the second Party of France, Socialist leader François Mitterrand was the acknowledged Leader of the Opposition and the Party had reasserted itself at national and local level. Indeed, it could be argued that the French Communists, by making the ‘alliance of the Left’ with the Socialists, had actually resuscitated the French Socialist Party and, in so doing, gratuitously provided itself with a rival for the allegiance of the French working class. Turning to Portugal, McNally argued that it should serve as a lesson when considering the far greater prize of Spain. In Portugal, the conspiratorial nature of communism had allowed for the take-over of key sections of society. The Soviet Union was both more decisive, and less squeamish than the West, in its use of funds. The Social Democratic parties of Western Europe had been slow to respond to initial Portuguese appeals for help. It was fortunate that the

10 The Spoils of Victory: 1975–1976 British Labour leadership had close personal links with Mario Soares, the leader of the Portuguese Socialist Party, without whom there would have been no focal point for opposition to a Communist takeover. McNally assumed that the German figure of 100,000 communists ready to move into action in Spain was guesswork. Nevertheless, Portugal had shown that the West could well face a similar situation in Spain, with a welldisciplined Communist party being given massive funds by the Soviet Union.8 That the Franco regime in Spain was still alive and capable of kicking was brought painfully to the fore when, in September, Franco rejected appeals from Pope Paul VI and the European Community to spare the lives of five men convicted of terrorist offences. At the Labour Party Conference in Blackpool, Callaghan detailed the steps he had taken to seek clemency. “There must”, he said, “be no aid and no comfort to the existing regime; there must be no prospect of any closer ties with Europe in any form; there must be no ending of Spain’s self-inflicted isolation . . . Spain is a country on the move . . . I firmly believe that the new Spain will shortly emerge from the sterile cocoon in which Franco has encased her . . . Let us send a simple message to the Spanish people: what you are experiencing is the death throes of a dictatorship. When the long night is over, your friends stand ready to welcome you and to work with you to build a new Spain based on human rights and democracy.” Callaghan (without consulting or even informing the Prime Minister in advance) summoned the British Ambassador in Madrid, Charles Wiggin, to London for consultations. At a meeting of EEC Foreign Ministers ten days later, Callaghan supported the European Commission’s proposal to suspend trade negotiations with Spain. “We got it through, against great French opposition”, Callaghan told Wilson in a telephone conversation. “Sauvagnargues [the French Foreign Minister] has no political tips to his fingers at all.”9 A month later, in November 1975, Lord Mountbatten suggested to the Prime Minister that he should have a word with the Spanish Ambassador in London, Manuel Fraga, before the latter left London to return to Madrid. To do so in Downing Street would have been politically awkward in the light of the stance the Government had taken towards Franco’s Government. So, Lord Mountbatten offered to host such a discussion in his own home. The Prime Minister would call on Mountbatten. The Spanish Ambassador would also be present. In its briefing for Wilson’s meeting, the Foreign Office, in expectation of Franco’s death and the planned accession of the young Juan Carlos to a restored monarchy, advised that the period after Franco’s demise would be extremely confused and difficult. The aim of British policy should be to encourage liberal tendencies in Spain, while not demanding rapid progress and taking care not to offend Spanish pride by appearing to patronise or interfere in domestic affairs. Fraga himself was said to have a considerable following in Spain on the Centre and Centre-right, and was likely to wield considerable influence on events (he became Deputy Prime Minister and Interior Minister in the first democratic Government following Franco’s

The Spoils of Victory: 1975–1976 11 death). He was also known to have strong views on Gibraltar and to favour the establishment of a timetable for the eventual transfer of sovereignty to Spain. “He fails in his calculations”, observed the FCO, “to make enough provision for accepting the views, and if necessary the veto, of the Gibraltarians. Successive British Governments have told the Spaniards that they should be wooing, not antagonising, the Gibraltarians.” At the meeting itself, on 12 November, Wilson let Fraga do most of the talking. When Fraga referred to Spain’s future relations with the EEC, Wilson told him that the UK and her fellow members of the Community were ready to extend the hand of friendship and cooperation to Spain and to help them achieve a democratic society. The one issue on which Fraga sought Wilson’s advice was on whether the trade unions in Spain, which were highly organised by the Franco regime, should be dismantled after Franco’s death. Wilson said that he hesitated to give any advice in view of his inadequate knowledge of the situation in Spain, but his inclination was that it would be both unwise and dangerous to dismantle the trade union organisation, since this would almost certainly open the way to Maoists and Trotskyists within the labour movement.10 But neither Spanish nor Portuguese accession to the European Community was first-order business. More pressing was the formal application for membership which had been submitted by the Greek Government and which was at an early stage of consideration in Brussels where, in accordance with the provisions of the Treaty of Rome, the Commission were required to give a formal Opinion for consideration by the Council of Ministers. It is interesting that Callaghan, as Foreign Secretary, contented himself at this point with circulating to the Prime Minister and other Cabinet colleagues an officials’ note from the Foreign Office. Its overall tone is—surprisingly in the light of the way enlargement was subsequently championed by successive British Governments—somewhat reticent and cautious. Callaghan was probably aware that Greece’s application would receive a mixed reaction among Cabinet colleagues and was keen not to be over-committed. But both he and Wilson had publicly welcomed the Greek application and the Prime Minister had assured the Greek Prime Minister that Greece had the UK’s strong support. Similar considerations were evident among Britain’s EEC partners. In a first discussion of the application among Foreign Ministers “no-one was prepared to take the odium of asking for a delay, or refusal”. From a purely British perspective, the note advised, Greek accession would add to the costs of the Common Agricultural Policy (CAP), both because of the extra market support required and because compensation for Greek competition in Mediterranean produce would be demanded by Italy and France. In addition, Britain’s receipts from the Social and Regional Funds would be adversely affected. Greece could be expected to be a net recipient from the Community budget to the tune of some £150 million a year, whereas the UK might have to contribute an extra £25 million a year, at 1975 prices.

12 The Spoils of Victory: 1975–1976 There would be other complications in the form of an additional Commissioner and Commission officials and an additional working language. The political problems associated with Turkey and Cyprus would be imported along with Greece. Nor did Greece share, to the same extent as the existing Member States, common legal, historical, economic and social conditions. Greek membership could be managed, but what if other heterogeneous potential members, such as Spain and Turkey, were to follow? Despite all this, the FCO concluded that, in legal terms, there were no grounds for opposing the Greek application, now that the country had returned to democracy. And Prime Minister Konstantinos Karamanlis was determined to tie Greece more closely to the West (which was precisely why the Greek Communists were opposing the application). So, a rebuff to the Greeks from the EEC would have important and negative consequences for the West, for Europe and for the UK. In conclusion, the FCO advised, “we would only have done ourselves harm, and run some grave political risks, had we tried to stand out in the Community against the Greek application. But while, for this reason, all of our actions which may leak or become public, must be consistent with the firm support which the PM and the Foreign and Commonwealth Secretary have given the Greek application, we need not make any special effort to hurry negotiations which are bound to be protracted”. Wilson agreed with this assessment and its recommendations. Perhaps not surprisingly, the only two comments from other Cabinet ministers came from either side of the debate about Britain and the EEC. The pro-European Shirley Williams, Minister for Prices and Consumer Protection, argued that “any difficulties will be outweighed by the political advantages of drawing Greece more closely into the European Community. The greatest of these advantages seems to be to be that membership of the Community would be a considerable barrier against any backsliding into dictatorial regimes as far as the Greeks are concerned.” The Secretary of State for Employment, Michael Foot, did not disagree with the approach set out by Callaghan, but pointed out the failure of the paper to make any mention of the manpower implications of Greek membership: “We shall need to watch the implications for the UK of extending to Greece the Community’s provisions for free movement of workers, and this in turn will need to be considered in the context of the Community’s obligation to introduce free movement of labour with Turkey.”11 As the momentous year of the British referendum drew to a close there were clear signs that familiar issues were being treated in familiar ways and that the old battle lines between pro and anti-EEC Government members had not been significantly redrawn. On the positive side of the equation, at the meeting of the European Council in early December, Wilson made some progress in the policy first proposed by Roy Jenkins, the Home Secretary, for collaboration at EEC level in the fight against crime. Wilson secured the agreement of other Heads of Government for the first joint meeting of EEC

The Spoils of Victory: 1975–1976 13 Interior Ministers to discuss law and order; to which agenda the French President, presciently, added the issue of rights of asylum. The French President also agreed to the principle of emergency oil sharing and that there should be a minimum selling price for oil (MSP), a concept which, at the time, suited Britain as North Sea oil came on stream but was soon overtaken by the realities of the marketplace. Wilson had a less sympathetic hearing when he raised the possibility that, faced with the imminent bankruptcy of Chrysler in the UK, the British Government might need to introduce controls on car imports from the rest of the EU. The Commission President, so Wilson reported to Cabinet, had been notably unhelpful and other Heads of Government had not given Wilson any support. Wilson and Callaghan were also in a minority (with Denmark) in being unable to commit to the introduction of direct elections to the European Parliament, to be held on a single date in May or June 1978. Cabinet had discussed the issue on 18 November, with divisions on predictable lines. The sceptics in Cabinet argued that bringing a proposal for direct elections before the House of Commons would reopen old controversies. A directly elected Assembly might bolster the influence of the Commission against the Council of Ministers and national Parliaments. The implications would need to be fully discussed in Parliament in the light of the major constitutional issues involved, including the impetus that direct elections might give towards a federated Europe. The pro-Europeans in Cabinet argued that the UK was committed to direct elections by virtue of the Treaty of Rome and the outcome of the referendum. Their main effect would merely be to legitimise and make more democratic the powers already enjoyed by the Assembly. Any further extension of the powers of the Assembly was a quite separate issue, which would be for later decision and over which the UK would have a veto. Wilson summed up that “the issue of direct elections raised complex and difficult issues on which we should need to proceed slowly and with caution”. But he went on to say that “Cabinet accepted that we were committed to direct elections” though, at the European Council, he would not enter into any commitment at this stage.12 Wilson attempted, in reporting to Cabinet on 4 December on the European Council, to slide over another vexed question, that of a uniform European Community passport, intended to give tangible evidence of European citizenship and to be a step on the road to a frontier free Europe. He noted that the European Council had agreed that a uniform passport might be issued as from 1978, and had asked the Foreign Affairs Council to resolve all the outstanding issues “including the difficult issues of the abolition of frontier controls and the harmonisation of conditions of entry”. But the sceptics jumped on this, arguing that “as represented in the media, the decision of the European Council on passports, in particular the proposal that a Community passport should have the words ‘European Community’ at the top, was likely to arouse nationalist reactions in this country. Moreover, the practical utility of a

14 The Spoils of Victory: 1975–1976 European passport was open to question.” Wilson did not attempt to arbitrate, merely pointing out that the whole range of technical issues which remained to be resolved would need to be studied further by the Council of Ministers.13 One other issue weaves its tortuous way through the archives of 1974–1976: that of the possible nomination of a British candidate to be President of the European Commission. Neither Wilson nor Callaghan emerges from the story with great credit though, in a small way, it illustrates the realities of party politics. The saga began on 28 October 1974 when Sir Christopher Soames who, with George Thomson, was the first of Britain’s EEC Commissioners following accession, called on Harold Wilson. There was some uncertainty over whether the then President of the Commission, M. François-Xavier Ortoli, would step down at the end of 1974 or continue for a further year or two. Soames posed the question whether other members of the Community would accept a British President, and whether such an appointment would be useful in terms of British public opinion. Wilson replied that he thought it would be “marginally useful”. In reporting the exchange to the Foreign Office, Robert Armstrong, Wilson’s Principal Private Secretary, recorded that he thought Soames would have carried away from the meeting “an impression that [the British Government] would not be averse to the appointment of Sir Christopher Soames as President.” Inside the Foreign Secretary’s office, however, matters were seen somewhat differently. The Foreign Office had advised the Prime Minister to tell Soames that “it was perhaps not a very propitious moment to consider the possibility of a British President replacing Ortoli at the end of the year”. The Foreign Secretary had authorised the Permanent Under-Secretary, Sir Michael Palliser, to convey a message in that sense, “if we thought it necessary”. In fact, Palliser had not had a chance to convey any such message before Soames came to London. Soames had called on Callaghan immediately after seeing the Prime Minister but neither man had raised the subject. Meanwhile, Soames’s chef de cabinet, David Hannay, had telephoned Callaghan’s office and, according to John Weston, one of Callaghan’s Private Secretaries, had told Weston that Soames did not cherish any ambitions to the Commission presidency “at the present time” and was not therefore expecting anything particular to be said on the subject. A day or so later, Hannay telephoned Weston, on Soames’s express instructions, to disavow the advice he had earlier given. In the light of what the Prime Minister had said to him, Soames, said Hannay, now regarded the question of the presidency as ‘under study’ by HMG and not closed. So long as the last word on the subject was what the Prime Minister had said to him, Soames was “not prepared not to take the question seriously”. Hannay told Weston that some clear confirmation of HMG’s view, preferably coming from Callaghan, was now called for. Wilson and Callaghan duly discussed the issue at the beginning of November and agreed that the position of HMG should be that, in view of the uncertainty over Britain’s continued membership of the EEC until after the end of renegotiation and the referendum, it would not be appropriate for one of the British Commissioners to take over from Ortoli at this point. If Britain remained

The Spoils of Victory: 1975–1976 15 in the Community “it might then be appropriate for a British Commissioner to succeed Ortoli but that can only be judged at the time”. Palliser conveyed the position to Soames who “gave every appearance of being content” but Soames went on to say that, while it would not have suited him to be made President on 1 January 1975, “the PM had said to him that, if there was to be a British President he thought that it should be Sir Christopher Soames himself”.14 There the matter rested until, in June 1975, Ortoli made clear that he would not stay on as President of the Commission beyond the end of 1976. In November 1975, Soames called on Wilson in the latter’s office in the House of Commons. Patrick Wright, Wilson’s Foreign Office Private Secretary, recorded in a letter to the FCO that the PM “told Sir Christopher Soames that he had already told Ortoli that, if it were up to him to nominate the next President of the Commission, he would certainly nominate Sir Christopher. He did not, however, wish in any way to influence Sir Christopher’s own political decisions. If there was any way in which the PM could facilitate Sir Christopher’s return to British politics (e.g. by sending a sitting Conservative MP to the Lords) he would gladly facilitate that.” Soames had said in reply that he would only wish to take on the job if it was clear that he could work in close cooperation with French President Valéry Giscard d’Estaing and Helmut Schmidt, Chancellor of the Federal Republic of Germany. He encouraged the PM to sound them out. This Wilson did at the summit meeting which took place in Rambouillet later in November 1975, making clear to both men that, if Soames wanted the Presidency, “the PM would himself wish to support him”. Wright recorded that both Schmidt and Giscard “took note of what the PM had to say and undertook to bear it in mind”. This was not exactly an enthusiastic response, and when, a few weeks later, Wright spoke to a member of Schmidt’s office, the latter was clear in saying that the German Government wanted the job of Commission President to be held by what they termed one of the ‘main members’ of the EEC. For this reason, the German Government would not support the candidature of Dr Garret Fitzgerald, the Foreign Minister of Ireland, as proposed by the Irish Government. But the German was equivocal about whether this view would translate into German support for Soames. Schmidt, Wright was told, would probably support Soames but wondered whether the British Government would not wish to propose a Labour supporter. Despite this lukewarm German reaction, Wilson reaffirmed to Wright that he remained prepared unequivocally to support Soames for the job. Shortly thereafter, however, things started to unravel. Callaghan, who undoubtedly knew the extent of Wilson’s commitment to Soames, claimed in a conversation with Wilson on 19 December 1975 that he had not previously discussed this question with anyone else in the FCO. It had, however, become known that the PM had spoken to Soames about the Presidency, and Callaghan had received very indignant approaches from both Roy Hattersley, Minister of State for Europe, and Tom McNally, Callaghan’s special adviser.

16 The Spoils of Victory: 1975–1976 He had been shaken by the strength of their conviction that the Labour Party would resent a Conservative of Soames’s prominence in this job, and that his nomination would set back the European cause in the Party. Both Hattersley and McNally, Callaghan said, believed that George Thomson would be acceptable to the rest of the Party. Wilson and Callaghan agreed that Soames should be told that the PM had spoken to both Giscard and Schmidt but that the issue was still under discussion. When Wright relayed this last piece of information, Soames commented that, so far as his relations with the Prime Minister were concerned, he had been offered the job and had accepted it. “He wondered therefore whether there might be some difficulty with others here. He hoped Wright (i.e. the PM) was under no illusion that, if it went wrong for internal reasons in this country, he would think it very odd in view of what had already been said to him.” One month later, Wright warned Wilson that Callaghan remained very firmly opposed to Soames’s candidature and that, the longer the issue remained unresolved, the greater the risk that the job would go elsewhere in the Community by default. This would be a very great mistake, most particularly if the alternative candidate were to be Garret Fitzgerald. On 18 January 1976, Callaghan discussed the issue directly with Schmidt. Schmidt thought that the British could assume that it would be agreed by all concerned that the next President of the European Commission would be British. He was not necessarily suggesting that this should be Soames. Nor would it have to be any present member of the Commission (evidently meaning George Thomson). Schmidt went on to say (evidently also reflecting the view of Giscard) that there might be some feeling against Soames’s candidature ‘since he was always getting himself into the headlines. What was needed was a ‘quiet, effective operator.’ George Thomson himself clearly remained interested in the post and approached Callaghan about it. Callaghan was undoubtedly well aware of the bad blood between Wilson and Thomson. Thomson had negotiated his original appointment to the Commission with Edward Heath when the latter was Prime Minister and had at no stage consulted Wilson, Leader of his own Party. This, Wilson had neither forgotten nor forgiven.15 Probably for this reason, Callaghan passed the ball firmly back to Thomson, telling him that if he was seriously interested in the job, he must write to the Prime Minister about it. Thomson’s subsequent letter to the PM acknowledged that he had ground to make up with Wilson: “I should be proud to serve as President if you wished me to do so. I am conscious that my taking on the Commissioner’s post was at the time a matter of controversy in the Party and I was particularly sorry that it added to your problems in your successful efforts to keep the Party together.” Even if Wilson had been willing to forget the past, the caravan had by then moved on, leaving both Thomson and Soames behind. Callaghan and Wilson had privately discussed alternative names for a British candidate. It was against that background that, when Home Secretary Roy Jenkins went to see Wilson on the evening of 22 January on routine departmental business, Wilson raised

The Spoils of Victory: 1975–1976 17 with him the subject of the Commission Presidency. Wilson told Jenkins that there was a predisposition in the EEC in favour of a British candidate, but not just any British candidate. Schmidt and Giscard had reacted unfavourably to the suggestion of Christopher Soames and had more or less said that the British could confidently put forward any candidate they liked, provided it was Heath or Jenkins. Wilson did not reveal whether he had said anything to Heath, but it is most improbable that he had because of the mutual animosity between them and because, if the Labour Party was liable to react adversely to Soames, they would have been apoplectic about Heath. At all events, Wilson offered Jenkins the job, while adding that he rather assumed that Jenkins would not want it and that he himself hoped that this would be the case.16 Jenkins had had a tip-off that Wilson was preparing to resign within two months and knew, therefore, that, while his own prospects of becoming the next Party leader, and therefore Prime Minister, were not high, he had every interest in competing for the top job. So, without revealing his inside knowledge, he effectively declined the offer of the Commission Presidency.17 However, on subsequent reflection Jenkins decided that his interest lay in procrastination, and he therefore wrote to Wilson on 26 January 1976 to say that he was “now less sure about the negative answer than I was on Thursday. If, as appears likely, there is no major foreign policy, economic or constitutional role which I can play in this country, I think that, despite my dislike of the place, I ought seriously to consider whether I could not best spend the next few years in Brussels.” This was scarcely an enthusiastic application for the job but, as Jenkins himself wrote: “I would have preferred to be Prime Minister of Britain than President of the European Commission. Who would not?”18 The line which Callaghan, who must have known of the conversation with Jenkins, started to take with other EEC colleagues was that the British would certainly have a candidate to put forward but they had no name yet to suggest. All of this left Soames swinging in the wind. To his credit, Patrick Wright, Wilson’s Private Secretary, took the opportunity of a conversation between Callaghan and Wilson to suggest to the PM that he might see Soames to explain his current thinking. But Wilson declined, instructing Wright to say nothing unless and until Soames himself made an approach. That approach was not long in coming. Soames telephoned Wright on 17 February offering to meet the PM. Wright told Soames that he did not think this was the right time for a talk and that the PM would prefer to wait until after the forthcoming meeting of the European Council. Soames expressed some concern at this and hoped Wilson would see him before then. He was hearing ‘stories’ from his friends on the Continent and would certainly wish to hear from the PM if there was any question of a switch in the PM’s position since he had last spoken to him. Wright, who throughout clearly tried to do the decent thing by Soames, attempted to persuade Wilson to see Soames to tell him where the land lay, but Wilson prevaricated by asking Wright to seek Callaghan’s view. That view was that the PM should indeed tell Soames of the change “perhaps not earlier than

18 The Spoils of Victory: 1975–1976 the week beginning 1 March—for reasons he will understand”, presumably a reference to Wilson’s intended resignation as Prime Minister, of which Callaghan was by now informed. So nothing was said to Soames, who, days before what turned out to be the date of Wilson’s resignation, complained to Sir Donald Maitland, the UK Permanent Representative to the EEC, that he had heard nothing from the Prime Minister about his future since their talk in the House of Commons the previous autumn.19 Wilson’s resignation on 16 March 1976, Callaghan’s subsequent election as Labour Leader, and therefore Prime Minister, and his decision not to offer Jenkins the post of Foreign Secretary (which Jenkins might have accepted given the uncertainty over the Commission job) put paid to Soames’s prospects.20 The whole matter was succinctly summed up by David Hannay, Soames’s chef de cabinet in Brussels: “It seemed as if the choice could well fall on Christopher Soames, his relationship with Harold Wilson being good ever since Wilson had sprung the surprise of appointing him to the Embassy in Paris . . . But the unexpected resignation of Wilson early in 1976, the choice of James Callaghan, no admirer of Soames, as his successor, and the likelihood that Roy Jenkins, who had been one of those who lost out in the succession race, would be the candidate for the Presidency of the Commission put paid to all that.”21 Bernard Donoughue, head of Wilson’s policy unit in Downing Street, had also hit the nail on the head in a diary entry for 21 January 1976: “A curious situation has arisen for Roy Jenkins. President Giscard of France has suggested to HW that Roy be next President of the EEC. Schmidt, who would prefer a pro-German, has suggested Healey [Chancellor of the Exchequer]. (HW was committed to Christopher Soames, Callaghan wants Thomson and doesn’t want Soames. HW won’t have Thomson.)”22 Since Jenkins was the first, and will almost certainly be the only, Briton to hold the Presidency of the European Commission, this footnote to Britain’s EU story is worth recording, not least for the light it sheds on those involved. But it was not, of course, the central preoccupation of the Government in early 1976. The state of the economy was a constant concern and the future of Rhodesia was a central foreign policy issue, while the Press were mesmerised by revelations about the affair between Liberal Party leader, Jeremy Thorpe and the model Norman Scott, and the subsequent attempts to silence Scott permanently. In the EEC, the start of 1976 was marked by the publication on 7 January of the report by Belgian Prime Minister Leo Tindemans on European Union. The initial reaction of Foreign Office officials was one of relief: Tindemans had produced “a reasonable and pragmatic piece of work” containing “no grandiose ideas for institutional change”. But further analysis was marginally less sanguine. For the report, especially when viewed from the perspective of subsequent developments, signalled a direction on several issues which successive British Governments would find problematic. In an initial comment to Callaghan as Foreign Secretary, Michael Butler, the FCO Under-Secretary responsible for EEC policy, credited Tindemans with making “an intelligent attempt to bury

The Spoils of Victory: 1975–1976 19 the long standing quarrel between federalists and anti-federalists. In the process, while declaring himself a federalist, he has in fact conceded the whole of the pragmatists’ case.” Individual sections of the report would, Butler thought, undoubtedly attract criticism in the UK. But, viewed as a whole, the Report should help to defuse some of the anxiety about what European Union might involve. Tindemans’ approach involved the gradual coming together of Community countries, not their subordination to, or absorption in, some new supra-national institution. The report would not set the Community lurching down completely untrodden paths but could, rather, be seen as the opening of a new phase in the continuing debate about how the Community should evolve. In short, at first reading “Tindemans has produced a reasonable, and not unrealistic, piece of work which should make a modest, but positive, contribution to thinking about the Community’s future, even if parts of it are not particularly to our liking”. Tindemans had indeed produced a report which, in his own words, was neither a draft constitution nor a description of an ideal Europe. But nor was it a list of lowest common denominators. Rather, he saw it as a set of policy recommendations which, taken as a whole, would bring about that qualitative change in relations between the Nine which would amount to European Union. That was the kind of organic process which the British could accept, but some of the individual ingredients were clearly, and would become, problematic. Butler identified the difficulties as being: “that we should commit ourselves to act together on certain foreign policy questions; that bilateral aid should progressively be turned into Community aid; that the Nine should have regular exchanges of views on defence problems and that a European armaments manufacturing agency should be established; that the debate on EMU should be reopened and that the Snake should be the basis of future progress, with a two-tier approach to those Member States inside and outside it; that there should be more majority voting.” Butler recommended making it clear that the principle of a two-tier Community was not attractive to the British Government, both because it was politically undesirable for Britain to be put in a second tier, and because convoys needed to move at the speed of the slowest ship if they were not to be separated for ever. The UK would also need to reinstate progress towards economic convergence as an equal, if not higher, priority than the use of the Snake mechanism as the starting point of action on EMU.23 Of Butler’s list, only the armaments manufacturing agency was never to reach lift-off. The Tindemans Report was but one catalyst for thought about the future development of the EEC and of Britain’s role within it. It is perhaps a reflection of a lack of political impetus, and not just of the slow workings of the official machine, that it took almost six months for a reply to be given to Callaghan’s request to the Cabinet Office (made in July 1975) for “an account of how official thinking was approaching policy objectives within the European Community and the associated question of any initiatives which Britain might take in the period up to the end of the UK Presidency in the first half of 1977”.

20 The Spoils of Victory: 1975–1976 Roy Denman (Head of the European Secretariat in the Cabinet Office with the rank of Second Permanent Secretary) sent the report to Callaghan just before Christmas 1975, and to No 10 early in the new year. It was the result of “a good deal of interdepartmental work”. Its opening paragraph set the tone: “Now that we have decided to remain in the European Community, what do we want to make of it? In the short term, of course, our attitude is one of vigilant defence of our interests, seizing what opportunities we can to turn particular policies and situations to our advantage, and with public opinion opposed to closer integration in any federalist sense. But what do we want in the longer term? The British do not like answering questions of this kind. Lord Salisbury once defined British foreign policy in terms of drifting gently downstream and fending off obstructions with a boathook. This approach was not without its advantages in the days of splendid isolation. But our power is no longer splendid and we are no longer isolated. We have joined eight others on a journey to an unknown destination . . . We need to assess carefully the nature of the tides against which we shall have to contend, the direction in which we want to go and the steer which we shall want to give to the boat . . . What do we want the Community for?” The officials’ answer was: as a power base for external action; to domesticate the energies of Germany by preventing the Community’s domination by Germany or the dominance of a Franco-German axis; to provide Britain with a large, near, rich and tariff-free home market; to provide a safety net in case of real trouble, since the Community “has almost as vested an interest in our survival and prosperity as a nation as we have ourselves”; and as a rich, largescale developing organisation which we can turn to our advantage e.g. on energy policy, industrial policy and agriculture, “if we have a clear idea of our objectives and the skill and willpower to reach them”. The paper assessed that the EEC had built on its Customs Union base by developing an external commercial policy, though it was not yet complete. But in other, mainly internal, fields the progress made thus far by the Community had ranged from the limited to the non-existent. The programme for progress towards European Monetary Union (EMU) in 1980, decided in 1971–72, had had to be abandoned.24 Little had been achieved in the formulation of a common energy policy. Progress towards an industrial policy to reduce obstacles to intra-Community trade had been extremely slow. A Regional Fund had been set up, following years of debate, but remained small by comparison with expenditure by the Member States, particularly the UK. Progress had been made in Social Policy and the UK had gained a satisfactory share of the Social Fund. Little progress had been made in environmental and transport policy. As to Britain’s own economic position and prospects, these were gloomy. Britain continued to run a substantial trade deficit with the rest of the EEC. The balance of payments situation was serious. Unemployment was expected to rise to 1.5 million by the end of 1976. In substantial areas of manufacturing, Britain was not competitive. North Sea oil would help but, for the next two years, Britain’s industrial situation would be one of slow convalescence.

The Spoils of Victory: 1975–1976 21 With this fairly dismal backcloth, the paper not surprisingly outlined a series of limited aims: to maximise the opportunities for British exporters, while avoiding increased competition of any dangerous kind on the UK market; further CAP reform, while recognising that fundamental changes were not a practicable proposition; ensuring that the UK secured its full share of the Regional Development Fund (RDF); reducing barriers to business activity between Member States including the harmonisation of company law where this could improve opportunities for British business; eliminating non-tariff barriers; making progress towards a common energy policy based on the gaps revealed by consideration of Member States’ national programmes rather than starting (as was then the case) from theoretical planning by the Commission. The paper acknowledged that the British Government was committed by virtue of the communiqué of the 1974 Paris summit to the goal of economic and monetary union. But the goal was a distant one and, to British eyes, implied a convergence of economic performance, policies and national priorities (e.g. the trade-off between inflation and unemployment) which did not exist; a transfer of resources from richer to poorer Member States; and a transfer of national sovereignty to Brussels for which neither British nor (despite the rhetoric) Continental public opinion was ready. Nonetheless, officials believed that a plan for the transfer of resources over the next few years, which could ease progress towards EMU, might be negotiable. The paper identified the issues where Britain would be on the defensive, the first being “the need to bear constantly in mind our enfeebled economic state and the need both to avoid where possible over the next couple of years any increased competition . . . and to preserve as much goodwill as we can among our Community partners against the possibility that we might, in further economic difficulties, need their help”. But the main area where Britain would be on the defensive was that of closer European integration. In all the talk of integration by Britain’s continental partners there was a good deal of inbuilt rhetoric. But, behind the rhetoric, were some real pressures. “For our Community partners, folk memories are different. Ours were formed, not only by the unemployment throughout the 1930s (which several of our European partners were, for different reasons, spared in full measure) but by our isolated and successful stance in the war. For our continental partners, frontiers collapsed in 1940—or in 1945—like the walls of Jericho. So they attach less importance to them, and more to a growing unity, than we do. Against this political background, a Customs Union with a CAP has a certain inbuilt dynamic towards closer integration. Businessmen will slowly perceive that the abolition of tariffs is only half the story when it comes to freeing trade. They will press over the years for the removal of technical barriers [including] eventually taxation . . . Of course, when they realise the full consequences— in terms of sovereignty and fixed parities—they will flinch. But the flinching is not for today and not always for tomorrow. The decisions of the European Court of Justice (ECJ) will have a growing influence. These decisions will have a strong communautaire and supra-national flavour and will move the Community quietly but steadily in the direction of further integration. There

22 The Spoils of Victory: 1975–1976 will be a build-up of pressure in the Community towards some form of closer union. As the Federal Chancellor [Schmidt] reaffirmed in his message of 15 November to the PM: ‘the long term objective of the Federal Government’s European policy remains the establishment of a European Federation embracing European Economic and Monetary Union’.’’ The paper went on to outline the beginnings of a possible strategy. Sir Michael Palliser, at this point Permanent Under-Secretary at the FCO, but hitherto Britain’s first Permanent Representative to the EEC, had argued in one of his last despatches from Brussels that the UK could probably postpone, but not prevent, moves towards EMU. An alternative approach would be to start to impress on other Member States and the Commission what preconditions would need to be satisfied for Britain to join in a resumed move towards EMU. The principal such condition would be far greater transfers within Europe to the less prosperous areas—mainly Ireland, southern Italy and the UK. The officials’ paper foresaw three major difficulties in this, otherwise commendable, approach. The first was likely to be opposition from Germany to the disbursement of substantial sums for regional and social purposes since the Germans “tend to hold that these are simply a form of charity which the FRG can ill afford”. Secondly, to be seen to make progress towards EMU, the UK would have to join the Snake. This was not practicable until Britain’s rate of inflation had dropped to the level of her main Community partners. Even then, such a move would raise substantial domestic political difficulties. Thirdly, any concession by the UK in the direction of EMU would imply a cession of sovereignty for which public opinion was not ready. Officials then abandoned their previous logic by arguing that the UK might, in effect, have the gain without the pain. The scheme which they outlined was based on the idea that Britain had a major problem of industrial restructuring to contend with unlike that of other Member States. North Sea oil would take some of the strain but, if Britain were to face de-industrialisation on a scale that would turn it into one of the poorer (and semi-pastoral) regions of Europe, this would pose a threat, not just to the development, but to the very cohesion, of the Community. So, to deal with this problem, the Community should establish a new fund (the European Industrial Development Fund) to which countries in the Community with above average rates of growth would contribute and which, in turn, would be made available through cheap loans to Member States in deficit. The loans would not be used to finance consumption, but to cushion the balance of payments effects of large-scale new investment designed to promote industrial restructuring. The fact that the UK would be contributing to the financing of the fund at a rate of some 20% were it to be financed through the Community budget was a problem. But officials envisaged instead that the fund would be financed by the wealthier Member States outside the Community budget. In a rather touching demonstration of understatement, officials concluded that the likelihood of other Member States accepting such a proposal was ‘far from certain’. The French, in particular, would doubtless be difficult. No

The Spoils of Victory: 1975–1976 23 particular reasons for this presumed French obstruction were advanced but, given the history of Anglo-French confrontation over British accession to the EEC, perhaps no explanation was necessary. The concluding argument in the officials’ paper was optimistic: “if a plan on these lines could be worked out it would, particularly at the present time of great strain on the UK economy, have some very substantial advantages. But if it were refused, we should have the tactical advantage of being able to say that we had made constructive proposals on a Community basis for tackling difficulties fundamental to the development of the Community. And if these were not accepted, it would not in our view be realistic to envisage any further advance towards EMU, in particular, or towards closer integration in general; there would be little point in arguing about the nature of the roof when the foundations had not been laid. So, either way, a UK initiative on these lines would have substantial advantages.”25 Variants on this theme were to be a constant of British policy objectives for the best part of a decade. For quite a long time, increased receipts from the Structural funds were seen as the main answer to Britain’s budget problem, until it was realised that the amounts needed to produce an equitable outcome were much larger than any available funding. At the foundation of the Exchange Rate Mechanism (ERM) in 1977/78 Jim Callaghan, as Prime Minister, was to make similar arguments about economic redistribution—to no avail. What is also striking is the extent to which the referendum result produced no new, different, positive thinking about the nature of the EEC and Britain’s place in it. Officials are rarely given to blue skies thinking, not because they are incapable of it, but because their thinking, to be entertained by Ministers, has to be framed within the parameters of the politically receivable. Both Wilson and Callaghan were Europeans by intellectual conviction, not by emotion or instinct. The work by officials in 1975/76 reflected the climate. Wilson was by this stage coasting towards retirement and, while he read the paper, he made no comment on it. Callaghan’s political record, both on Europe after Labour’s defeat in 1970, and before that in his opposition to the attempts at trade union reform led by Wilson and Barbara Castle, had been that of a man with an ear acutely tuned to sentiment in the Labour Party. Only as Prime Minister would Callaghan rise above Party in his determination to save the British economy from disaster. In a detailed annex, the official paper analysed British interests on the CAP, the Common Fisheries Policy and Industrial Strategy in familiar terms. It was hard-headed on the issue of Greek accession. The Commission’s formal Opinion was expected in the near future and the rest of the year would be spent on agreeing a Community mandate for the negotiations. The paper noted that the Government had welcomed the Greek application and had assured the Greeks of full British support. The Government’s general approach would have to be consistent with that commitment. But Greek membership would face the UK and the rest of the Community with difficulties especially, as far as the UK was concerned, in ensuring that British receipts from the Regional and Social funds were adequately protected.

24 The Spoils of Victory: 1975–1976 As usual, given the politics, when it came to looking at what the paper had earlier termed “the nature of the roof”, the surveyors sucked their collective teeth. “Consideration of Community policies has always been bound up with arguments about institutions. In general, this is unwelcome to us: the present arrangements concentrate power in the Council of Ministers, which is what we want.” This meant that the British interest lay in confining further evolution to the encouragement of minor improvements in working methods. Other Member States—and indeed Tindemans in his report—favoured more frequent use of majority voting. Britain would want to ensure that this did not get carried too far. But nor did Britain want to upset the coherence of the EEC’s institutions. The role of the European Council suited Britain well. But the smaller Member States feared that an increased role for the Heads of Government would favour the larger members at their expense. So Britain should not exacerbate those fears by unrealistic moves towards a directorate of major states. Nor, of course, did Britain want any moves towards a two-tier Community of the kind that Tindemans had implied. As for the Commission, any attempt to cut it down to size would lead to serious friction with the smaller countries. But the Commission’s role was anyway far smaller than that intended for it by the Community’s founders and, on the whole, it now served the Community well. As for the European Assembly, it had recently acquired new powers, particularly over expenditure, and any greater increase would not appear to be in the British interest. Any such prospect should be postponed until well after the question of direct elections had been settled. Officials noted with satisfaction that progress on EMU had been slow and seemed likely to remain so, not least because the strong economies were not ready to accept the necessity of massive transfers of resources to promote convergence. The UK need not be completely negative: it could join in discussions of a technical nature; but the general lack of progress towards EMU had not been unwelcome given the state of the British economy. The paper ended with some comparative statistics. In 1960, out of what were now the nine Member States of the EEC, the UK had been the richest apart from Luxembourg. National income per head had been £453 for the UK, £424 for Germany, £429 for France and £420 for Belgium. In 1973, the UK was the third poorest in the Nine (after Italy and Ireland). National income per head was £1159 for the UK, £1742 for Belgium, £1769 for France and £2055 for Germany. Between 1960 and 1973 the UK’s average growth rate (3.3%) had been the lowest of the Nine. Growth in the other Member States had ranged between Ireland (4.1%) and France (5.9%). The UK’s share of Community GNP had been: 1961: 25.6% 1971: 19.4% 1980 (as forecast in 1975): 14%.26

The Spoils of Victory: 1975–1976 25 At the time Whitehall was producing these statistics, Wilson, attending a meeting of European Social Democratic leaders in Copenhagen on 19 January 1976, was able to report that British inflation over the previous six months had been at 14%—a big improvement over the 36% figure of the previous Spring. Schmidt, however, noted somewhat tartly that those countries which had stuck to the Snake had had a much better performance than those who had not. Membership of the Snake meant that the need to maintain a certain ratio between one’s own currency and other currencies made economic discipline essential. One only had to look at the performance of Italy, Ireland, Spain, Portugal and, most particularly, Britain, to see how poor the economic performance had been by contrast. The most interesting intervention of the meeting was by the French Socialist leader, François Mitterrand. The situation in southern Europe, said Mitterrand, was very different from that in the rest of the continent. In Italy, Spain, Portugal and France there had to be a degree of co-existence between the two major left-wing Parties, the Socialists and the Communists. In Italy, the Communist Party represented about 34% of the electorate, compared with the Italian Socialist Party (PSI) which represented between 12% and 15%. In Portugal, the Socialists represented about 40% of the electorate, compared with only 10% for the Communists. In Spain, elections had not so far taken place but the Socialists would represent about 25% of the electorate, whereas the Communists would probably not represent more than 15% to 18%. In France, in 1973, the Communists had polled 22% against 21% for the Socialists (compared with only 11% for the Socialists two years before that). Present figures were probably about 30% for the Socialists compared with about 18% for the Communists. In all four countries, Mitterrand argued, the Communist parties could not be ignored, although they had been for about 25 years. As soon as the French Socialists had been forced to become a reference point for the Conservatives, this had led to their decline. The Socialists and the Communists in France had to work together if they were to avoid a continuation of Conservative power and the perpetuation of social injustice in France. This was not a question of natural inclination or ideological choice; it was a question of adding up all those who were in favour of social change against capitalist and American-dominated forces. Mitterrand asked his colleagues to respect the policy and actions of Socialists in Southern Europe and not to speak against them in international conferences or pass judgements on them. Mitterrand’s intervention did not receive a unanimous welcome. Kalevi Sorsa (Finland) argued that “there were limits to what one could do if one still wished to live in a democracy”. The Finnish Socialists had always kept themselves clearly separate from the Communists. Helmut Schmidt took issue with Mitterrand’s description of NATO as an anti-Communist alliance. It was not, he said. It was an instrument of selfdefence against Soviet aggression. Schmidt had also been astonished to hear Mitterrand say that if NATO, or the EEC, or the Socialist International forced the French Socialists to choose between them and the interests of French

26 The Spoils of Victory: 1975–1976 workers, their decision had already been taken. The German Social Democrats had never taken the view that advice from NATO or the Community or the Socialist International did not matter. On the contrary, it did matter very much. If any of those present were to take the view that, whatever our friends said, we had taken our own decisions, then he was not optimistic about the future. He was strongly against any confusion between Social Democracy and Communism. All should ensure that they remained able domestically to contribute to the military collective defence against Soviet pressure. Wilson intervened in Schmidt’s support. In the past 25 years, he could not remember having ever been so concerned as he had been by some of the things which he had just heard. Détente would never have happened without the strength of NATO. Like the young lady of Riga, if you rode the tiger you risked being eaten by it.27 Mitterrand responded vigorously. In referring to the Alliance as an antiCommunist one, he had been quoting the US Secretary of State, Henry Kissinger. So Schmidt should argue the point with Kissinger, not with him. But the fact was that NATO had been created to deal with a Communist threat. Indeed, that was why he had voted for it himself and still supported it. If a Communist regime came to power in France, he would reject that, but if he had rejected an alliance with the Communists, there would have been no Socialist representative in France or at the meeting. The French Socialist Party could only be strong if it retained the trust of the working class, and they had to fight on the workers’ terms. For 25 years, the Communists had been allowed to adopt the cause of the workers in France. There was no difference between his objectives and those of his colleagues. He did not want any kind of Soviet domination in Europe, and he noted that it was not a Socialist or a Communist Government in France that had taken France out of NATO. His Party would never allow the French Communist Party to weaken democratic liberties in France. If he thought that the Communists, rather than the Socialists, would benefit from an alliance, he would never allow it to happen. People perhaps underrated the self-confidence of French Socialism. He asked his colleagues to reflect. Even if he rejected any interference on the part of NATO designed to preserve a Conservative system of Government, he could assure his colleagues that their advice would nevertheless be heard. Were that not the case, he would not have attended the meeting.28 Schmidt’s crisp, if not irascible, comments on Mitterrand’s arguments at the meeting were characteristic. They had made him ‘’something of a bogey-man in Brussels’’ wrote Sir Oliver Wright, Britain’s Ambassador in Bonn, in a letter sent to the Permanent Under-Secretary at the FCO in late January 1976. This was partly because of Schmidt’s trenchant and sweeping criticisms of the Brussels bureaucracy, and partly because Germany was on occasion responsible for preventing the Community from making progress. There was, however, Wright argued, “a danger of misinterpreting German muddle as method and inability as intransigence”. Germany’s rise to be the major power in Europe was less an act of will than the unavoidable consequence of being economically

The Spoils of Victory: 1975–1976 27 and politically the strongest and most stable country in the Community. In a speech in Hamburg on 26 January, Callaghan had explained how he saw the future of the Community: he expected it to develop inter-governmentally, not federally, and he did not expect the German taxpayer to foot any large bills for the sake of EMU. Given the British Government’s approach, it seemed to Wright that “we should turn German stinginess to good account by letting them take the blame for treading on other people’s dreams: they are not treading on ours because we don’t dream too good—and just quietly build Europe at this stage in its development by means of the co-ordination reflex”. As Callaghan had said in his speech, “we may all surprise ourselves by how far and how fast we go”.29 Palliser drew Wright’s letter to Callaghan’s attention, along with a less sanguine view from the German perspective which Palliser had received from the German Ambassador in London on the day Callaghan was in Hamburg. In a private conversation, Karl Günter von Hase spoke of widespread disappointment in Germany about Britain and the Community. Britain was suspected of seeing the Community too much in terms of what she could get out of it rather than of what contribution she could make to it. The German Government appreciated the constraints imposed by Britain’s economic difficulties but had hoped, precisely for that reason, to see a greater political contribution on Britain’s part. The Ambassador said that it distressed him to observe the continuing difference in relationships between Germany and France, on the one hand, and Germany and the UK on the other. In most respects, France made life much more difficult for the Germans and their other partners than the UK did. Yet the relationship between them, going back to the de Gaulle/ Adenauer treaty in 1963,30 had become so close and was so obviously in the interests of both countries that the French could get away with something approaching murder and still not affect the fundamentals of their relationship with Germany. But the Anglo-German relationship was a more delicate plant, despite the fact that in so many basic ways, especially over defence and relations with the Americans, Britain and Germany saw much more eye to eye than did the Germans and the French. But, the Ambassador added, the solidity of the Community could not rest solely on the Franco-German relationship, if only because the French did not bring enough to it to satisfy German needs. If a similar kind of relationship could not be established between Britain and Germany, he feared that the pendulum would at some stage swing back towards the concept of the German nation, of reunification and all the implications that went with it. Hence the particular importance which he attached to the forthcoming visit of Schmidt to Chequers.31 Some of these sentiments were echoed in a conversation between Oliver Wright and Schmidt on 3 February 1976, in which Schmidt said he wanted the relationship between Bonn and London to be as close in substance and presentation as those between Bonn and Paris. He added that, while it was none of his business, he would welcome it if relations between London and Paris were equally good. So what he and Wilson discussed at Chequers

28 The Spoils of Victory: 1975–1976 was secondary to the fact that they were meeting and discussing at all. He would be prepared to discuss anything that Mr Wilson wanted to discuss “and he looked with manifest displeasure at his briefs which lay about three inches high on his desk”. One unavoidable issue for the talks was the renewal of the Anglo-German offset agreement, i.e. the level of German financial contribution to offset the costs to the UK of stationing British troops in Germany. To that, the Cabinet Office wished to add Denman’s proposed scheme for Community financing of an industrial strategy in exchange for British agreement to further political integration: if the Germans could be prepared to give it the nod then work could be taken forward. Denman was frustrated at the political inertia, writing to the FCO: “I appreciate that the tactical considerations involved in staging collective Ministerial discussion of these issues are delicate. But eight months have now gone by since the referendum. And, quite apart from Direct Elections, issues such as Tindemans and the question of opening negotiations on the Greek application, make it necessary for us to have a generally agreed strategy. So it would be very helpful to have a view from the FCS.”32 A further subject would be Greek accession. The Commission, as required by the accession procedures laid down in the Treaty of Rome, issued their formal Opinion on 30 January. The Commission recommended that “a clear, affirmative reply be given to the Greek request and that negotiations for accession be opened”. But the report also referred to the political problems in relation to Turkey and Cyprus; and to the economic and financial difficulties, that would be created for the Community. The Opinion’s main theme, therefore, was that there should be no rush to get Greece in and that there should be a preparatory pre-accession period, in addition to the normal transition period, so as to give Greece and the Community more time to adjust to each other.33 The Foreign Secretary took the issue to Cabinet on 5 February, reporting that the Greeks had reacted very strongly against the Opinion, especially in view of the reference to Turkey, and were lobbying very hard in EEC capitals. The French had supported them at once, and subsequently the Germans and the Dutch had said that there should be no pre-accession period. In the circumstances, and given the Government’s public commitment to the principle of Greek accession, Britain should not oppose the opening of negotiations, though a long negotiating period could be envisaged. In his brief for Cabinet, the Cabinet Secretary had warned Wilson that several members of the Cabinet, including Denis Healey, Shirley Williams, Trade Minister Peter Shore, Agriculture Minister Fred Peart and Minister for Overseas Development, Reg Prentice, might express concern over the implications of Greek accession though they were unlikely to dissent from the Foreign Secretary’s approach.34 And so it turned out. There should, some Cabinet members argued, first be a study of the whole question of enlargement, including the implications of accepting Greek membership for considering subsequent applications by the likes of Turkey, Spain and Portugal. There had

The Spoils of Victory: 1975–1976 29 been no study of enlargement by either the British Government or the EEC as a whole. Despite these reservations, the Cabinet did not in the end dissent from the view that Britain’s public support for Greece should stand, and that any reservations would have to be expressed on a private basis in discussion with other Foreign Ministers.35 Wilson and Schmidt met at Chequers on 7 February 1976, firstly alone apart from note-takers, and then with Callaghan and German Foreign Minister Hans-Dietrich Genscher present. On offset, there was a standoff. On Greek accession, Genscher and Callaghan agreed that a positive signal should be given to Greece. On Direct Elections, Callaghan argued for the dual mandate. Genscher disagreed. Callaghan thought that the allocation of seats would emerge as a real problem if seats allocated, for example, to Scotland and Wales were fewer than they would have got had they been independent. Both Wilson and Schmidt agreed that the Tindemans report should be discussed by the European Council on 1-2 April, though Schmidt hoped that no decisions would be taken. In his view, the report was “another of the big books about the future of Europe which were printed every two to five years. By comparison with some of the more extravagant blueprints, such as the Paris Summit communiqué of 1972, which called for EMU by 1980, the Tindemans Report was quite realistic and, because of its caution, represented a modest step forward. But it was still too ambitious.” The Report should be fed into the routine work of the Community, without too much impetus being put behind it. The French President, said Schmidt, shared this cautious view. Privately, Schmidt also told Wilson that he found Giscard “infinitely preferable” to Mitterrand. Mitterrand was a Machiavellian and opportunist politician who tended to speak much too sharply about Giscard both in France and abroad. Giscard himself was undoubtedly scared by Mitterrand’s activities with the Communists in France and elsewhere in southern Europe. Schmidt also referred to Prime Minister Jacques Chirac’s ambitions to be President, although Giscard had claimed to him that Chirac was loyal. At their joint Press Conference following the talks, Schmidt said that, speaking for himself and Wilson, and for Genscher and Callaghan, “we feel it rather necessary to stress our own belief that the negotiations with Greece should start as soon as possible, if not to say immediately”.36 This clearly satisfied Karamanlis who, once the Council of Ministers had a few days later, agreed to open negotiations, wrote to Wilson to thank him for his understanding: “Your solidarity to the Greek people has further strengthened our faith in Europe.”.37 Amicable as the Chequers talks had been, it cannot be said that they represented any kind of breakthrough in Anglo-German relations. Wilson had not mentioned the Cabinet Office’s Industrial Regeneration ideas, even though the Cabinet Secretary had referred to them in his brief for the talks. Wilson told Cabinet on 12 February little more than that the discussions had been useful and that Schmidt appeared anxious to have such meetings to balance the regular Franco-German consultations and to show that he

30 The Spoils of Victory: 1975–1976 considered Anglo-German relations as equally important. Schmidt, Wilson concluded, now had a much better opinion of Britain’s economic prospects.38 In what was to be the last month of Harold Wilson’s premiership, work on enlargement, Direct Elections and British EEC policy more generally was taken forward with a view to a whole-day Cabinet discussion at Chequers after the Budget. But then, on Tuesday 16 March 1976, Wilson called a special meeting of the Cabinet to announce his resignation. To most of the Cabinet it came as a bolt from the blue. Callaghan himself had had some advance warning.39 In a lengthy statement to Cabinet, Wilson recalled that he had been in Parliament for 31 Years, of which nearly 30 had been spent on the Front Bench. He had been Party leader for over 13 “exciting and turbulent years”, with over 11 years in Cabinet and almost 8 in Downing Street. His had not been the “spacious, socially-orientated days” of some of his predecessors. He had had to work seven days a week, at least 12 to 14 hours a day, with usually at least 500 different documents to read in an average weekend after a busy week, including meetings outside London, of which there had been over 100 a year. In world affairs, Britain’s relations with the US, with European countries, east and west, and with the Commonwealth were better than for many years. Britain’s membership of the European Community had been confirmed. Her relations with the United States had recently been described by President Gerald Ford as being “as good as they have ever been”. Wilson promised his successor his full support but, he added, “I shall be guided by the letter and spirit of the undertaking which a pre-war predecessor gave when he stood down for a successor: ‘Once I leave, I leave. I am not going to speak to the man on the bridge, and I am not going to spit on the deck’.”40 Helmut Schmidt sent a warm message. He told Oliver Wright, the British Ambassador in Bonn, that Wilson had given him ‘half a hint’ of his intentions when they met at Chequers in February. Schmidt had been on the telephone to Giscard, whose reaction to Wilson’s resignation had been: “That is just typical of the man. He has a success and then he resigns.” Wright thought that Schmidt’s reaction was partly personal. Schmidt felt that, after a difficult time in the relations between the two men, they had got back on to the old footing. In addition, Schmidt believed that the situation in Italy was hopeless, the position in France worrying with a swing to the Left, and that the United States was almost out of the picture (“there is a great hole in the world”) during an election year. Wilson’s resignation removed one fixed point of certainty on the world’s political map. Whilst emphasising that it was of course none of his business, Schmidt gave Wright to understand that he sincerely hoped that Tony Benn would not be Wilson’s successor. Wright told Schmidt that he had heard on the radio that Ladbrokes were offering 2-1 against Mr Benn. Schmidt said: “Add me, and make it 21-1.”41 There was a gap of nearly three weeks between Wilson’s announcement and the election of his successor, Jim Callaghan. On the third ballot, Callaghan beat Michael Foot by 176 votes to 137. The work of Government went on. On 18 March, the French Foreign Minister, Jean Sauvagnargues, came to

The Spoils of Victory: 1975–1976 31 London to prepare for the European Council at the beginning of April and the State Visit of President Giscard in June. Sauvagnargues was a career diplomat, not a politician. The assessment of him by the British Embassy in Paris was not exactly glowing: “As Foreign Minister, he has made a moderate start—It is doubtful whether he will have much influence on the President. His career has been too specialised and there are gaps in his knowledge and experience. There is also reason to believe that his judgement may not always be entirely reliable.” A letter from Nicko Henderson (HMA Paris) just after the visit observed that the record of the meeting with the Prime Minister did not reflect the point that Sauvagnargues was trying to make to Wilson, namely that President Giscard wanted there to be a closer bilateral high-level relationship between Paris and London. Henderson himself had not been clear that Sauvagnargues was making this point until the French Ambassador whispered in his ear that this was the main message of the visit which the President had asked him to convey.42 A few days later, Wilson met George H.W. Bush, the newly appointed US Director of Central Intelligence. The brief for the meeting by the Cabinet Secretary described him as a man of varied background, a Texan by adoption who might, it was thought “have aspirations to be Governor one day”. Unfortunately, on the instructions of Wilson’s Principal Private Secretary, no record was kept of this meeting between the outgoing British Prime Minister and the future two-term Vice President, and President of the United States.43 On 1 April 1976, Wilson attended his last European Council, held in Luxembourg. Tributes were paid and Schmidt presented a picture of his native Hamburg. Callaghan, as Foreign Secretary, would normally have attended but stayed behind in London to conduct his campaign for the Labour leadership. Despite his claim in his memoirs not to have had any real doubts that he would be elected, that was not the impression he gave to Wilson’s immediate circle at the time.44 The British report of the Council reflected perfectly the wish of the British Government for placid inertia, and was at huge variance with the reactions to it in France and Germany. Wilson thought the Council had been workmanlike and without dramatics. Giscard had, it was true, been anxious to see the Council issue a lofty declaration on EMU, but had been seen off by Wilson and Schmidt who both argued for “a more realistic approach to current economic and monetary problems”. Schmidt had, however, also resisted a British proposal for a statement on unemployment, an issue to which he did not want to draw too much attention as he approached national elections. Giscard had taken the meeting by surprise by abandoning his earlier stance on Direct Elections to the European Assembly. Instead of proportionality (reflecting size of population), he proposed that the EEC should stick to the existing number and distribution of seats. This was unacceptable to a number of Member States, including the UK. Wilson made clear that the British Government were still aiming to be ready for the first Direct Elections to be held in 1978.45

32 The Spoils of Victory: 1975–1976 Giscard’s problem, it transpired, was that the Gaullists (on whose support he depended) were insisting on strict proportionality as a way of masking their opposition to the whole project. But Giscard had committed himself to Direct Elections, and his own proposal about proportionality was unacceptable to the smaller member countries of the EEC. His motives in switching 180 degrees, and proposing no change in the existing system, were, according to the British Embassy in Paris, “a desire to take an initiative which would saddle others, including ourselves, with any blame for failing to make progress [and] a growing conviction that an enlarged European Parliament, elected on a basis of proportionality, would be bound to seek increased powers, which Giscard does not want”.46 The British Government, too, were wrestling with this issue. At Cabinet on 26 March, Callaghan argued that the proposal from the existing Assembly that its numbers should be increased to 355 after the introduction of Direct Elections, would make it easier to secure an allocation of seats to Member States more closely in proportion to their population. The smaller countries, such as Ireland and Luxembourg, would of course strive to maintain the present distribution which gave them a disproportionately large share of seats. So the UK was faced with the prospect of constituent parts of the UK being clearly less well represented than independent Member States with smaller populations. The British Government should therefore seek a solution with greater proportionality, while recognising that exact proportionality would not be possible. And they should let the French make the running. At home, Callaghan said, Parliamentary opinion was divided, with Labour MPs urging the Government to make no commitment to direct elections until a Select Committee had been established and had reported, and Conservative MPs urging progress as soon as possible. Callaghan thought the idea of a Select Committee a reasonable one, though it would be awkward if the Committee and the EEC came to contrary conclusions. Cabinet divided on the habitual lines. To the sceptics, the issue could only be decided in the wider context of decisions about what kind of Europe the Labour Government wished to see. Direct Elections would reinforce the Assembly’s demands for greater powers, especially as the informal title of ‘European Parliament’ was a misnomer since it had no law making or tax raising powers. New powers for the Assembly would involve irrevocable steps towards a federal Europe—a concept which had not been put before the British people, nor approved by them in the Referendum. There was no popular pressure for direct elections. Such pressure as there was came from the desire of an increasingly powerful Brussels bureaucracy to legitimise itself through elected representatives. Any arrangement that put different parts of the UK at a disadvantage would inflame the whole question of Devolution. Labour Members elected to the Assembly might see their loyalty as being to a Socialist Group in the Assembly and not to the British Labour Party. To other Cabinet members, Direct Elections would provide welcome democratic control of activities which were not subject to direct control by

The Spoils of Victory: 1975–1976 33 national Parliaments. The present dual mandate imposed a great strain on MPs. There was a clear legal and moral duty under the Treaty of Rome to accept direct universal suffrage. Wilson summed up that the Government should offer a Select Committee. In Europe, the Government should not take the lead in opposing Direct Elections and should have sufficient freedom of manoeuvre to avoid attracting unnecessary odium. They should make it clear that there would have to be adequate representation for the UK and its constituent parts and that the Government could take no final decisions until the report of the Select Committee had been considered by Parliament.47 If the British were satisfied with the modest outcome of the Hamburg European Council, the converse was the case in Paris and Bonn. The French media talked of breakdown and impotence; of a meeting which had “broken dismal records for total lack of preparation and political will and absence of results”. Schmidt got most of the blame: EMU had broken down and must be consigned to the spare parts store. The end of the Paris-Bonn axis was foreseen. While it was fair enough, Le Monde argued, for Schmidt to give his partners lessons in economic management, he had himself shown a lack of “European fibre”. Giscard too did not escape criticism. The European Council had been Giscard’s concept, and had failed to produce results. His new proposal on seats in the directly elected Assembly had been brutally rejected. Britain, often the whipping boy of the French Press, escaped without criticism.48 Similar gloom prevailed in the German Press. A debate in the Bundestag on 8 April was interpreted as an indication that Schmidt had concluded that no further progress was possible in Europe for the time being, and that the Federal Government would do nothing to help its European partners until they adopted stricter economic discipline. Schmidt did indeed say that the Federal Government would ask the Bundestag and the German taxpayer for further sacrifices on behalf of the European Community in future, but on one decisive condition: the economic and social efforts of EEC members and their Governments—including any additional German contribution—must result in progress for Europe. Doubtless still smarting from Mitterrand’s robust response to Schmidt’s strictures at the meeting of Socialist Party leaders, Schmidt added that those who adapted their social and economic structure to the necessities of the modern world had no need to consider historic compromises with Communists.49 “One wants in a Prime Minister a good many things”, Anthony Trollope wrote, “but not very great things”.50 “Not very great things” was what the nation had had in Harold Wilson. Trollope, or rather one of his characters, wanted his Prime Minister to be clever without needing to be a genius. He should have a good digestion, genial manners and, above all, a thick skin. Intellectually, Wilson had come close to genius, a quality that made the mental deterioration of his last years all the more poignant. But history, so far, has not been especially kind to Wilson and

34 The Spoils of Victory: 1975–1976 his record. The marked national economic decline chronicled in the officials’ paper quoted earlier in this chapter predated Wilson’s leadership, but continued and, in some respects, accelerated during his four periods as Prime Minister. Wilson’s attempt at Trade Union reform probably fell within Trollope’s prescription that a Prime Minister should be “bold but never venturesome”, but he had been defeated, not least through Callaghan’s opportunistic opposition. Edward Heath, who defeated Wilson unexpectedly in the snap General Election of June 1970, fared little better and when Wilson, somewhat against his expectation, returned to power in February 1974, it was on the back of his opposition to Heath’s attempt to curb the excessive pay demands of the coal miners. For the rest of his tenure, Wilson and his Government wrestled with the issue of pay restraint, but never with more than temporary success. That Wilson could have told his fellow Socialist leaders with pride that UK inflation had been reduced to 14% is a measure of the deterioration of the UK economy. It is by that measure most of all that Wilson’s reputation has suffered. Wilson’s record on Europe looks, with hindsight, more strategic and less tactical than it seemed at the time. He was by nature more a man of the Commonwealth and the Atlantic than he was European. He had none of Heath’s instinctive and emotional attachment to the European “idea”. But, though he tacked to the Left to secure the Labour leadership, he was not instinctively hostile to the sharing of sovereignty. Within months of his arrival in Downing Street in October 1964, Wilson had concluded that, for political and economic reasons, Britain had to renew the application for membership of the EEC which had been abruptly vetoed by France’s President de Gaulle in January 1963. When De Gaulle again vetoed Britain’s application in 1967 Wilson refused to take ‘no’ for an answer. Following De Gaulle’s fall from power in 1969, Wilson was poised to start negotiations for British accession to the EEC at the moment in June 1970 that he called a General Election, fully expecting to win.51 Following his victory, it fell to Heath to conduct the negotiations, on exactly the same mandate that would have steered the approach of the Labour Government. But Labour, in opposition, turned against EEC membership. Callaghan, who had been a supporter of accession in Government, performed a volte face in the hope that his opposition to Europe would secure him the leadership of the Labour Party. Renegotiation and a renewed vote on EEC membership by the British people was the only way in which Wilson could prevent his Party from veering to outright opposition to EEC membership. When Labour returned to power in 1974, Wilson and Callaghan were at one in working for the so-called renegotiation of the terms of British membership to succeed, though both men were supremely tactical in how they achieved the result so as to secure a majority in Cabinet and, ultimately, in the country, in favour of Britain staying in the EEC. That close partnership between the two men in Wilson’s final term in office contributed to Callaghan being Wilson’s preferred successor. At 64, Callaghan

The Spoils of Victory: 1975–1976 35 was four years older than Wilson. He had held the three major offices of state and had now reached the pinnacle. It was to fall to Callaghan to seize, or not to seize, what, in retrospect, was probably the last opportunity for Britain, together with France and Germany, to assume the leadership role in Europe.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

28 29 30 31 32 33 34 35 36 37

The Times, Saturday 7 June 1975. David Wood: The Times: 9 June 1975. Hansard for 10 June 1975 CAB (75) 26th Conclusions, 9 June 1975, CAB 128/56, TNA. PREM 16/863, TNA. PREM 16/401, TNA. PREM 16/1053, TNA. PREM 16/1128, TNA. PREM 16/1128, TNA. PREM 16/1128, TNA. PREM 16/1624, TNA. CC (75) 49th and 52nd Conclusions, 18 November and 4 December 1975, CAB 128/57, TNA. Ibid. PREM 16/859, TNA. Stephen Wall, The Official History of Britain and the European Community, Volume II: From Rejection to Referendum, 1963–75 (London: Routledge, 2013), pp. 446–47. PREM 16/859, TNA. Roy Jenkins, European Diary 1977–1981 (London: William Collins, 1989), p. 3. Ibid, p. 4. PREM 16/859, TNA. Roy Jenkins, op. cit., p. 6. David Hannay, Britain’s Quest for a Role (London: I.B. Tauris, 2013), p. 86. Bernard Donoughue, Downing Street Diary: With Harold Wilson in No 10 (London: Jonathan Cape 2005), p. 638. PREM 16/861, TNA. Wall, Official History, Vol. II, pp. 451–52. PREM 16/863, TNA. PREM 16/863, TNA. There was a young lady of Riga Who smiled as she rode on a tiger; They returned from the ride With the lady inside, And the smile on the face of the tiger. PREM 16/1082, TNA. PREM 16/892, TNA. See Wall, Official History, Vol. II, pp. 30–31. PREM 16/892, TNA. PREM 16/863, TNA. PREM 16/1624, TNA. PREM 16/859, TNA. CC (76) 4th Conclusions, 5 February 1976, CAB 128/58, TNA. PREM 16/862, TNA. PREM 16/1674, TNA.

36 The Spoils of Victory: 1975–1976 38 CC (76) 5th Conclusions, 12 February 1976, CAB 128/58, TNA. 39 Kenneth O. Morgan, Callaghan, A Life (Oxford: Oxford University Press, 1997), pp. 463-64. 40 CC (76) 10th Conclusions, 16 March 1976, CAB 128/58, TNA. 41 PREM 16/1072, TNA. 42 PREM 16/886, TNA. 43 PREM 16/1151, TNA. 44 Morgan, Callaghan, op. cit. pp. 469–77; and author conversations at the time. 45 PREM 16/853, TNA. 46 PREM 16/855, TNA. 47 CC (76) 13th Conclusions, 26 March 1976, CAB 128/58, TNA. 48 PREM 16/853, TNA. 49 PREM 16/881, TNA. 50 Anthony Trollope, The Prime Minister I (London: Chapman and Hall, 1876). 51 Wall, Official History, Vol. II, pp. 357–59.

2

Callaghan: The Lapsed Heretic: 1976

It was the Dutch Foreign Minister, Max van der Stoel, who according to Callaghan’s own account, described Callaghan as a lapsed heretic. It was an apt description of someone who had, as far as the European Community was concerned, ceased to be an unbeliever while not exactly embracing the European faith. The passing of the baton from Harold Wilson was symbolised by the fact that it was Callaghan, as Prime Minister, who reported to Cabinet on 13 April 1976 on the European Council which had been Wilson’s last, and which Callaghan had not attended at all. In the intervening period Callaghan had taken the reins of power and reshuffled his Cabinet, sacking four of Wilson’s senior Ministers, including Barbara Castle, and promoting Michal Foot to be Lord President of the Council and Anthony Crosland to be Foreign Secretary. Callaghan lauded the absence of major decisions at the Council. That modest outcome should not have been sourly treated by the Press, as it had been. The European Council should, Callaghan told Cabinet, provide an opportunity for informal and private discussions between Heads of Government on broad political developments, and any attempt to reach formal decisions on specific issues should be resisted.1 In making these comments, Callaghan was reflecting a view shared by President Giscard d’Estaing, who had been the principal proponent of the European Council as ‘fireside chat’, and by Schmidt. But a European Council of nine Member States, where eighteen people (both Heads of Government and Foreign Ministers) and the President of the Commission, sat round the table, was already too large for the kind of informality Callaghan craved. And the nature of EEC business, in which sectoral Councils of Ministers (such as Agriculture and Finance) took the key legislative decisions without the basis for those decisions having been agreed in advance at a higher level, meant that the normal hierarchy was inverted. In most national Governments, policy was agreed at Cabinet level and executed at Departmental level. In the EEC, policy was determined at the sectoral level and, if it proved controversial, was ‘appealed’ to the Heads of Government. The European Council thus became the ultimate arbiter. It also meant that, since disagreements inside the EEC were inevitably public, an atmosphere of expectation and crisis attended each

38 Callaghan: The Lapsed Heretic: 1976 summit meeting. So Callaghan’s fond hopes had already been overtaken by uncomfortable reality. Callaghan’s preoccupations were, in any case, mostly domestic. Between the first and final ballots for the Labour leadership, the Bank of England had revealed that March had seen the largest ever fall in the reserves in a single month, totalling £598 million.2 But a number of European issues also required Callaghan’s attention. Some were relatively trivial but required careful handling. Helmut Kohl, the new Leader of the German Christian Democratic Union (CDU), the main German Opposition party, was due to visit London at the invitation of his British opposite number, Margaret Thatcher. Elections were due in Germany in October 1976 and Kohl had a realistic prospect of being the victor. Britain’s Ambassador in Bonn advised the PM to see Kohl, and Thatcher also asked Callaghan to do so. In recent times, both David Cameron’s refusal to see François Hollande, and Angela Merkel’s public support for Hollande’s opponent, Nicolas Sarkozy, before the 2012 French Presidential election, rankled with Hollande after he had won. Callaghan and Schmidt were cannier, as this transcript of a telephone conversation between the two men illustrates: Callaghan: “You mentioned Kohl just now. There was one thing I wanted to say to you: Mrs Thatcher has invited him over here as her guest in the summer, and he’s coming. She’s asked me if I will see him but I wanted to check with you first. Schmidt: I agree that you had better see him, much as I have seen Mrs Thatcher when she was here the first time. But I have of course limited publicity as much as was possible by means of politeness. And don’t give them great television coverage. The only thing I did when she was here was to allow a photographer to take one picture. . . Callaghan: You can rely on me to do the same.”3 Both trickier and somewhat more important was the issue of a European passport. At a meeting of Heads of Government in September 1974, Schmidt had proposed the establishment of a Passport Union i.e. that there should be standardised passports and passport controls across the EEC. Britain’s renegotiation had been in progress at the time and Callaghan, as Foreign Secretary, was keen to play for time without being too flatly negative. Roy Jenkins, the Home Secretary, agreed. “If”, he wrote to Callaghan, “the Chancellor [Schmidt] is thinking of the abolition of frontier controls within the Community for EEC nationals only, that is something which, although it would present some problems, we might be able to accept in principle (but even then there would have to be a frontier check in order to determine which passengers were EEC nationals and which were not. Indeed, we have taken some steps in that direction already with our simplified procedure for the admission of EEC nationals). But if he has in mind the complete abolition of frontier controls within the Community—even for non-EEC nationals—that is quite another matter, and one we could not contemplate while this country remains a magnet for so many Commonwealth citizens wishing to settle here, and so long as even one EEC country has a less effective frontier than

Callaghan: The Lapsed Heretic: 1976 39 our own . . . I see no great objection to the introduction of a standardised EEC passport, but I find it difficult to see how a standardised passport, with its attendant advantages of computer control, ties in with the proposal to abolish passport controls for movement within the Community.” A year later, at a European summit, Wilson agreed in principle to the introduction of an EEC-style passport, but not before new British nationality legislation had come into force. With this backdrop, Callaghan’s political antennae twitched when, in his first weeks as Prime Minister, he noticed that Roy Hattersley (Minister for Europe in the FCO) had told the House of Commons that the issue of a European passport was to be discussed at a meeting of EEC Foreign Ministers in early May. The PM (who probably anyway suspected Hattersley’s proEuropean leanings) immediately instructed Crosland to keep a personal eye on the question and to ensure that the words ‘United Kingdom’ were placed above the words ‘EEC’ on any new passport. By May 1976, Denman (Cabinet Office) was warning No 10 that the UK had found itself in some difficulty during detailed negotiations in Brussels on the passport “in relation to the question whether, in our version, the royal coat of arms should be shown on the cover above the reference to the EEC. All other countries would be willing to put their national symbol below the reference to the EEC and we are likely to come under pressure to reach a settlement.” But, Denman warned, “the sensitivity of this issue was highlighted in the discussion in Cabinet in December last year when the Secretary of State for Energy (Tony Benn) expressed some concern—shared by a number of other Ministers—at Press reports about the eventual disappearance of the United Kingdom passport in its present form.” As a result of Denman’s minute, Callaghan asked to see a mock-up of the passport prior to a discussion in Cabinet. Unsurprisingly, Callaghan opted for a design which put ‘United Kingdom’ and the royal coat of arms firmly above ‘European Community’, though he did not react against what the Foreign Office called “a movement among the other Eight in favour of adopting a deep lilac colour as proposed by the Dutch”.4 On 11 June, Cabinet endorsed the position taken by Callaghan and Crosland and, five months later, Crosland was able to report back to Cabinet that the Presidency had put forward a compromise proposal which would: place the name of the issuing state, though not the national arms, above the reference to the European Community; in relation to languages, preserve the existing practice of Member States, except that an index page in all seven languages of Member States would be added; and limit Community competence to the form of the passport only. Callaghan wisely kept discussion short and summed up that Crosland had done well in securing the substance of the UK’s requirements. It would in any event be some time before fresh nationality legislation could be passed and the uniform passport introduced in the UK. In the event, the final EEC decision was not adopted until 1981, by which time the words ‘European Community’ had worked their way above the national title, albeit in letters of the same size and no larger.5

40 Callaghan: The Lapsed Heretic: 1976 Another similarly sensitive issue was that of the harmonisation of Summer time across the EEC: not in the sense of the UK moving to the same time zone as the rest of the Community, but in terms of the harmonisation of the start and end dates of Summer Time. As things stood, there was a period of about ten days at the end of Winter time and the end of Summer time when Britain and the Continent were out of sync. The cost to business (for example in the requirement for airline timetables covering the gap) was considerable. However, as soon as the issue had come to Callaghan’s attention he had commented that this issue was a hornet’s nest and he strongly advised against reopening it. The President of the Commission, M. Ortoli, not easily deterred, wrote to Callaghan, appealing for a compromise on the basis that the public would find it hard to understand failure to clinch the issue when only one week now separated the UK from other Member States. It may have been a week in time but it was a light year in politics. Denman tried to get the issue seen in the great scheme of British objectives in the EEC, warning Callaghan’s office that “we have some major objectives, e.g. a revision of the Common Fisheries Policy (CFP). To remain recalcitrant on too many other items will tend to prejudice our main objectives.” Callaghan remained unmoved, replying to Ortoli that the UK had already gone a long way to try to find a compromise without any corresponding movement in the Commission’s position, and that he was far from confident that the House of Commons would accept any further move on the Government’s part. But then the Italians let the UK off the hook. The Italian Government decided that they could not agree to harmonisation in 1977, thus enabling Callaghan to write again to Ortoli confirming that the issue would have to go to Parliament where the outcome was unpredictable. This was a matter, he said, which aroused strong feelings and where public opinion was influenced by geographical circumstances and by past practice. A change of dates to secure harmonisation would be very controversial. But Callaghan left the door open: he would want to be sure that there was a firm basis for agreement on dates in 1978–79 before taking the matter to Parliament. There, he concluded, the matter should rest.6 Similar problems of Parliamentary support, or lack of it, arose over the Weights and Measures Bill, which had been introduced in March 1976 and which required the UK to complete metrication by the end of 1979. The Bill had encountered opposition from both sides of the House and had not been able to proceed to Second Reading, though the Cabinet Secretary, Sir John Hunt, advised Callaghan in May that it was believed that the opponents were now satisfied.7 The underlying problem for the Government was that Britain was still in the so-called transitional period following accession, i.e. five years in which to adapt to European norms in a number of areas. Surprisingly, in the light of subsequent developments, the size of the UK’s budget contributions to the EEC once the transition period was over, which was to dominate Callaghan’s last year in office and the first five years of Margaret Thatcher’s premiership, was not yet bleeping on the Whitehall radar.

Callaghan: The Lapsed Heretic: 1976 41 The issue of harmonisation was on the radar, and, on the eve of Wilson’s departure, the Cabinet Office had produced a tally of measures adopted. It found that “no real problems have been created for our manufacturers and consumers. On the other hand, there is little sign of benefit to our exports. We have had considerable influence on decisions so far. The programme of work is heavy and we would like to limit it to dealing with trade barriers that are significant in practice.” For British exporters, common standards would be most useful for the products where the UK had export ambitions. 61 such Directives had been adopted and more were envisaged, covering products such as electricity meters, tractor noise levels and car lights. Some directives were problematic but they were in general sensible and there was a reasonable expectation that the UK could secure amendments which would ensure that they met UK interests. The paper concluded: “The harmonisation of standards within the Community can be of considerable benefit where it is concentrated on products and standards through which international trade can benefit. It is harmful and unnecessary where it is harmonisation for harmonisation’s sake and where it represents an attempt to standardise unnecessarily the quality of everyday life throughout the member countries.” There followed a fascinating and eccentric tally of successes, for the most part successes in seeing off continental harmonising raiding parties: “The use of dye in the production of kippers was prohibited in the Community before we joined. But in the Accession Treaty, we secured the right to go on dyeing kippers; In 1973, it was proposed to set minimum standards for bread in trade between Member States (though not within them). But this proposal was subsequently withdrawn; Community rules would have prohibited British production of marmalade, but we secured changes which allowed this production to continue; Before our entry, proposals were made to set minimum standards for beer in trade between Member States. This proposal was withdrawn. A revised proposal is expected to deal with such barriers to trade as the German rule that only German beer can be sold in Germany; Community rules did not allow the special character of British ice cream when we joined. We have secured the right to continue our own production. There is pressure to make ice cream only from dairy products, but this has so far been successfully resisted; Proposals were made before we joined the Community that would have interfered with British chocolate manufacture. We secured modifications to allow us to continue our traditional methods; Traditionally, we had no rules about the purity of honey. We have now accepted Community rules which can be met by our producers; Proposed standards have been drawn up on a basis which allows us to continue production of sausages containing preservatives (sulphur dioxide) for our own market;

42 Callaghan: The Lapsed Heretic: 1976 We have secured the right to maintain our own liberal system of controlling the use of pesticides and monitoring their level in the diet of consumers, in preference to the rigid continental system of making spot checks and condemning consignments containing excessive pesticides; Community rules for the control of potato disease correspond broadly with our own traditional arrangements. A recent move to extend the control to gardens and allotments was a purely UK idea but was dropped in response to public opposition; When we joined the Community, the gradings for apples did not recognise cooking apples, such as Bramleys, but they have since been modified to take account of them; We have taken the lead in pressing for Community standards for Animal Welfare, in response to pressure from public opinion. We have secured a directive on humane slaughter and progress is being made on the welfare of animals in international transport.”8 The list is an interesting mixture of positions taken in response to public opinion, and those where the interests of producers seem to take precedence. It does not, for example, seem to have occurred to officials or Ministers that a directive controlling the sale of fruit and veg containing ‘excessive pesticides’ might have been a good thing from the public health perspective. It is also noteworthy that the British Government were prepared to overlook their general reluctance to seeing Community competence extended when they wanted to pursue a particular issue, in this case Animal Welfare. British inconsistency in this respect was often thrown back in the face of British Ministers as they argued over ensuing years for Community competence to be curbed, or even rolled back. There were weightier matters for the Prime Minister and Government to attend to. Cabinet had been due to have a special one-day meeting to consider the future of the Government’s European policy following the referendum. Wilson’s resignation meant that the meeting could not take place and it was rescheduled for 11 June. A month before the meeting, Denman submitted to No 10 what he called a tactical assessment for the next three months, suggesting that such plans should in future be submitted three times a year as guidance to be viewed against the background of the medium and longer-term objectives which the Government would have to set itself. The European Secretariat’s assessment was the product of inter-departmental work within Whitehall and would have been submitted to the Foreign Secretary, to whom the Secretariat were answerable, as well as to the Prime Minister. It began by suggesting that there was a general public impression across Europe that the Community was failing to make progress. That view had been compounded by the meagre outcome of the April European Council; the perceived risk of disintegration within the Community unless more positive results could be achieved at the July European Council; the adverse economic situation in Italy, and the import curbs which had just been introduced there; doubts about the extent to which President Giscard would

Callaghan: The Lapsed Heretic: 1976 43 be allowed by the Gaullists (led by Jacques Chirac) to continue the positive Community policies with which he had started; and the fact that Chancellor Schmidt would be looking increasingly over his shoulder at the German elections on 3 October. On the other hand, the paper argued, at a less spectacular level than the European Council, work was proceeding normally within the Community with the usual mixture of arguments, postponements—and results. It was unrealistic to think that European Council meetings three times a year could invariably record striking progress and imprudent to suggest that lack of progress would lead to the disintegration of the whole enterprise. Moreover, the fact that the recession was now over, and expansion beginning, and that the UK had made progress in reducing inflation and in economic recovery, were all reasons for optimism. From a UK perspective, the important tactical point was that there was still great pressure within the Community to move forward, and the UK should not allow itself to be cast in the role of foot-dragger on a range of issues and thus damage the chances of making progress on positive UK objectives of great importance, such as the revision of the Common Fisheries Policy (CFP). Here, Britain was claiming that a 12-mile exclusive fishing zone for her industry was not enough in the context of the global extension of limits to 200 miles. Britain wanted 25–30 miles but many fishermen from other EEC countries earned their livings partly inside the coastal belt that the UK now wished to reserve for her own fishermen. Those continental fishermen caught some 350,000 tonnes of fish within 25 miles of the UK coast. Some of these fishing rights predated British accession. A difficult negotiation was foreseen.9 Next on the list of prominent issues was the Tindemans Report where, said the Cabinet Office, “we should have no great difficulty, given the position of the other Member States, in joining constructively in discussions while avoiding endorsement of any dangerous proposals such as those for a two-tier Europe and the use of the Snake as the foundation of progress towards EMU”. Direct Elections, it was argued, would be centre stage at the July European Council. This was the development to which the Belgians, Dutch and Germans attached most importance “and where a forthcoming approach can most help our general standing with them”. A new issue was that of the Joint European Torus (JET). No European institution or agency was based in the UK. Research into nuclear fusion was an issue dear to Callaghan’s heart, firstly because he was looking for tangible proof to deploy with public opinion that there were benefits to Britain from EEC membership and, secondly, because when the Commission, in 1975, proposed a programme of research into nuclear fusion, it so happened that at Culham in Oxfordshire Britain possessed one of the world’s leading fusion laboratories. The aim was to produce machines that would generate nuclear energy by means of fusion rather than fission, leaving no harmful nuclear waste for disposal. The team there were exceptionally well qualified and Callaghan thought that, in the aftermath of the referendum decision to remain in the EEC, securing a major

44 Callaghan: The Lapsed Heretic: 1976 EEC organisation for the UK would demonstrate both Britain’s commitment to the EEC and the benefits which membership could bring. The Cabinet Office recommended lobbying, especially with the French and Germans. The latter had a rival to Culham at Garching in Bavaria, so the German politics would be tricky. The Italians would, said officials, have to be bought off, given that they too had a laboratory, at Ispra.10 Overall, officials thought that the UK’s tactical position over the ensuing three months would be an awkward one. Firstly, the UK had to persuade other Member States to agree to changes in the CFP which they would be reluctant to make (and which would require their unanimous agreement). Secondly, the UK would be pressing the case for Culham. In terms of wanting the positive agreement of her partners to major new moves, the UK was in fact more of a demandeur than any other Member State. At the same time, on other issues, such as Summer Time and passports, the UK risked being made to appear as the country blocking the most issues. “If we are to have the best chance of securing our main positive aims”, the Cabinet Office concluded, “we must avoid as far as possible seeming obstructive on other issues.”11 This last point was a significant one. The Whitehall system of coordination on European issues was a well-oiled machine. On every European Community issue, officials from all relevant Departments would meet under Cabinet Office chairmanship to work out a British response, on both substance and tactics. The general stance of the Government was of course clear. On individual issues, the officials from the lead Department would either come to a Cabinet Office meeting with policy guidance from their Ministers or, if not, they would report back to their Ministers on what the collective official view was and the Minister concerned would then write to his Cabinet colleagues proposing a policy to which all were invited to agree. In the event of disagreement at Ministerial level, there would be correspondence between the Departments concerned and, if necessary, a meeting of the Cabinet’s European sub-committee under the chairmanship of the Foreign Secretary. Particularly difficult issues, especially those, such as the European Passport, which were politically tricky, would be discussed in full Cabinet. The advantage of the system was that it led to coherent policy making: once an agreed view had been reached by Ministers it was adhered to firmly and consistently at all levels in subsequent negotiations in Brussels. Its downside was that it allowed for little flexibility, little room for trade-offs, for sacrificing a point on Summer Time in order to secure a more important gain on, say, JET. All issues tended to be treated as of equal importance and, if trade-offs or compromises were to be made, they tended only to be made well up the food chain, increasingly over the years only at European Council level. This was not a uniquely British problem but it manifested itself most acutely in the British system. Britain did not have, either in 1976 or later, the kind of relationship which, for example, the French and German Governments had established and which enabled them, not only to lead by example, but also to block by mutual agreement when one or other had a vital interest at stake.

Callaghan: The Lapsed Heretic: 1976 45 Without such alliances, Britain tended to rely more on tenacity and obstinacy and, in the years up to 1986 (i.e. before the widespread increase in majority voting brought about by the Single European Act) to fall back on the unanimity rule to safeguard its interests. The new Prime Minister understood this very well; he was a very experienced negotiator. He saw an opportunity to establish a closer working relationship with both the German and French leaders. Wilson had not been close to Giscard and, while he and Schmidt went back a long way, they did not have the rapport which Callaghan and Schmidt had established. Callaghan and Giscard had known each other when both men were their country’s Finance Minister, an experience which seems to form a bond, perhaps one of shared suffering. In addition, Callaghan was adept at telephone diplomacy. There are few Downing Street transcripts of telephone conversations between Wilson and other European leaders. Callaghan, by contrast, perhaps because of a happy coincidence of temperament and technology, used the telephone a lot. He was helped by the fact that both Giscard and Schmidt spoke English, Schmidt with great fluency. Giscard was due to visit Britain in June 1976 on a State Visit, the first by a French President since that of General de Gaulle in 1970. In the preceding weeks, Britain’s Ambassador in Paris, Nicko Henderson, sent three major despatches to London: on the rise of the French Socialist Party, on the French economy and on Giscard himself. Henderson’s first despatch was intended as a wake-up call to both the Labour Government and Party to take the French socialists seriously. The upsurge in the popularity of the French Socialist Party was, Henderson advised, the most important political phenomenon in France since de Gaulle’s return to power eighteen years earlier. There was a real possibility of a majority of the Left being returned in the Assembly election in 1978, while Giscard would continue as a President of the Right until 1981. This could trigger a constitutional crisis. In the meantime, only Mitterrand could hold the Socialist Party together and maintain the alliance with the Communists. He was the supreme catalyst. “His authority”, wrote Henderson, “derives partly from his past political experience and partly from his impressiveness as a public leader. Aesthete, hedonist, littérateur, Mitterrand is also a humanist, affected by egalitarian instincts and a sense of public duty . . . He is by nature aloof. His personal friends have been few and ill-assorted: from political cronies to Violet Trefusis . . . Admirer of Stendhal that he is, Mitterrand seems to have something of Julien Sorel12 in his make-up, an anti-hero torn between thought and action, yet too worldly, too ambitious, to qualify as a romantic. He has studied economics and struggled with Das Kapital, but his tastes lie elsewhere, and he would much prefer to spend his time reading Valéry than Marx. Not surprising in a man of his temperament, who has been twenty years in opposition, Mitterrand has bouts of political lassitude . . . But when things are going well, there is no doubt about his dedication to the task of restoring ‘republican legality’, destroyed, in his view, by de Gaulle in 1958 . . . Member of several administrations under the Fourth

46 Callaghan: The Lapsed Heretic: 1976 Republic . . . he is regarded by many as a political opportunist, a left-bank intellectual, who has embraced Socialism primarily to attain power . . . Nevertheless, the charge that is levelled against him of having sold his soul to the Communists is unjustified . . . Mitterrand remains convinced that he can limit the danger of Communist participation . . . The French Socialist Party regard it as of great importance to try to avoid the sort of ostracism to which the Allende regime [in Chile] was subject. They therefore hope that a Left Government, if not loved, at least will not be hated by France’s allies. “In this new attitude, I see a point of entry for ourselves . . . This brings me to relations between Britain and the Socialist Party . . . Whether the Left come to power or not, they are already sufficiently strong to be taken seriously by political leaders in the UK and to be seen as worthwhile partners for regular political contact. At the present time, as the PS [Parti Socialiste] leaders have freely acknowledged to me, contacts between the PS and British politicians are woefully thin. I do not suggest that it is going to be easy to get on to easier terms with Mitterrand . . . [He] speaks little or no English, knows little about, and has no special feeling for, us. A member of my staff recently asked one of Mitterrand’s associates what Britain meant to his boss. He replied ‘tweeds and pullovers’ . . .He personifies the Latin element of France. Nevertheless, difficult though the task of getting alongside Mitterrand and his chief associates may be, I think we should make the effort.”13 In his despatch assessing the French economy, Henderson traced the start of what he called “the real economic miracle” to the 1960s. During a period of general world expansion, France had outstripped her partners: in growth (5.9% annual average between 1963 and 1973, the highest rate in the EEC); in productivity (4.9% growth annually between 1964 and 1973); in investment (26.3% of GDP in 1963–1972, the highest ratio in the EEC); and in exports (10.3% annual volume growth, 1965–1975). France, in that period, had overtaken Britain to become the fifth industrial power and the fourth largest exporter in the world. Henderson attributed this success to EEC membership, exposing the French economy—long sheltered behind protective barriers—to sharp competition from its neighbours. French industry had responded to the challenge. In 1959, the other five EEC members took only 29% of French exports; in 1965 they took 43%. Throughout, the French economy had continued to be underpinned by agriculture. The agricultural sector now employed only 11% of the workforce, as against 28% in 1954. But, thanks to rapidly improving productivity and to help from the CAP, agricultural exports had maintained their share of 14–18% of total French exports and earned a surplus of 10 billion francs in the peak year of 1974. An essential contribution to French economic success had been the Government’s management of the economy; management that had been in the hands of Giscard himself for nine years out of fifteen. The key points were (a) the continuity of Government policy, with its emphasis on high growth, gave confidence to private industry; (b) Budgetary policy, based on the twin

Callaghan: The Lapsed Heretic: 1976 47 principles of equilibrium and of keeping the growth of public expenditure in line with the growth of GDP, ensured that the Government did not preempt resources, whether physical or financial, at the expense of the private sector; (c) the franc was kept slightly undervalued, to maintain the competitiveness of French exports while checking the propensity to import; (d) the operations of the banks and financial markets were closely managed to ensure that adequate funds were channelled to industrial investment. Henderson nevertheless sounded a note of caution. The economic transformation of the past two decades had been based on a social structure that had changed very little. French society remained conservative and elitist. Even so, absolute wealth had increased very greatly and many groups had moved out of poverty into moderate affluence. The particular dangers facing France economically lay in the levels of inflation and resistance to reform. Henderson did not therefore share the uncritical optimism of some analysts about the course of the French economy but he did believe that France would do at least as well as her partners, and probably a little better.14 Henderson’s third despatch was about Giscard himself, then aged 50. His background was “unmistakably that of the French upper bourgeoisie, a caste distinguished by wealth, privilege and sublime confidence in its right to rule”. A few years before Giscard’s birth, his father (Financial Director in the French High Commission in the Rhineland) had been given authority to add the name ‘d’Estaing’ to the simple ‘Giscard’ by which he had hitherto been known. This second barrel came from a French admiral who had fought with Lafayette in the war of American independence, though the family’s right of descent from him “is contested alike by political opponents and genealogists. Less contested is the family’s liking for titles, a trait shown by their marriages. The President’s wife can trace descent back to Louis XIV through the Broglies and the Faucigny-Lucinges, names that Nancy Mitford could scarcely have bettered. Her grandmother was a daughter of the great industrialist, Schneider, so that the family rests upon adequate financial, as well as patrician, footings.” Her father had been Military Attaché in London before the Second World War and died in a concentration camp in 1944. Giscard’s wife did not show much love for the Germans. According to Henderson’s account, Giscard’s parents were determined that he should be President of France. When, at the age of 12, the boy showed promise at the piano, his father locked it lest it should interfere with his training for the Presidency. The young Giscard’s lycée studies were interrupted by a minor role in the resistance and the war, which won him the Croix de Guerre. Then followed the École Polytechnique (the élite college of scientists and engineers) and finally the École Nationale d’Administration (ENA), the educational passport to a career in high administration and politics. “Even by the standards of France (where there is respect for brains) Giscard is admired as a man of outstanding intellect. He can, for instance, make a long speech full of detailed statistics without a note. He is in fact a virtuoso, who at times gives the impression that to excel in anything to which he turns his hand is the ultimate aim, rather than the pursuit of some specific political purpose,”

48 Callaghan: The Lapsed Heretic: 1976 De Gaulle had once prophesied that Giscard’s difficulty would be ‘with people’. His patrician background, his didactic manner and prim clarity had not, however, alienated the French public, and those who worked with and for him were evidently captivated by his intelligence, perceived integrity and high sense of public duty. But his victory in the 1974 Presidential Election had been narrow: only 400,000 votes more than Mitterrand out of a total of 26 million. Giscard’s aim as President had been to widen his precarious basis of support by appealing to the Centre. His constant theme, therefore, had been to give the French people change without risk. His greatest handicap lay in the fact that the Right had been in power continuously for 18 years. His greatest asset was the innate conservatism of the French people and their deep-seated fear of what a Government of the Left, including Communists, would bring about. This very conservatism had been an obstacle to Giscard’s reforms. He had notched up a number of significant social reforms, e.g. the reduction of the voting age from 21 to 18; measures to facilitate birth control, abortion and divorce; and changes relating to the universities and the media. But, as he moved from the social field to economics, the tempo had slowed. His attempt to introduce a capital gains tax had led to such an outcry that he had been forced to whittle it down to something almost meaningless. To Henderson, what was interesting about this experience was not only the atavistic defence by the French of what they regarded as their acquired rights, but the apparent ignorance of the President about how his compatriots would react on such an issue. He seemed to have found it hard to understand why his idea of an ‘advanced liberal society’, as he described it, had not been eagerly grasped and welcomed by a grateful populace. Somewhat surprisingly, in the light of Giscard’s image as a patrician, he had tried to introduce a more informal personal style. “We have behind us’’, the President had said, “a tradition of protocol that is excessive and un-modern. It is not like this in other countries; it would have caused no surprise if the Head of State elsewhere had appeared dressed in a pullover, but in France . . .” Soon after becoming President, Giscard had said that he intended mingling daily with the French by walking in the streets or visiting the countryside at the weekend.15 He invited dustmen for breakfast; he invited himself to dinner with families drawn from different walks of life. But these forays had made little impact. Britain, according to Henderson, did not loom large in Giscard’s heart or mind. He acknowledged that Britain, like France, was a great country, but he regarded the UK as very weak because of her current economic difficulties. He was doubtful about the readiness of the British Government to play a proper role in the European Community. He was even sceptical about the UK’s defence effort. As a result, whereas he attached importance to France’s relations with the USA, the USSR and the FRG, he had thus far not paid much attention to Britain. Asked in private why he pursued a much closer policy with Germany than with the United Kingdom, the President had answered that Germany was strong and the relationship solid; neither was true of Britain. In

Callaghan: The Lapsed Heretic: 1976 49 this perception, Renegotiation had left its scars, not least from the way French concessions made to meet Britain’s internal needs had been represented as a triumph for British diplomacy. Since the referendum, Giscard had been disappointed by the attitude of British leaders towards the Community. It was not so much what the British tried to get out of the Community so much as the lukewarm nature of Britain’s attachment to the European idea. Henderson concluded that, however difficult the French and their leaders might be, British Governments could not escape contact with them. They must be accepted as they were, not least for their economic success and their status, having overtaken Britain in 1973 as the world’s fourth trading power. The British Government should try to establish a relationship with the French at all levels. For the French were not altogether happy about being left alone in Europe with the Germans. If Britain failed to get on to better terms with Giscard and the French, she risked being left increasingly out of account in the important European decisions—political, economic and military.16 It was partly on the back of this advice, and with a view to the forthcoming state visit in June 1976, that Crosland and Callaghan decided that one of their objectives should be to get the French President to agree to start annual meetings between Heads of Government (in practice the President on the French side) and between other senior Cabinet Ministers (Foreign, Home, Defence and Finance) with their opposite numbers. That this had not so far happened was, according to Crosland, partly for historical reasons, partly because of policy divergences and partly as a result of national temperament on both sides. But French and British interests now coincided on many points, and the more agreement there was between Paris, Bonn and London the easier it would be to steer the Community in directions which the three Governments favoured. “The French will, of course”, Crosland added, “continue to make gestures of independence from time to time. They will continue to bargain hard and we shall at times have serious conflicts of interest with them.”17 The Cabinet Secretary advised the Prime Minister in similar vein, both Hunt and Crosland clearly feeling that they were somehow, in proposing a closer relationship with Britain’s neighbour, breaking with a centuries-old tradition. “It is in our interest to establish a better relationship with Paris, difficult and tiresome though the French may be”, wrote Hunt, adding, for good measure: “and they will continue to be both difficult and tiresome”. A certain condescension on the part of the French towards the British was, according to Hunt, the mirror image—and even tit for tat, for British condescension towards France during the post-war difficulties of the Fourth Republic in which Giscard had begun his career. Giscard himself had no particular understanding for Britain but he was highly susceptible to personal attention.18 In the event, Callaghan was able to report to Cabinet on 24 June that the atmosphere of his talks with the President during the State Visit had been good. Giscard had proved anxious to improve relations and the proposal for regular annual meetings had been agreed. Giscard had clearly been more

50 Callaghan: The Lapsed Heretic: 1976 impressed than he had expected to be with the progress the British Government were making in reducing the rate of inflation. He had also come to realise the importance of the British contribution to NATO.19 In the aftermath of the visit, Henderson wrote to the Foreign Secretary from Paris about one aspect of French behaviour that he thought Crosland might be wondering about. Giscard and others did not hesitate to question the European-mindedness of the British. Only a few days before the State Visit, Giscard had been expressing doubts about whether the British had the vision to be constructive members of a new Europe. Not only had nothing of the sort been said by the President while in London, but his own comments about the future development of the Community had been highly nationalistic. The reason for this, Henderson thought, was that the notion of European union, as viewed through the prism of the Tindemans Report, looked to Giscard like the typical bureaucratic Benelux/Commission concept of the Community, with supranational overtones, which the French detested. Tindemans, in French eyes, was the antithesis of Giscard’s idea of a European Council in which national Governments, particularly those of the larger countries, continued to control policy. This did not mean that Giscard was not committed to a pro-European policy. He saw no contradiction between the pursuit of national interests and the advance of Europe. So, when the French accused the British of being insufficiently European, what they really minded was what they perceived as a British tendency to look too much to the United States and to Britain’s other interests outside Europe. So, Henderson concluded, notwithstanding the ‘new entente’ resulting from the State Visit, “we should have no illusions that the French are going to be any less persistent in pursuit of their national interests . . . Nevertheless, it has been an outstanding conclusion of the recent visit that Giscard now sees that it is in the interests of France to take Britain into account in the formation of policy no less than it does the FRG. This is no small achievement.”20 It was an achievement that appeared to bear fruit. When Callaghan reported to Cabinet on 15 July on the European Council which had taken place a few days previously, he told his colleagues that what had struck him most about the atmosphere of the meeting had been the marked helpfulness of the French President. On every issue he had either avoided a difference of opinion or had given his support. It was Giscard who had finally come up with a solution to the vexed question of the number of seats to be allocated per Member State in the directly elected European Assembly, which had then been discussed and agreed between the French, German and British leaders. The fact that the British share of the seats had been increased to 81 would give the Government more elbow room for the allocation of seats to the constituent parts of the UK.21 On the eve of the summer holidays, Roy Denman, head of the European Unit in the Cabinet Office, was in buoyant mood when he wrote an end of term letter to senior Whitehall officials two days after the anniversary of the fall of the Bastille. Not only, said Denman, had there been agreement on the size of the European Assembly, but Britain had also secured the agreement of the

Callaghan: The Lapsed Heretic: 1976 51 Heads of Government to support the nomination of Roy Jenkins as the next President of the Commission; that the next Foreign Affairs Council (FAC) should consider making a declaration of intent on the extension of Community fishing limits to 200 miles; and on a timely declaration on terrorism. This progress had been matched by a series of positive agreements over recent months. New Zealand butter and meat quotas had been settled in line with the declaration which Harold Wilson had negotiated in 1975 in Dublin as part of the renegotiation settlement. The FAC had agreed a package of eighteen directives on technical barriers to trade which constituted a major step in the creation for British manufacturers of a single European market. An agreement had been signed between the EEC and Canada. Financial aid to the Mediterranean countries of the Community had been sorted, paving the way to the opening of accession negotiations later in the month. Denman’s more general reflections were even more upbeat: “All this means that the Community is now emerging from its last few difficult years. Our first year of membership—with the general knowledge that the country was divided in its support for Common Market membership—was not a happy one. And it saw the start of the worst recession for 30 years, which in itself was bound to have an inhibiting effect on Community development. Then eighteen months of renegotiation when our membership of the Community was in doubt. And, after the referendum . . . the way in which some of the accumulated business in which we had separately, but sensibly, to take a difficult line, came forward together, dashed hopes which had been raised too high and did a lot to poison the atmosphere.” A year after the referendum, in Denman’s estimation, the atmosphere was a good deal different. On 11 June, the Cabinet had finally held the one-day special Cabinet postponed because of Wilson’s resignation. It was Cabinet’s first major discussion since the referendum of Britain’s membership of the Community and had, Denman believed, been a friendly and constructive discussion, probably markedly more so than if it had been held six months earlier. Europe was moving out of the doldrums and there was now a Bonn/ Paris/London triangle, though there should be no illusions about the strength of the British end of the triangle. And of course the triangle must on no account look to the smaller Member States like a directoire.22 Cabinet minutes, like Chinese wall posters, require interpretation. The record suggests that, friendly as the 11 June meeting may have been (and Denman would have witnessed it as a record taker within the room), the old divisions between pro- and anti-Marketeers had not gone away. The Cabinet Secretary, John Hunt, was clearly well aware of them. His brief for Callaghan for the special Cabinet listed as the main issue of the meeting the question: “What have we got out of the Community except a falling pound, a large trade deficit and high unemployment”? Hunt’s answer was broadly that what the UK got out of the Community depended on how competently the country managed its own affairs. In other words, the Community was no quick cure-all. Nevertheless, the adverse trade balance was improving. The

52 Callaghan: The Lapsed Heretic: 1976 UK had secured a major liberalisation of the EEC’s external commercial policy; increasingly effective political cooperation (i.e. foreign policy coordination); a start in reforming the CAP; a regional policy which was expected to bring the UK £150 million in receipts (£60 net after deducting the UK’s contribution) over three years; a budget correcting mechanism, secured as part of renegotiation, which could reduce the UK’s net contribution by up to £125 million a year (in fact it produced no reduction whatsoever); and an overall net cost of membership which had turned out “very much more favourably” than expected. This windfall was to prove very transitory.23 In his summing up of the Cabinet’s discussion, Callaghan’s first general conclusion was that the Government must take the Community seriously and regard it as an important instrument that could be used to Britain’s advantage. It must therefore be taken into account in the formulation of all of the Government’s domestic and foreign policies. In the past, the British approach had been half-hearted. Now the Community dimension must become part of departmental thinking, and the national interest must be pursued with the same determination shown by the French. In the same vein, it would sometimes be necessary to cloak a hard position in suitably ‘communautaire’ doctrine and phraseology. It would be particularly necessary to take the Community dimension into account in the development of common positions, particularly in the external field. The development of common positions, rather than the promotion of artificial harmonisation, would suit British interests best. It was not entirely clear, Callaghan continued, whether the Germans, in saying that they would be willing to pay a price for greater unity, were banking on the fact that greater unity would not arise, or were genuinely thinking of some further transfer of resources from the richer to the less well-off members in the interests of economic convergence. There did, at any rate, seem to be a growing and helpful willingness in the Community to relate the transfer of economic resources to economic convergence rather than to the pursuit of monetary union. Turning to the enlargement of the Community, Callaghan said that, while it would involve some serious economic disadvantages to the UK, the majority of the Cabinet took the view that enlargement was inevitable. The Government should not seek to hasten it, but nor could they afford politically to seem obstructive. They should therefore move with the main body of the Community, neither in the van nor in the rear: above all, Britain should take a ‘communautaire’ attitude. 24 If the blue skies of the summer break looked benign (and UK summer temperatures were to be the hottest on record), the autumn was to be one of crisis for the British Government. Callaghan, with no majority at all in the House of Commons, had to put his Premiership on the line to secure Cabinet approval for a financial bailout by the International Monetary Fund (IMF). “Looking back”, Callaghan later recalled, “the strength of the position taken by the Chancellor and myself was that we knew how far we were ready to go, and did not intend to be pushed further25

Callaghan: The Lapsed Heretic: 1976 53 European issues were, by contrast, less demanding but serious and persistent enough to require the Prime Minister’s attention and direction. On the change to European Community rules on Weights and Measures, Metrication and Summer Time, Callaghan consistently batted back proposals for alignment, not because he was hostile but because he was constantly at risk of defeat in Parliament. The so-called Lib-Lab pact of 1977 was to give the Government some respite, but for the whole of 1976 the Government had no such safety net. But living on the edge did not absolve the Government from dealing with the humdrum as well as the dramatic. Indeed, with little scope for grand initiatives, a reputation for competence was as much as the Government could strive for. The Cabinet was reasonably harmonious, and Callaghan was brisk and firm when, on European issues, Ministers such as Benn at Energy and John Silkin at MAFF stepped out of line. Callaghan and his Chancellor of the Exchequer, Denis Healey, were united in their determination to grapple with the problems of the British economy, and both were staunch in the face of huge opposition from within the Labour movement. At the end of his first six months as Prime Minister, Callaghan told his Press Secretary, Tom McCaffrey, that his one disappointment among senior Cabinet members was the Foreign Secretary, Tony Crosland, who appeared unmotivated by his promotion to the Foreign Office.26 The second half of the year was marked by close-run elections in both Germany and the United States. The issue of Direct Elections to the European Assembly also loomed larger and was to become a major issue of Labour Party management. In the meantime, as Roy Jenkins’s appointment as President of the European Commission moved towards final approval, the appointment of Britain’s second Commissioner (in an era when the large Member States nominated two members) had also to be settled. In 1972, Edward Heath had nominated Sir Christopher Soames (Conservative) and George Thomson (a former Labour Cabinet Minister) to the two Commissioner posts allotted to the United Kingdom as one of the larger Member States. At that time, the Labour Party was opposed to the terms of Britain’s accession and had promised to renegotiate them. Heath made no attempt to consult the Leader of the Opposition about his choice of Thomson and Thomson himself did not consult or inform Wilson.27 Heath’s main aim was for the appointment to go through without opposition, and it was at his suggestion that the announcement was postponed until after that October’s Labour Party conference. On 5 October 1972, EEC Heads of Government were informed of Heath’s intention and Heath himself wrote on the same day to inform Wilson. In other words, the Prime Minister of the day informed a former Prime Minister, Leader of the Opposition, of his intention to nominate a senior member of the Labour Party to an important post only at the same time as he informed the heads of foreign Governments. This history was to influence Callaghan’s handling of the appointment of the second Commissioner in 1976.28 By mid-May 1976, Crosland had heard from the shadow Foreign Secretary, Reginald Maudling. Maudling had made very clear to Crosland that Margaret

54 Callaghan: The Lapsed Heretic: 1976 Thatcher, as Leader of the Opposition, took a firm view that the second British Commissioner should not be another member of the Labour Party. Implicit in the conversation was the expectation that she would have some say in the choice. Indeed, Maudling told Crosland that John Davies would be a good choice. Davies was a former Director General of the Confederation of British Industries (CBI) and had been both Secretary of State for Trade in Heath’s Government, and later Chancellor of the Duchy of Lancaster with special responsibility for relations with the European Community following British accession. In the latter job, with an Office, but not much of an official machine to support him, he had made limited impact and his contemporary reputation was of a man who had not wholly succeeded in making the transition from business to politics. Jenkins, when informed of Davies’s candidature, was “not very keen”. Crosland’s Private Secretary, Ewen Fergusson, in reporting this to Downing Street, added his own comment, based presumably on his own experience of working in the UK Permanent Representation in Brussels: “Though I am not quite sure of the propriety of saying so, there are some doubts among those with close experience of working with him [Davies] in the European Community context whether he would fill the post with the same distinction and effectiveness as his predecessors.” Fergusson went on to point out that, with the first British Commissioner as President of the Commission, an extra burden of unobtrusively defending the national interest must fall on the second British Commissioner. So, Fergusson concluded, Crosland’s advice was that he should pursue discreet enquiries about possible alternative candidates.29 In fact, Jenkins’s objections were more than those of mild reservation. He had, a Downing Street minute recorded, “reacted very strongly against the idea on the grounds that, while Mr Davies has been very good on the Scrutiny Committee, he was basically a ‘tachograph’ man”. Jenkins had told Crosland that he was very keen that the Commission should move away from concentrating on details of that sort to a major foreign policy role, and he doubted whether Mr Davies would be sympathetic to that approach. In submitting Fergusson’s letter, Callaghan’s Private Secretary advised that, on procedure, he thought it was clear that it was for the Government to nominate a successor to Thomson, although it would be natural to consult the Opposition.30 Callaghan asked for more names to be considered, and himself suggested Lords Carr and Carrington, both former senior Cabinet Ministers. Callaghan separately asked Crosland to get Jenkins to mention to Maudling his reservations about Davies. But Callaghan stressed that “nothing said by Mr Jenkins should conflict with the overriding importance of preserving the Government’s freedom of action to take its own decision”. In mid-July 1976, the Leader of the Opposition decided to crank up the thermostat by raising the issue in Prime Minister’s Questions, asking Callaghan whether he intended to continue what she called “the custom” of appointing one Commissioner from the Government side and one from the Opposition side. Callaghan replied: “I am not sure what precedents exist for her suggestion, but I shall be happy to talk to her about the matter.”.

Callaghan: The Lapsed Heretic: 1976 55 Mrs Thatcher’s question was followed by an approach from her Chief Whip to No 10, and a meeting between the Prime Minister and the Leader of the Opposition took place on 21 July 1976. Thatcher said that she wanted to put to the PM some ideas about who might be the second of the UK’s two Commissioners. She recognised that consultation between the Government and the Opposition in 1972 had not been altogether satisfactory, and there were reasons for that at the time. Nevertheless, she hoped that the Government would adhere to the policy of having the second Commissioner chosen from the Opposition side. Callaghan noted that 1972 had been difficult and indicated that he was willing to consider representations from Mrs Thatcher. Thatcher then proposed John Davies. He was, she argued, virtually bilingual, having been brought up in France, and his standing in the Community and the UK parliament was high. Her second suggestion was of Sir Peter Kirk, a prominent Conservative member of the European Assembly. Thatcher added that she could not account for the suggestion in the previous week’s Sunday Times that Sir Henry Plumb (President of the National Farmers’ Union) would be the Opposition’s preference. In fact, she thought he would not be an appropriate choice. Callaghan took note, adding that he understood from Jenkins that he was not particularly enthusiastic about Davies. But, he added, he himself had been thinking of possible names from the Conservative side and mentioned the names of Lords Carr, Aldington and Carrington. Mrs Thatcher said that Carrington would not want the job since he saw his future as being in British politics and Lord Aldington would not be available. Lord Carr would be a good choice. Callaghan concluded that the matter did not need to be settled before September and left it that Mrs Thatcher could come up with other candidates, and that he himself might suggest an alternative.31 Ken Stowe, Callaghan’s Principal Private Secretary, was present at the meeting and subsequently reported to Fergusson at the FCO that “when Mrs Thatcher had left, the PM said to me that it was quite clear that she was not really pressing for either Davies or Kirk, but was putting them forward to discharge what were evidently undertakings which she had given”. Stowe added that, although it was not stated in the conversation, it was nonetheless established that the Government were not bound to accept an Opposition nominee and had absolute freedom to make their own choice. The PM, Stowe added, would wish to handle this matter himself and Stowe did not believe that Mrs Thatcher would expect any consultations to take place other than between herself and the PM.32 During the Summer interlude, Crosland wrote to Callaghan to suggest what the UK’s priorities should be in seeking portfolios for the second Commissioner. After interdepartmental consultation, the order of preference recommended by officials, in terms of a balance of desirability and realistic attainability, was: Competition Internal Market Social Affairs Regional Policy.

56 Callaghan: The Lapsed Heretic: 1976 “I remain to be convinced”, Crosland wrote, “that the order of preference is the right one: I should be inclined to go for the reverse order.” Callaghan agreed with Crosland that the order recommended by Officials was wrong but had his own suggestion, different from both that of Officials and that of Crosland: Social Affairs Regional Policy Internal Market Competition. In the end, the second British Commissioner was to get none of the above.33 Mrs Thatcher returned to the charge on the second British Commissioner on 15 November when her office telephoned Downing Street to say that if no announcement of a name was forthcoming by Wednesday (i.e. two days later), or if the PM had not been in contact with her on the subject, she would ‘feel compelled’ to put down a written priority Question on the subject. Things then moved rather fast. Christopher Tugendhat, Conservative MP for the Cities of London and Westminster since 1970, was Roy Jenkins’s personal suggestion for the job of second Commissioner and the idea appealed to Callaghan because, as Jenkins put it “Callaghan was pleased to be able to throw a bone to me and irritate [Mrs Thatcher] at one go”.34 Callaghan informed Thatcher of his choice. She was not in a position to make serious objection: she had demanded Party balance and had got it, but she was undoubtedly peeved.35 Jenkins “never regretted the choice. Tugendhat was a very good Commissioner.”36 Thatcher would not have agreed: Tugendhat took seriously his oath as a Commissioner to represent the European Community interest, not the national interest, and his efforts to help the British Government after Thatcher became Prime Minister were always deemed by her to be inadequate. If Callaghan enjoyed a rare opportunity to vex the Leader of the Opposition, the opposite was the case in his dealings with the German Chancellor. But one issue, of itself not of prime importance, was to test that usually amicable relationship during the British Presidency of the EEC in the second half of 1976. In 1975, Callaghan had spotted a Commission document on research into nuclear fusion and had become very keen to secure the proposed EEC-backed Joint European Torus (JET)) for the existing UK facility at Culham in Oxfordshire.37 Callaghan raised the issue in talks with Schmidt and Genscher in Bonn at the end of June 1976. Genscher said that the German and Italian Governments (with their rival sites at Garching and Ispra respectively) had reached a deal to defer a decision until after the German Federal elections in October. Later in the day, Callaghan raised the issue with the German Minister for Research and Technology, Herr Matthoefer, stressing the danger of the experts at Culham dispersing, perhaps to the United States, unless a decision in favour of Culham was taken in the near future. Matthoefer was sympathetic,

Callaghan: The Lapsed Heretic: 1976 57 saying that the Italian site at Ispra was “a complete waste of money” and that he did not think it would be possible to get a suitable team to go to the competing French site at Cadarache. In Matthoefer’s personal view, Culham was by far the best site—but he would have to clear the position with Schmidt. Callaghan encouraged him to do so there and then, and Schmidt said that he accepted Matthoefer’s view “although he could not say so until after the election”.38 Callaghan had a perfectly amicable meeting with the German CDU Leader, Helmut Kohl, a week later, but it was a relief to him when, in October, Schmidt won a narrow victory in the German elections. Schmidt’s SPD lost 17 seats, his FDP allies lost two and Kohl’s CDU/CSU gained 19. Schmidt’s overall majority fell from 46 to 8 and Oliver Wright, Britain’s Ambassador in Bonn, forecast that the new Government’s position would be more precarious than over the previous four years. It would, he said, “be a brave man who would say today that a new SPD/FDP coalition would necessarily last the full four-year term”. Meanwhile, although they had failed to achieve an absolute majority, the CDU/CSU could be well pleased with the result. Following their second highest vote ever, they were once again the largest party in the Bundestag.39 In a considered analysis, Oliver Wright judged that while Schmidt had won the election, it was Kohl who had better captured the mood and needs of the German people. By all the yardsticks of opinion research, Schmidt, the archetype of the successful manager, was streets ahead of Kohl. But Kohl had never pretended to match Schmidt in expertise and experience. Instead, he had offered an alternative: a man who could reconcile conflicting elements in society; a man with a heart, not just a calculating brain; in short, an ideal Chairman of the Nation, rather than a brash Managing Director. In his speeches, Kohl went for the emotions, rather than the reason, of his audiences, appealing to old fashioned values: self-reliance, thrift, punctuality, hard work and patriotism. Although inferior to Schmidt as an orator, it was Kohl who drew the bigger audiences and roused them to a pitch which the Chancellor was unable to match. While Schmidt entered the meeting halls through a back door, often barely managing a civil nod to his supporters, Kohl plunged into the crowds, losing buttons in the press, but winning sympathy, support and votes. All this raised the question in Oliver Wright’s mind whether, in rousing emotions, Kohl went outside the self-imposed restraint on certain subjects that had been observed by the main political parties since the Second World War, particularly in respect of Kohl’s appeal to German patriotism. Kohl had gone beyond the usual in his evocation of the German Fatherland. In the peroration to his campaign speeches, Kohl had appealed to his audiences to vote for the CDU and thus for the Federal Republic, and (to a swelling roar) for the Fatherland, whereupon a band would strike up the national anthem. Wright believed Kohl to be unique among German politicians in using the term ‘Fatherland’, deploying it in a way which could be interpreted as embracing something wider than the Federal Republic, namely Germany as a whole.

58 Callaghan: The Lapsed Heretic: 1976 “We should”, Wright wrote, “be less than human if the twin phenomena of politics through emotion and appeals to the Fatherland did not arouse a twinge of concern in us. Is the FRG falling back into its bad old ways?” Wright thought not. Firstly, he did not believe that the record of German democracy over the previous thirty years justified any doubts about the extent to which it had put down roots. The centre of gravity in the Federal Republic was very close to the centre of the political spectrum and none of the major political parties wished to shift it. Those parties of the extreme left and right, which did want to shift the centre of gravity, had rustled up only 0.9% of the vote between them. Wright saw the appeal to patriotism, not as evidence of revived German nationalism, but as essentially conservative and nostalgic, reflecting a desire for some broader justification than economic success alone for the wider world role that the FRG must inevitably undertake. This did not mean, however, that the FRG was no longer interested in German reunification. In a speech to the UN General Assembly not long before the election, Genscher had said: “It remains the goal of the FRG to work towards a situation of peace in Europe in which the German people can recover its unity in free selfdetermination. For us, history has not spoken its last word on the division of the German people.”40 As far as the Schmidt Government’s prospects of survival were concerned, Wright saw little threat in the short term. But that could change if the CDU were to win control of a further Land Government, and thus secure a two thirds majority in the Bundesrat, and the power of absolute veto. So an intricate complex of forces would determine the Government’s survival. The difficulties of governing had increased for Schmidt, but the Federal Republic’s ability to play a leading role within the European Community and to make a major contribution to NATO would not be diminished. For British interests, therefore, the election result was a good one. The British Government would be dealing with a German Government that had shown sympathy for the UK’s difficulties and with which British Ministers enjoyed excellent personal relations. “The FRG will remain our closest and most effective partner in Europe”, Wright judged, adding a sting in the tail of his despatch: “Unfortunately, we still have some way to go before we can say that the reverse is true.”41 The closeness of the personal relationship shines through a Downing Street transcript of a telephone conversation between the newly, if narrowly, reelected and somewhat depressed, Helmut Schmidt and Jim Callaghan; “PM: Well, first my congratulations. After all, you have won dear Helmut. You have won . . . You are not like us . . . I think if I had a majority of eight I would be feeling very happy. I know what it’s like the morning after the night before. But I don’t really think you should feel depressed . . . I would have felt very lonely if you hadn’t been there . . . It’s a great source of strength to me and encouragement that you should be there . . . You know, it’s not a bad thing after all the years you’ve been in office, to win. You’ve got to remember that people get tired even of good Governments, Helmut. The fact that you’ve triumphed is a remarkable victory for you . . . I’d like to just have a gossip with

Callaghan: The Lapsed Heretic: 1976 59 you because—well, we survived our Party Conference – but it was surviving it—and fortunately we’ve got the Unions one hundred percent behind us . . . But what I’ve failed to do, I’ve failed to get the Party with me . . . There is a bit of a sour feeling about the policies we’re following . . . I’d like to talk over with you how we’re going to preserve our value as an ally and a partner, especially in Europe . . . I don’t want to be forced off it by short term difficulties like the fall in sterling and so on . . . Schmidt: I think the general attitude on our side is going to be helpful. For my own attitude, we will always be cooperative. I will try to get a word out tomorrow . . . PM: Righto, old man. Well, all the best and rest up today, and I’m delighted you got back . . . Schmidt: All the best to you, Jim, and thank you very much for calling”.42 A similarly human side to Callaghan’s character emerged when Gerald Ford lost the US Presidential election to Jimmy Carter in November 1976. The day before the election, US Secretary of State Henry Kissinger had told Britain’s Ambassador in Washington, Sir Peter Ramsbotham: “Intellectually, I suppose I think Carter will win, but my gut feeling now is that Ford will.” “He may be right”, Ramsbotham commented, “but my guess now is that the popular vote will be a virtual tie, but that Carter will win an electoral college victory (which, under the winner takes all system could appear surprisingly comfortable) by holding most of the south and carrying the north eastern states where unemployment is most severe. A high turnout of blacks and other minorities, which might be stimulated by the closeness of the race, would significantly help Carter . . . The Democratic activist groups, particularly the Unions, are also working hard. Kennedy won by a hairline popular majority in 1960, because he was able to persuade just enough of the electorate that he was a worthwhile risk for change.” “Well, well”, wrote Callaghan at the bottom of the telegram. Ramsbotham was spot on. Carter won by 297 Electoral College votes to Ford’s 241 and by a margin of 3% of the popular vote. A switch of 3,500 votes in Hawaii and 1,500 in Ohio would have seen Ford returned to the White House.43 In the sometimes dry world of international politics, it is worth recording the changes (in italics) made by Callaghan to the draft letter to President Ford submitted to the Prime Minister by his officials: “My Dear Gerry, At this moment, at the end of an exhausting campaign, when many different emotions will be crowding in on you, please put on the credit side of the balance sheet how much strength you have given me by your unswerving support and friendship during my period as Prime Minister. I shall not forget the close cooperation which I and my colleagues have enjoyed with the United States Administration under your Presidency. You have led the world with integrity and truth and no man can do more. I look forward to continuing close contact between us during your remaining months at the White House.

60 Callaghan: The Lapsed Heretic: 1976 Audrey joins me in sending to Mrs Ford and yourself our thoughts and warmest good wishes for the future. All we politicians have lived through triumph and defeat. They are passing phantoms, but the joy of our families and the knowledge that we have been true to ourselves are the solid bedrock on which we can continue to stand whatever the future may hold. I hope very much that it will not be too long before we can all meet again. With warm personal regards”.44 Callaghan was to develop a very good working relationship with Carter, which was not the case between Carter and the French President or, even more so, the German Chancellor. This tension was to play a minor, but not negligible, part in creating the policy distance that finally marked the death knell of anything approaching a European triumvirate of the leaders of the three largest Member States. 1976 ended with what Callaghan called “a dreary series of Cabinet meetings” on the economy.45 Before then, Cabinet had met to determine its approach to the British Presidency of the EEC Council of Ministers in the six months from January 1977. The Presidency rotated on a six-monthly basis between Member Governments. It involved the Presidency country chairing all the Ministerial and other negotiating meetings, from the European Council at Head of Government level down to the smallest Brussels official working group. Much of the business was ongoing business, particularly draft legislation, carried over from the previous period. 1977 was to be the first occasion on which Britain held the Presidency. Ahead of a Cabinet discussion in October 1976, the Cabinet Secretary reminded Callaghan that, at the special Cabinet on EEC policy in June, there had been some disposition to think that the Presidency would put Britain in a good position to advance its national interests. It would, Hunt advised, be dangerous to have exaggerated expectations, but there were opportunities as well as obligations. Among the latter, Enlargement would be time consuming, involving a probable Portuguese application for membership and the start of substantive negotiations with Greece. Cabinet had accepted that enlargement was inevitable, and had agreed that the UK should move with the main body of the Community, neither in the van nor in the rear. But the UK should use its position to minimise, or at least to put an upper limit, on the costs attendant on enlargement: unlimited support for Mediterranean agriculture, in particular, could become intolerable. Other issues listed by Hunt were trade with Japan, where the imbalance in Japan’s favour was becoming an issue; reform of the CAP and the CFP (where the UK had strong national interests at stake); unemployment; the promotion of a common energy policy; and social and regional policy. It remained a Government policy to secure a transfer of resources from the rich to the poorer in the Community, but this might have to wait for a while in the light of the German elections. JET would also feature, especially as the prospects for securing the project for Culham had improved.46 When Cabinet discussed the Presidency at the end of October, Ministers stressed the importance of making every effort to promote constructive

Callaghan: The Lapsed Heretic: 1976 61 Community action to deal with the problems of production and unemployment both in the UK and throughout the Community. Callaghan summed up a brief discussion, saying that the Cabinet were fully aware of the additional responsibilities that would fall during the Presidency to individual Ministers (not least because, while one Minister was in the chair of a particular Council, another from the same Department would need to occupy the UK seat and seek to represent the UK interest). It was important, Callaghan reminded his colleagues, “that we should discharge those responsibilities well and it would help us to do so if we took every opportunity to portray our action and objectives as ‘communautaire’”.47 At a time, late in the year, when every meeting of Cabinet was taken up with the negotiations between the British Government and the IMF, Callaghan reported only briefly at the 2 December Cabinet on the last European Council meeting of the year that took place on 29–30 November in The Hague. He was, as it turned out, not wholly accurate in claiming optimistically that “the Tindemans Report had been given a decent burial”. But he was less sanguine in his overall assessment. What had struck him most, he said, was the fact that, with the strong anti-interventionist views of Chancellor Schmidt (who probably sounded more confident about the development of the German economy than he in fact was) the Community was not in a position to deal with the economic and monetary problems that faced it.48 One notable feature of the European Council, and an indication of things to come in 1977, was the statement made by the French President in which he analysed the state of a European Community confronted, as he put it, with difficulties on all sides, both internally and externally. According to Giscard, each Government was putting in place the economic measures it considered appropriate, but such measures would be more effective if they were implemented in unison and in a European perspective. The economic and monetary state of the Community was seen by Giscard as a cause for concern. The mean growth rate of the EEC economies would be below 4.75%, compared with the 5.5% envisaged only a few months earlier. Growth prospects for 1977 were mediocre and unemployment was not coming down; indeed, it was increasing among young people. The Community’s internal monetary relations were in disarray, with an unprecedented slide in exchange rates and massive differentials in parities. As a result of those monetary disturbances, the CAP, which Giscard claimed as one of the most solid achievements of the Community, was facing the hardest test of its history. The Monetary Compensatory Amounts (MCAs), designed to manage agricultural price movements resulting from parity changes, had now reached a quite unacceptable level—about 50%, for example, for exports from Germany to the UK. In 1977, it could take about a quarter of the Community’s agricultural budget to finance them. Externally, things were also disturbing. The increase in the oil price of three years previously had not been absorbed. Exports from Japan endangered the very existence of some of Europe’s industries such as shipbuilding, steel, electronics and even the motor industry.

62 Callaghan: The Lapsed Heretic: 1976 Faced with this situation, Giscard proposed a three-point programme of preserving, re-establishing and developing: preserving the Community’s attainments, re-establishing the balance of the European economies and affirming the Community’s intention of resuming the construction of Economic and Monetary Union as soon as circumstances permitted. This last, Giscard concluded, should be the subject of a special European Council at the end of 1977 “to review progress in restoring balance to our economies, and to determine the procedures for resuming the indispensable construction of EMU”.49 These words would not have been welcome in Callaghan’s ears. He thought he had put EMU onto the Community’s long finger. In fact, in the shape of the proposals which Schmidt and Giscard were quite soon to bring forward for a European Exchange Rate Mechanism (ERM), Callaghan was to be offered what turned out to be Britain’s last real chance to lead the European Community alongside France and Germany.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

16 17 18 19 20 21 22 23 24 25 26 27 28 29

CM (76) 1st Conclusions, 13 April 1976, CAB 128/59, TNA. Morgan: Callaghan, op. cit., PREM 16/891, TNA. PREM 16/864, TNA. CM (76) 9th Conclusions, 11 June 1976, CAB 128/59; 31st Conclusions, 11 November 1976, CAB 128/60, TNA. PREM 16/1246, TNA. PREM 16/1921 PREM 16/852, TNA. PREM 16/869, TNA. PREM 18/863, TNA Ibid Stendhal: Le Rouge et le Noir, 1830. CO file K 98/1 Part 6 PREM 16/844, TNA. When a car, driven by the President, reportedly crashed into a milk float in the early hours of a Paris morning, France being France, the story, whether true or false, led to a rise in the President’s popularity, on the undisputed assumption that the President was returning from an assignation. PREM 16/884, TNA. Ibid. Ibid. CM (76) 11th Conclusions, 24 June 1976, CAB 128/59, TNA. PREM 16/CO K98/1 Part 6 CM (76) 15th Conclusions, 15 July 1976, CAB 128/59, TNA. PREM 16/850, TNA. PREM 16/1247, TNA. CM (76) 9th Conclusions, 11 June 1976, CAB 128/59, TNA. Callaghan: Time and Chance, Collins 1987, p.441 Author conversation in 1976. See Chapter 1, pp. [13–14] PREM 16/860, TNA. Ibid.

Callaghan: The Lapsed Heretic: 1976 63 30 The minute contains a manuscript marginal note: “Not a courtesy observed by the last Tory Government”, probably written by a Special Adviser since it is not in Callaghan’s hand. 31 PREM 16/1035, TNA. 32 PREM 16/860, TNA. 33 PREM 18/860, TNA. 34 Jenkins, European Diary, p. xix. 35 Private conversation with the author 36 Jenkins, European Diary, p. xix. 37 See p. [9] 38 PREM 16/1250, TNA. 39 PREM 16/895, TNA. 40 PREM 16/895, TNA. 41 Ibid. 42 PREM 16/895, TNA. 43 PREM 16/1155, TNA. 44 Ibid. 45 Callaghan: Op. cit. p.442 46 PREM 16/1247, TNA. 47 CM (76) 29th Conclusions, 28 October 1976, CAB 128/60, TNA. 48 CM (76) 36th Conclusions CAB 128/60 49 PREM 16/851

3

The Problematic Presidency and Old Wounds Reopened: 1977

Administrative planning for the British Presidency of the EEC in the first half of 1977 had begun three years earlier. Academics wrote papers and Establishment Officers earmarked extra staff. Once the 1975 referendum was over, officials began to wonder what the Government’s policy objectives for the Presidency would be. By the end of 1976, Britain was poised to start what the UK Permanent Representative to the EEC, Sir Donald Maitland, called “the most intensively prepared, and perhaps the most self-conscious, Presidency in the history of the Community”. On the continent, Britain’s partners noted the coincidence that Britons were simultaneously taking over the top jobs in the Council of Ministers, the European Commission and, somewhat anti-climactically, the toothless Economic and Social Committee. Some were apprehensive, so Maitland judged, that the British would try to exploit these positions to remake the Community in their own image, thereby upsetting the hard-fought compromises, and the balance of power, established by the original Six. The Francophones feared for the dominance of their language. Overall, the air of anticipation, mixed with suspicion, which greeted the British arrival at the centre of the Community stage was to colour the assessment made by Britain’s partners of her performance in the Chair. In Maitland’s view, these factors also made it more difficult for Roy Jenkins to settle into his role as Commission President.1 The British Government’s objectives for the Presidency were in fact quite modest. Ministers had decided that—unlike some previous Presidencies—the British one should not set itself grandiose targets for the ‘building of Europe’. There were reasons for this. For a start, the business of the Community was too complex to allow for any one Presidency to effect a great leap forward. Moreover, not only would traditional European rhetoric have sounded unconvincing coming from British Ministers, but they had no European visions to dream or grand European targets to aim at. Such policy ambitions as there were tended to be the same for the UK as Presidency as for the UK as national delegation: changes in the CFP; a CAP price fixing which discouraged surpluses; an attack on unemployment; a decision to locate JET at Culham. The British Presidency hoped to give a sensible lead to the

The Problematic Presidency and Old Wounds Reopened 65 Community’s cautious approach to enlargement; and to avoid trouble on Direct Elections, on which the UK was the main foot dragger. The Foreign Secretary, Anthony Crosland, set out these objectives in a speech to the European Parliament at the beginning of January 1977. On 13 February, Crosland suffered a serious stroke while working at home on Government papers. He died on 19 February. The obvious successor to Crosland might have been Roy Jenkins had he still been available, the passage of time having made his pro-European views less controversial inside the Labour Party. In his absence, Denis Healey merited the job by seniority and experience. But Callaghan needed him as Chancellor, as the two of them fought the battle of their political lives to restore economic sanity and stability at home. In any event, all Prime Ministers are tempted by the bold move that no commentator has predicted. In Callaghan’s case that move was to appoint Dr David Owen. At 38, he was the youngest Foreign Secretary since Anthony Eden. He was Crosland’s deputy in the Foreign Office and the Minister responsible for European matters. He was to the right of centre within the Labour Party, a noted pro-European who had joined with Roy Jenkins, Shirley Williams, Bill Rodgers and others to defy the Labour Party’s three-line whip in Opposition in order to support Edward Heath’s bid to join the European Community. He had also been Minister of State for Health under Barbara Castle, and had therefore been tempered in the flame of her tough and skilled political leadership and scorched by negotiating on doctors’ pay with the British Medical Association. He was a reformer who, coming to the House of Commons from a career as a hospital doctor, had, for example, spoken out in Parliament in 1967 in favour of the partial decriminalisation of homosexuality in the UK. Thus, when Helmut Schmidt quizzed Callaghan about his appointment of Owen, in a telephone conversation on 9 March, Callaghan was able to assure him that Owen was going to be “a good thing”. “I wanted to bring on somebody young”, Callaghan continued, “and he will do the job as well as anybody will in my view. There is a touch of youth about him which I think is always welcome in political circles.” Owen was “very pro-European. I should say probably regarded as being on the right of the Party but, like many young people, thank God, he has radical tendencies and I think he would want to change things and do things in a different way, which I think is always very valuable indeed.”2 Even before his bold appointment of Owen as Foreign Secretary, Callaghan had done one other thing at the start of the year which brought him much opprobrium among the mean-spirited and unforgiving members of his own Party, but which was an act of generosity mentioned neither by Callaghan himself in his autobiography nor by Kenneth O. Morgan in his comprehensive biography. On 7 January 1977, Winston Churchill, MP (grandson of the great man) telephoned Downing Street to say that Anthony Eden (Lord Avon) was staying in Florida (where he had intended to spend the winter) with the MP’s mother and stepfather, Pamela and Averell Harriman. Eden had, however, been

66 The Problematic Presidency and Old Wounds Reopened taken critically ill and the doctors had just diagnosed liver cancer. He was not expected to live for more than another two weeks. Lord and Lady Avon wanted to return to their home in Wiltshire but industrial action by baggage handlers at Heathrow had led to the cancellation of the specially equipped British Airways flight that had been due to bring him home. Could the Prime Minister help? Callaghan did not hesitate, ordering an RAF VC10 to bring Eden home. A few days later, Clarissa Eden wrote to Callaghan: “The journey was an ordeal for him—and indeed would have been impossible under any other circumstances. He was most determined to be at home and I am deeply grateful to you for making this possible. Thank you with all my heart” Churchill also wrote: “I know how deeply touched Anthony himself was by your decision for, before he left yesterday, he telephoned to say goodbye to my mother and Averell who were in Washington. His voice was very faint but he said how grateful he was that this should be done, adding: ‘And to think that it is the Opposition (meaning your side) that is sending the plane.’ He was desperately keen to return to England so that he could spend his last few days in the surroundings of his own home. Thank you so much for all you have done . . . I feel it is what the nation owes to a man who has served it with distinction in peace and war over many years”.3 Eden died on 14 January. Since he remained in death a controversial figure in British public life because of the Suez crisis of 1956, the Government statement drafted for Callaghan was formal and formulaic. It was characteristic of Callaghan that he rewrote it to say: “To those of us who grew up in the 30s, Anthony Eden will always be remembered as a staunch opponent of fascism . . . He knew at first hand the horrors of war and it was this which made him a strong supporter of the League of Nations which he served . . . as well as being the youngest Foreign Secretary this century . . . We mourn the passing of a distinguished Parliamentarian and a statesman of exceptional experience and determination.”4 A baggage handlers’ strike at Heathrow leading to the disruption of British Airways flights was symptomatic of the grave economic issues with which Callaghan had to contend. European business was second order business but also unavoidable. The prospect of Portuguese accession brought Portugal’s socialist Prime Minister, Mario Soares, to London in early February 1977 at the start of a tour of EEC capitals. Soares had played the leading, heroic, role in saving Portugal from Communist rule after the revolution of 1974. Callaghan, as Foreign Secretary, had used imaginative avenues of support, moral and practical. Now, the British Government had to steer a path between its responsibility as Presidency to produce consensus among the Member States on Portugal’s bid for membership, and its desire to continue to show Portugal its support. Crosland’s main aim as Chair of the Foreign Affairs Council of the EEC was, he told Callaghan, “to get the French, who so far have been the only ones to resist this, to be ready to say publicly that they accept the principle of eventual full membership”. But if Crosland succeeded, then Soares would have to accept that there would be a long period of negotiation. Of course, from the UK chair, David Owen would speak positively about avoiding giving Soares a political rebuff.5

The Problematic Presidency and Old Wounds Reopened 67 Soares himself, meanwhile, was practising his sales pitch on Britain’s Ambassador in Lisbon, John Wilson (son of Winston Churchill’s personal physician, Lord Moran). Wilson was impressed by Soares “as a personality and as being imaginative, fluent and shrewd, interested in the broad sweep of affairs, not the detail, very much a political, and not an economic, animal, poles away from being a technocrat”. The political thesis which Soares laid out to Wilson was that the Communists had come within an ace of taking over his country. Since that critical period, great strides had been made in establishing democratic structures, with a freely elected Parliament and President. But Portugal’s very difficult economic circumstances now meant that tough measures must be taken which would reduce the standard of living of the Portuguese people. That would only be accepted if the country was engaged on a great enterprise, namely to join the EEC. If, however, Europe shut the door in Portugal’s face then, Soares contended, either the Communists would indeed take over, or there would be a Pinochet-type right wing dictatorship.6 Crosland, at the Foreign Affairs Council early in the British Presidency, faced the predicted reluctance of the French Foreign Minister, but was able to steer the Council to a statement under which it was agreed that, if Portugal applied to join the EEC, the European Community would take note of it on the basis of Article 237 of the Treaty of Rome, while also pointing out the need to find “satisfactory solutions to all the problems standing in the way of Portugal’s economic integration into the Community”. This rather half-hearted welcome was, cleverly, seized on by the Portuguese Foreign Minister and portrayed domestically as “a great victory for democracy in Portugal and a historic moment in the life of the Community”.7 Divisions remained, however, and Crosland told Cabinet that “a substantial difference of emphasis existed between ourselves, the Germans and the Danes, on the one hand, and the French . . . on the other”. But at least a common statement had been agreed under which “all Member States would now give a broadly identical answer to the Portuguese Prime Minister, although differences in emphasis would doubtless emerge.” Some in Cabinet wanted to expose the French, arguing that on this and other matters the French were the ones who were being negative, and not the UK, popularly supposed to be the Community’s most obstructive member. It was argued that the French skilfully exploited the use of European rhetoric, were adept at finding legalistic cover for their actions and had the advantage of a Press which, unlike the British media, tended to support their Government’s actions. Others argued that this was an unjustifiably negative view, that Britain’s reputation in the Community was good and had been enhanced by Crosland’s keynote address to the European Assembly, and that the Government would be ill-advised to spend too much time worrying about the French. The Government should define their interests carefully, defend them tenaciously and bear in mind that the French were doing the same.8 From the British Embassy in Paris, Nicko Henderson sought to unravel the motivations of the French Government on enlargement. The French, he

68 The Problematic Presidency and Old Wounds Reopened thought, particularly Giscard, saw political advantages in being positive about Greek entry.9 But the French had increasing doubts about the consequences that Greek accession would have for accelerating Portuguese and Spanish entry. One aspect was the problem, in French eyes, of managing a Community of twelve members. The French would regard it as intolerable that, as one consequence of enlargement, they would have the Presidency of the Council only once every six years. The possible influx of Mediterranean agricultural products also posed a domestic political problem. This issue had become especially sensitive following the poor showing of Giscard’s followers in the recent municipal elections and in the light of the success of the Gaullist, Jacques Chirac, ever a strong and vocal defender of French agriculture. The French Government therefore saw advantage in slowing down the whole process. In order to avoid the finger of blame for delay pointing to them, they would seek to involve the Community in studies of the implications of enlargement and in agricultural reform programmes for products such as wine, fruit and vegetables where the French market could be vulnerable to competition. Henderson saw no reason why this French approach need cause particular difficulties for the UK, either in terms of Anglo-French relations or more generally. While going along with a call for further studies that in practice would involve delays for Greece which the UK would not mind, there would be nothing to prevent HMG from continuing to assert her own view that there were strong political reasons for showing a positive attitude to Portugal as soon as possible.10 When Mario Soares came to Downing Street on 14 February 1977, it was David Owen who sat at Callaghan’s side as Crosland lay dying in hospital. Soares opened the meeting by saying that a symbolic act had taken place on his departure from Lisbon earlier in the day. A military guard of honour had turned out at the airport. This was the first time since the revolution that the military power had explicitly paid homage to the civil power. Callaghan welcomed Portugal’s application for EEC membership while, in his Presidency capacity, warning Soares, that “Dr Soares might find this view expressed in different accents” by his colleagues elsewhere in the EEC. Soares, for his part, made no secret of the explicitly political nature of the Portuguese application which meant that, whatever the objective readiness or otherwise of Portugal, she needed a decision by the Governments of the EEC in favour of opening negotiations by the end of 1977. If too much time passed before a decision, the extremist left-wing forces and those elements in the armed forces who opposed the Government, would be able to propagate the idea that the Community had given a polite rebuff to the Portuguese application. Callaghan warned Soares that the timetable he envisaged would be extremely tight. As Callaghan closed the door of No 10 behind his visitor, he remarked to his officials: “Poor old Mario. He just doesn’t get it, does he”?11 But the No 10 Press statement was upbeat. The Prime Minister, it said, had assured Dr Soares that the British Government fully supported the principle of Portuguese membership and looked forward to Portugal taking her full place

The Problematic Presidency and Old Wounds Reopened 69 in Europe. Both Prime Ministers had agreed that there would be many practical difficulties to be overcome and that the process would take time. But the British Government would play its full part in achieving a successful conclusion.12 A few weeks earlier, Chancellor Schmidt had been in Britain for talks with Callaghan. But Schmidt’s Government was no longer riding the crest of the wave. A sea change had come over the German political scene, Oliver Wright warned, and the visit would coincide with a new low point in the fortunes of the German coalition Government. They had lost public confidence after trying to back out of an election pledge to raise pensions. The Administration had “appeared fumbling and lacking in direction. The contrast with the image over the last two years of a brisk well-ordered Administration moving sure-footedly towards its goals is striking . . . Schmidt’s own reputation has therefore taken rather a battering . . . He himself told me just before Christmas that the previous two weeks—covering the pension fiasco and his own narrow re-election—had been the most trying and exhausting of his political career.” The overall picture was thus of a Government at odds with itself and facing an uphill task in recreating public confidence. For the first time, Kohl’s public standing equalled that of Schmidt.13 Much of Schmidt’s meeting with Callaghan focussed on the state of the global economy. Callaghan thanked Schmidt for German support in connection with the IMF loan to Britain and Schmidt complimented Callaghan on the ‘enormous achievement’ of the British Government’s counter-inflation policy. Schmidt took the view that the world economy was not passing through a normal recession. This was quite a different kind of economic upheaval, one which had sucked in virtually the whole world, with the possible exception of China. The methods employed to overcome the depression of the 1930s were not appropriate to the 1970s, Schmidt argued. What was necessary was a concerted operation between the economies of the United States, Japan and some of the European economies, including that of Germany.14 Summer Time came early in 1977, in the form of a minute from Home Secretary Merlyn Rees to the Prime Minister, advising that the other members of the EEC were now united in support of a Commission proposal which would reduce the period of summer time in Britain by about four weeks. Despite the fact that, according to Rees, the subject was one that raised immense, and pretty irrational, passions and that ‘many ordinary people’ had strong feelings that summer time in England and Wales ought to be longer rather than shorter, he felt that the time had come to put the issue to Parliament, where the Government would face “a rough Parliamentary ride for simply raising the issue”. The arguments in favour of harmonisation centred on UK business and commerce and the transport field. In 1976, the lack of harmonisation had necessitated four changes in the timing of rail, ship, hovercraft and air services between France and the UK. British Airways, British Rail, the CBI and the British Chamber of Commerce in France were all in favour of the proposed change. The construction industry was opposed

70 The Problematic Presidency and Old Wounds Reopened because the proposed harmonisation would lead to a less flexible working day, an increase in the use of artificial lighting and a higher accident rate. Callaghan was having none of it, minuting: “I think this will create howls of anger with no countervailing support. Don’t touch it.”15 There is no doubt that the most serious European issue confronting the Labour Government in 1977 was how to manage the introduction of Direct Elections, since it revived all the atavistic sentiment that had divided the Labour Party on Europe over the previous decade. But the Government files of the period are a salutary reminder of the extent to which political and official time and energy can also be consumed by the essentially transitory and seemingly ephemeral. For the British, and the British Presidency, the most trying issue of the opening weeks of the British Presidency was that of who should attend the economic summit of the G7 to be held in London in May. Invitations went out in March to the leaders of Canada, France, the FRG, Italy, Japan and the United States to meet in 10 Downing Street on 7/8 May. Work began in Downing Street to install steel pillars on the ground floor so as to support the ceilings. But it was not the danger of the world’s most important leaders falling through the upper floor that consumed Ministerial time and ingenuity. The burning question became that of the attendance, or otherwise, of the new Commission President, Roy Jenkins. A Foreign Office telegram to its overseas posts, with lots to say about every other aspect of the summit, said on this question only that Community participation at the summit was under discussion within the Community and that further guidance would be sent to Posts as necessary. On 8 March 1977, David Owen, as the new British Foreign Secretary, presided over his first meeting as Chair of the Foreign Affairs Council, “proving a good and effective, self-confident but not aggressive, chairman”, according to Roy Jenkins.16 After the transaction of routine business, the Council went into a restricted session to discuss whether there should be Community representation at the Economic Summit i.e. whether Roy Jenkins, as Commission President, should attend. Owen opened the issue for discussion without suggesting that there was a Presidency view on the subject. The French Foreign Minister, Guiringaud, “slightly shame-facedly”, according to Jenkins, said that France was opposed to the Commission presence. The summit would be a restricted, consultative meeting, largely dealing with issues outside the Community context, at which decisions would not be taken. Attendance should be limited to Heads of Government. The four Heads of Government from Community countries who would be at the meeting (France, Germany, Italy and the UK) would be able to speak according to previously agreed EEC ‘orientations’. The Belgian, Dutch, Italian, Irish and Danish Foreign Ministers all spoke in favour of the Commission President being there. Owen summed up that the matter required consensus. There was no consensus and therefore the Community would not be represented. Jenkins disputed Owen’s summing up. It was wrong to say that a firm decision had been taken against Community representation. There was time to reconsider. The Belgian Foreign Minister,

The Problematic Presidency and Old Wounds Reopened 71 with large support from around the table, said that the issue should be dealt with at the forthcoming European Council in Rome.17 In a telephone conversation the next day, Callaghan asked Schmidt for his view. Schmidt was in favour of the Community being represented by the Presidency i.e. by Callaghan, but he twice emphasised that this was a private view. He knew that President Giscard was very outspoken in his opposition to Jenkins’s presence. Maybe Callaghan, who was going to Washington the next day, could have a private word with President Carter and get him to say a word against Jenkins’s attendance.18 But Carter, it turned out, wanted to strengthen the cohesion of the European Community and favoured European Community representation at the summit. Callaghan explained where matters stood. Officially, he himself, as Presidency, did not have a position, though in truth he would prefer the Commission not to be there. The Foreign Secretary, on the other hand, wanted the Commission to be present. Schmidt was against, but not prepared to say so. Giscard was against, and said so clearly. The smaller EEC countries wanted Jenkins to be there because they looked to the Commission to defend their interests. Callaghan said that he had taken note of Carter’s view and would tell the other EEC leaders of it when they met in Rome. The main problem was that of French susceptibilities. The whole thing was a bit like elephants walking round a table.19 On Callaghan’s return to London, he was faced with a rapidly accelerating EEC crisis. The Dutch Prime Minister told a Press Conference following a Cabinet meeting that, if there was no Community presence, then Netherlands would consider its interests unrepresented in London. Both he and the Dutch Finance Minister, Wim Duisenberg, reminded journalists that their country had, as one of the stronger European economies, given considerable financial help to the poorer, including Britain. Because of the negative attitude of larger EEC states towards Community participation at the London summit, it could no longer be assumed that Netherlands would continue to do so in future. The Dutch Foreign Minister told Britain’s Ambassador that the Dutch were beginning to think that they could no longer have taxation without representation.20 In separate telephone conversations with Schmidt and Giscard, Callaghan found that Schmidt was in favour of the majority view but would not gainsay Giscard, while Giscard remained adamant. Giscard promised to set out his view in writing and duly sent Jenkins a letter on 23 March 1977 in which he expressed “esteem” for Jenkins, and for the European Commission as “an essential cog in Europe’s organisation and of whose work the French Government is, as you know, one of the keenest supporters”. However, Giscard continued, “just because the London meeting looks like being more noteworthy than other meetings, one cannot accept the idea that Member States are no longer free to meet third countries without the Commission’s being present. That would be neither in conformity with the Treaties nor helpful to the advancement of European construction which must rest on obligations which are both strictly applied and

72 The Problematic Presidency and Old Wounds Reopened clearly conceived and defined . . . None of these comments by the French Government should put in question the high responsibilities which the Commission has for facilitating the advancement of European construction.”21 Giscard’s letter was hardly designed to pour oil on troubled waters and, when one of Schmidt’s advisers telephoned the Elysée to urge compromise, and was sent away with a flea in his ear, Schmidt himself started to become agitated: “the pressure of the smaller Member States of the Community on the subject was growing and he was very worried that a failure to resolve the question might spoil the European Council meeting.”22 As the date (25/26 March) of the Rome European Council approached, official anxiety in Whitehall grew. A draft steering brief for the Summit warned that “Europe is in some disarray and we are held partly responsible for it”. The issue of Community representation, the briefing note said, threatened the meeting. Roy Jenkins, officials advised, clearly felt that his standing as the new Commission President was at stake. Britain was already in the dog house: “The European Council will coincide with the annual agricultural price fixing exercise during which we are likely to come under criticism for resisting price increases to which other Member States attach importance, or any change in the Green Pound. British defiance of Community rules on pig meat subsidy would still be in the minds of some member Governments; a major struggle lay ahead on the CFP during which the UK would want to secure cuts in fishing by other EEC countries which they would find painful; and there was anxiety about British will to honour her ‘best endeavours’ commitment to Direct Elections.”23 As anxiety levels rose in London, so did the political temperature on the continent. On 17 March 1977, in an emergency debate in the Dutch Parliament, all parties supported a resolution calling on the Dutch Prime Minister to insist on making the issue of Community representation the first item of business at the European Council. Some members went so far as to suggest that the Netherlands should boycott the rest of the European Council if they did not obtain satisfaction. In the Dutch Press, there was criticism of Britain and Germany for adopting what was seen as a weak position over EEC participation. The issue was being seen as a test of European solidarity. In London, the Belgian Ambassador called, on instructions, on a senior FCO official, John Fretwell, to emphasise the seriousness with which his Government viewed the matter. The Belgians, said the Ambassador, had been disappointed by Owen’s failure as Chair of the FAC to engage, qua Presidency, more actively on behalf of Community representation. When the issue was next discussed, the Belgian Government would look to the British to join the other Member States in overcoming French resistance. If the Dutch boycotted, or walked out of, the European Council, then the Belgians might have to follow suit.24 As the pressure mounted, there appeared the first hint that the British Government might start to take a more active Presidency role. Dr Owen told Cabinet that the French Government were maintaining their position in uncompromising terms. It would, said Owen, be most undesirable to let the

The Problematic Presidency and Old Wounds Reopened 73 atmosphere of the European Council be soured by prolonged argument over an issue which, though important, was not a major one. But, crucially, Owen admitted that it was the Government’s duty, as Presidency, to try and promote agreement. Some Cabinet members suggested that the issue could be dealt with by inducing the smaller Member States to recognise the hardening of the French position and the risk, therefore, that a row at the European Council would only be counterproductive and distract from major and substantive issues such as unemployment and the world economic situation.25 More realistically, Callaghan instructed Owen to conduct soundings of the five Member States of the EEC not represented at the London Summit (Belgium, Denmark, Ireland, Luxembourg and Netherlands). In these conversations, Owen told his opposite numbers that, in his view, President Giscard would not give ground at the European Council. Callaghan was, said Owen, inclined to accept that the issue would have to be placed at the head of the European Council agenda. But he would be reluctant to do so if all that transpired was a major row, to the exclusion of substantive matters. The French could not be bludgeoned into submission. Nor was it in the interests of the Community that the celebrations of the 20th anniversary of the Treaty of Rome (the reason for the summit being held there) should turn into a fiasco, as would be the case if the question of Community attendance was allowed to dominate the proceedings. Predictably, the Irish and Danish Foreign Ministers showed some understanding of the Presidency’s predicament. The Foreign Ministers of Belgium and Netherlands were, equally predictably, insistent that the question of Community representation should be taken first, the Belgian threatening that, if the Presidency did not fall in with Belgian wishes, they would refuse to discuss anything else. The Dutch Foreign Minister said that his Prime Minister would not walk out, despite the unanimous view of the Dutch Parliament that he should. But, if Giscard remained adamant, there would be a crisis of confidence in the Community. The British should be talking, not just to the small countries, but to the French.26 From the European Secretariat, Denman advised the Foreign Secretary that to avoid any odium falling on the British (and French tactics would clearly be to spread it around that the UK (and possibly Germany) agreed with them but did not have the courage to say so) the UK should come out clearly in the Council in favour of Jenkins attending. Denman also had the beginnings of a strategy. The weakest point in the French case, he pointed out, related to the Multinational Trade Negotiations (MTNs). President Carter would want to talk about their timing, notably what target date to fix for the end of the negotiations, as well as priorities (i.e. should there be an attempt to reach agreement on some issues before others). But how could those issues sensibly be discussed in the absence of the Commission which, under Article 113 of the EEC Treaty, had the responsibility of negotiating on behalf of the Community? Schmidt, Denman added, had been reported by the British Embassy in Bonn as “looking to the Presidency for a firm lead”. It was traditionally incumbent on

74 The Problematic Presidency and Old Wounds Reopened the Presidency, once discussions had reached a difficult stage, to put forward a “Presidency compromise”. If the UK put forward a plausible compromise, and Giscard rejected it, Britain would at least have earned some good will from the others. If Britain failed to put forward any compromise, the existing suspicions that the British were siding privately with the French would increase, would be reflected in Press comments on the British Government’s conduct of the Presidency and might, in the form of ill will on the part of other Member States and the Commission, adversely affect British ability to attain her other European objectives. So, Denman concluded, the best Presidency compromise might be to suggest that the Commission President might attend for those items where there was Community competence.27 In Rome, Callaghan succeeded in having the issue discussed at dinner on the first evening in what he later told officials had been a “long and ridiculous” argument. Both the Dutch and Belgian leaders had taken extreme positions. Callaghan himself had sided with President Giscard’s arguments. He had made clear that there was no question of a vendetta against the Commission. The main objection to adding the Commission was that further additions to the attendance (which had already grown from four to seven) were likely to destroy the informality of the meetings. Schmidt, described by Callaghan as being “on a white charger”, had repeated several times that he wished to maintain his right to meet whomever he wished, whenever and wherever he wished. Giscard had then intervened to say that if the view was taken that the President of the Commission had to attend, as of right, then he himself would not attend. Giscard then suggested that Callaghan should attend in his double capacity as British Prime Minister and as President of the Council and that he could perhaps be accompanied by the President of the Commission so that the latter could express an opinion on Community matters. Callaghan had responded that this would be an undignified role for Jenkins and that it was up to the Heads of Government to find a satisfactory formula. Schmidt thought that Giscard’s idea (“the Giscard formula”) was a good one, but Giscard himself promptly disavowed it. At this point, according to Callaghan, Jenkins had made a helpful intervention, recognising that there were certain political items for discussion at which he could not be present, and that this might apply to possibly more than one session of the Conference. The Belgian Prime Minister had then made what Callaghan called “an impassioned oration”, saying that he could not possibly be represented at the conference by Mr Callaghan. Callaghan clearly judged that the moment had come for him to intervene as Presidency, and he proposed a formula under which the Commission President would be present for items dealing with “those subjects on which the Community takes common postures in international meetings and where the Commission represents the Community”.28 Following a meeting between Callaghan and Giscard the next morning, this formula became the basis on which agreement was reached.29 According to Jenkins, Callaghan had been not very strong “but not too bad”

The Problematic Presidency and Old Wounds Reopened 75 At his joint Presidency press conference with Jenkins, at the end of the Summit, Callaghan acknowledged that the question of Community representation had been the only issue the Press were interested in but, characteristically, he played down its significance. When asked whether the issue should not have been settled in advance, Callaghan replied: “the answer is clearly ‘yes’ but if it couldn’t be settled beforehand, it had to be settled here and it only goes to show what perhaps a good dinner will do”.30 How had Callaghan and Owen matched up to their Presidency responsibilities? At the end of the Presidency, Maitland judged that “we have been widely accused of setting aside our Presidency responsibilities in order to pursue our national interests, without regard for the Community proprieties or the susceptibilities and interests of our partners”. From the start, Callaghan clearly shared Giscard’s position on Jenkins’s attendance (though he was concerned to avoid offending Jenkins as a former colleague). At the first discussion of the issue among Foreign Ministers, under Owen’s chairmanship, Owen’s conclusion that the French objections and the resulting lack of consensus meant that Jenkins would not attend, was premature. The British were late in assuming their Presidency responsibility for offering compromise and, while Callaghan’s overt siding with Giscard at the Rome dinner may have been tactical—to make it easier for Giscard eventually to come round—it clearly did not appear that way to the smaller Member States, prompting Tindemans, who was not given to histrionics, to say that he could not accept to be represented at the Summit by Callaghan. If it seemed to the smaller Member States as if the British were playing ‘large vs. small’ politics, then that perception was not an inaccurate one. The British Presidency had, at its first major test, not performed brilliantly.31 This pattern was to continue: on EEC agriculture policy, on JET, on Summer Time, on Weight and Measures, on Direct Elections. It reflected the rift over Europe in the Labour Party that was once again widening, and also the parlous state of a Government with no majority in the House of Commons. When it came to the European Community, if there was a conflict between the responsibilities of Ministers in their role as Chairs of EEC Councils and the British national interest, the latter won out. This was not just down to the innate hostility to the EEC of Ministers such as Tony Benn and John Silkin; it reflected Callaghan’s political instincts too, as he attempted to balance a broadly pro-EEC commitment on the part of the Government with the necessity of avoiding defeat in Parliament. From the Spring of 1977, Callaghan was helped by the pact which he made with Liberal Party leader, David Steel. At the core of it was the establishment of a joint consultative committee that would “examine Government policy and other issues prior to their coming before the House, and Liberal policy proposals”. The existence of the committee would not commit the Government to accepting the views of the Liberal Party, or the Liberal Party to supporting the Government on any issue. The Lib-Lab pact, as it came to be known, had particular relevance to the issue of Direct Elections. Indeed, the joint statement of 23 March (agreed after

76 The Problematic Presidency and Old Wounds Reopened hectic discussions into the early hours of the morning), which enabled the Labour Government to face an Opposition censure motion with some confidence of survival, had quite a lot to say on the subject: “We agree that legislation for direct elections to the European Assembly in 1978 will be presented to Parliament in this session. The Liberal Party reaffirm their strong conviction that a proportional system should be used as the method of election. The Government is publishing next week a White Paper on direct elections to the European Assembly, which sets out the choices among different electoral systems but which makes no recommendation. There will now be consultation between us on the method to be adopted, and the Government’s final recommendation will take full account of the Liberal Party’s commitment. The recommendation will be subject to a free vote of both Houses.”32 In July 1976, the European Council had settled the vexed question of the number and distribution of seats in a directly elected Assembly, but had left the date of the first such elections for subsequent decision by Foreign Ministers. A British reservation on the date was maintained. At the Foreign Affairs Council later in July, the French refused to fix a date that would be binding on France but not on the UK. The French insisted that there must be reciprocity, and the same degree of commitment for all Member States. The solution proposed was to put the commitment to direct elections in 1978 onto a best endeavours basis for all. That solution was accepted by the British Cabinet on 29 July 1976. By early 1977, the position was that, if it became clear that a Member State would not be ready to hold direct elections in May or June 1978, the Council of Ministers would have to decide whether to fix a date in that period, and allow the Member State concerned to nominate members to the Assembly while other Member States proceeded to election of ‘their’ members, or whether to fix a later date or postpone a decision.33 The political problem facing the Government was set out plainly in a note written for Callaghan in early 1977 by his Special Adviser, Tom McNally. McNally’s analysis was that, while there would be a large majority in the House of Commons for almost any scheme of direct elections, it was equally certain that there would be a considerable and vociferous section of the Parliamentary Labour Party (PLP) which would oppose. Apart from those fundamental objections from some Labour members, on a crude political analysis any constituency-based system of direct elections would, McNally argued, almost certainly produce a solid block of safe Tory seats, a large block of Tory-inclined marginals and a relatively few Labour seats. Thus, in all but the most exceptional years, there would be a large, and perhaps overwhelming, block of Tories elected to the European Parliament. These reflections led McNally to conclude that the best option was a list system on a regional basis which would guarantee the two major Parties 30–40 seats each; offer the minority Parties the prospect of a satisfactory number of

The Problematic Presidency and Old Wounds Reopened 77 representatives; give Northern Ireland the prospect of sending both majority and minority representatives; be relatively simple to organise and produce Euro-MPs who could in no way claim the kind of individual mandate enjoyed by Westminster MPs. This system would offer “more seats with more sensible candidates than we could hope for by any constituency system”.34 On 25 February 1977, Cabinet was devoted to one subject only: Direct Elections. Callaghan invited free-ranging discussion, and he duly got it. The legislation might be got through, some argued, but it would leave the Labour Party seriously divided. Even UK interests in Europe would suffer less by a failure on the Government’s part to use its best endeavours than they would from a divided Party. Others argued that Britain’s wider interests in the Community would suffer seriously if the Government were not seen by her partners to be making a genuine effort to prepare for elections in May/June 1978. Cabinet discussion went to and fro on the various possible electoral systems. In the end, there was general support for the view that the Government must be seen to continue to use its best endeavours to proceed to direct elections. Callaghan summed up in that sense, adding that there were also strong arguments for the arrangements being made by the present Government rather than being left to a possible future Conservative Administration. The various electoral options should be set out in a new draft of the proposed White Paper, though whether the Government should recommend a particular course would be discussed further. Whether this procedure would allow the UK to be ready for direct elections in May/June was not yet clear. The Government had a need to carry the Parliamentary Party, the National Executive Committee and the Party in the country as far as possible, and could not be expected to carry legislation against the wishes of a majority of the Government Party.35 The potential gravity of the situation was clear from a speech which Home Secretary Merlyn Rees made to the PLP in April. He recalled that, at the special Party conference in May 1975, called to consider the Party’s stance in the forthcoming referendum, the banner had read: “Conference will advise. The people will decide” Well, said Rees, for better or worse, the people had decided. There were those, Rees acknowledged, who argued that direct elections had not been an issue in the referendum campaign. But the fact was that the British people had voted to remain in the EEC and, on becoming members of the EEC, the Government had signed the Treaty of Rome which made provision for direct elections on the basis of “direct universal suffrage in accordance with a uniform procedure for all Member States”. “For 15 Years”, Rees concluded, “the question of Britain’s membership of the Common Market divided the Labour movement, but we managed to reconcile those divisions through the holding of a referendum. It would be an absolute tragedy if we were now to have a repeat performance of that division of view and reopen the split which the referendum sought to heal. It would be politically harmful. At this particular time, there would be a heavy political price to pay. In the long run, the price would be even heavier.”36

78 The Problematic Presidency and Old Wounds Reopened When Cabinet met on 21 April 1977, the ghost of the referendum past haunted the discussion. For the 1975 referendum, Cabinet collective responsibility had been suspended to allow Ministers to campaign on opposite sides of the argument. Now the issue arose again on the question of a free vote. Cabinet was in agreement on allowing a free vote in Parliament on the method by which Members of the Assembly would be elected. But there were arguments, some insisted, on allowing such a free vote, not just for Labour backbenchers, but also for Cabinet and for junior Ministers. Since direct elections and the choice of electoral system were major constitutional issues on which the Party was deeply divided, the Government would be justified in relaxing the doctrine of collective responsibility. An agreement to differ had served the Party well during the renegotiation of Britain’s membership of the Community. Others argued that Cabinet Ministers were committed to support the pledge the Government had given to their Community partners, with the Cabinet’s approval, after full discussion on a number of occasions, to use best endeavours to hold direct elections in May/June 1978. Any indication that the Cabinet was seeking to resile from its commitment would destroy the credibility of the British Government both in the country and in the eyes of the world. While an agreement to differ had been defensible during renegotiation, the use of this device could not be justified now that the referendum was over. The doctrine of collective responsibility should not be lightly modified. Callaghan summed up that there was no need to take the discussion further since no new decisions were immediately required, but he reminded his colleagues of the Cabinet’s repeated commitment both to the principle of direct elections and to the use of best endeavours.37 When, subsequently, Callaghan saw the terms in which his predecessor, Harold Wilson, had allowed dissent over the referendum i.e. that the exemption from collective responsibility was said to be “unique”, Callaghan noted in manuscript: “That is what I rest on.”38 However, in reply to a letter from one of his backbenchers, Callaghan hedged his bets, writing: “A pledge [on Direct Elections] was given on behalf of the Government following a clear decision by the Cabinet. By custom, that should involve all Members of the Government supporting such a pledge. However, I understand the problems of this particular issue . . . Like you, I have no desire that this should lead to a Party punch-up and I shall do my best to avoid it.”39 To another MP, Callaghan wrote: “As you know, there are nearly as many different ways of solving this problem as there will be Members of the Assembly.”40 On 29 April, following an inconclusive discussion in Cabinet two days previously, Owen sent Callaghan a minute which almost certainly had a significant impact on the Prime Minister’s thinking on the question of collective Ministerial responsibility. Owen shared Callaghan’s instinctive reaction against a free vote amongst members of the Government, and particularly amongst members of the Cabinet, but he wondered whether it might be possible to consider treating the matter as purely and simply an issue for the House of Commons to decide. It was clear from the Cabinet discussions that, at least for

The Problematic Presidency and Old Wounds Reopened 79 Michael Foot, and possibly for Peter Shore, the whole question of direct elections went very deep. The Prime Minister would be able to make the Cabinet accept its collective responsibility but there would be a price to pay, most seriously in the form of a bitter struggle over bringing forward a timetable motion, the almost certain loss of any such timetable motion and a sustained and successful attempt to block the Bill on the floor of the House. An alternative, Owen continued, and one that he, obviously, did not wish to put forward in Cabinet, would be to have a free vote on all three main issues contained in the Bill, covering everyone in the House of Commons, including the Cabinet. The three main issues would be (i) the principle of direct elections —at Second Reading; (ii) the timetable motion immediately following the Second Reading division; and (iii) the method, on the appropriate clause of the Bill, with the Government making available an appropriate amendment. Owen shared Callaghan’s concern about the UK’s international obligations. Yet, he argued, a Bill presented to the House by the Prime Minister, Chancellor of the Exchequer, Home Secretary and Foreign Secretary would be considered as fulfilling the Government’s obligation to use best endeavours, particularly when, as a result of such a procedure, the Bill would be carried by a large majority. As for the Liberals, the method Owen had outlined would allow the Government to draft the Bill so as to contain a regional list system. That would fulfil honourably Callaghan’s obligation to the Liberals and if, as Owen suspected, an amendment was carried to include the first past the post system (for which there was a bare majority in Cabinet), those who had put their name to the Bill in its original form would not lose face. Owen ended: “I am sure that I do not need to add that, if you decide to insist on collective Cabinet responsibility, you will have my full support.”41 Following a minute to Callaghan from Merlyn Rees, offering, as the Prime Minister’s Principal Private Secretary, Ken Stowe, put it “some conundrums, but no good answers”, Stowe set out for Callaghan a summary of the situation. There was a majority in Cabinet for proceeding with the Bill on Direct Elections, but two or three Cabinet members would probably not support the Government on Second Reading of such a Bill on the principle of Direct Elections; and whether or not they carried opposition that far, they would be likely to vote against the Government if the Bill provided for anything other than a first past the post system. Within the PLP, opinion was likely to be against the principle of Direct Elections, but the PLP majority (like the Conservative majority) would probably vote for the principle and for a first past the post system. All this was against the background of David Steel’s having told Callaghan that the Liberals would not be able to renew their agreement with the Government (the Lib-Lab pact), even if they maintained it until the end of this session, if a Bill on Direct Elections providing for a proportional system was not introduced into the House in the near future. But Steel would accept a ‘specific’ Bill in the next Session—and delay beyond 1978.

80 The Problematic Presidency and Old Wounds Reopened The only ways, Stowe believed, to fulfil the Government’s best endeavours commitment to provide for Direct Elections in 1978 would be either by passing a Bill in the current session incorporating a first past the post system, since this would allow time for the Boundary Commission to do the necessary work on the constituencies; or by passing a Bill in the next session incorporating a regional list system though, in the view of the Home Secretary, even that could not be guaranteed without a guillotine. This meant that, if the Bill were introduced in the next session, to provide for Direct Elections in 1978 on a regional list system, and it were then amended in the House to provide for a first past the post system, Direct Elections would ipso facto be deferred until 1979. The same could happen if the Government failed to get a guillotine. Thus, there were really two aspects to the dilemma: how to keep the Liberals on side without provoking Ministerial resignations, and how to keep the Government from falling, which was the risk if the Liberal requirements were not met. Stowe concluded that the most feasible proposition that had so far emerged seemed to be: (a) The Prime Minister’s suggestion of taking the issue to a PLP meeting and asking the PLP for its view on: the principle of Direct Elections; the commitment to 1978; and the question of first past the post or regional list; (b) The Government then to introduce a Bill in July 1977, which would not be passed in the current session but which would show good intentions; (c) A Bill in the Queen’s Speech for the next session, providing for Direct Elections on a regional list system in 1978; (d) Free votes, not only on the method (regional list etc.) but on the principle. (e) The free votes would be justified because of the constitutional nature of the issue and would be afforded, not only to the Government’s supporters, but to members of the Government (including the Cabinet) as well. This should, Stowe argued, avoid Cabinet resignations while maintaining faith with Europe and with the Liberals. The probable outcome would be that amendments would be carried providing for a first past the post system, and for obstruction generally, which in turn would involve delay to 1979.42 The crucial Cabinet meeting was on 26 May 1977. On the eve, Stowe submitted to Callaghan a speaking note which he (Stowe) had drafted and agreed with the Cabinet Secretary, Sir John Hunt, “except that he (Hunt) would spell out at the end more clearly that we expect the Bill to fail. I doubt if you need do that!”43 Callaghan drew on the note in Cabinet to warn that it was essential, despite the sharp division of view, for Cabinet to reach a view and for the Government to make a move. After Whitsun, it was possible that the Conservatives might table a vote of censure on the Government, in which case it was possible that the Liberals would vote with the Opposition. Moreover, he would be chairing a meeting of the European Council in London at the end of June and if, by then,

The Problematic Presidency and Old Wounds Reopened 81 no action had been taken in fulfilment of the Government’s ‘best endeavours’ pledge, the Government’s position at the meeting would be adversely affected. To allow the Government to survive, some measure of flexibility would be essential. Callaghan then outlined a course of action on the lines of Stowe’s earlier minute, pointing out that if, when a Bill was reintroduced in the next session, the Conservatives voted against any system of proportional representation, then they could be held responsible for the ensuing delay. Callaghan went on that “he had also concluded that, despite the difficulties it would create for his own position, the need to maintain the Government in being involved a decision that a free vote might be allowed for all Government supporters, including the members of the Cabinet. Thus, members of the Cabinet would be free, if they felt it essential, to abstain or even to vote against the Bill. On the basis of this scenario, it would be possible to demonstrate to the Liberals and our Community partners that we had fulfilled our undertaking to use our best endeavours, but in doing so the unity of the Party would not have been disrupted.” Callaghan’s proposal, while being recognised by all Cabinet members as “ingenious”, produced reactions on pro- and anti-European lines. The proMarketeers argued that the proposed course of action would be seen by the rest of the EEC as a transparent device by the Government to escape from its obligations; and this lukewarm approach could do serious damage to Britain’s other European interests. Furthermore, a free vote would be a most dangerous precedent for other matters and could damage the Government’s authority. The anti-Marketeers argued that the political compromise was not worth the price that might have to be paid in constitutional terms. Later direct elections were to be subject to a uniform procedure which would preclude any control by the House of Commons. If a Bill were passed by the House of Commons later in the year, it would represent a momentous step towards European federalism and would thus revive the European issue and disrupt the Labour Party. In the end, the desire for survival prevailed. The Government’s room for manoeuvre was very limited and further delay was not a viable option. If a Bill were not introduced soon, a censure motion was likely, the Liberals would probably vote with the Opposition and the Government would fall. Thus, Callaghan was able to sum up that a “substantial majority of the Government agreed, with varying degrees of reluctance, with the course he had outlined”.44 The following day, Bill Rodgers, the Transport Secretary and a leading pro-European, wrote to Callaghan to convey his dismay at the previous day’s decision. Rodgers was gravely concerned. The decision would add to a growing momentum of anti-EEC sentiment that could reopen the whole question of Britain’s EEC membership. The previous day’s decision had been a compromise, but a compromise which would be seen as a victory for the anti-Marketeers. Rodgers promised his loyal support but feared the great dangers of sliding back from the position where, as a Party, Labour had

82 The Problematic Presidency and Old Wounds Reopened accepted the very firm verdict of the Referendum two years previously. He hoped the Prime Minister would feel able to seek an early opportunity to make clear again in public the Government’s wholehearted commitment to a constructive role in the Community and its belief in the advantages membership would bring.45 Callaghan wrote on Rodgers’ minute: “Thank him. Refer him to my answer in the House last Thursday.”46 In June, there arose a new issue on Direct Elections, when the Foreign Secretary wrote to the Home Secretary to draw his attention to the fact that the French Government were making provision in their legislation on direct elections to ensure that there could be no increase in the powers of the European Parliament without explicit legislative approval. Owen argued that, of course, the British position was safeguarded by the fact that any increase in the powers of the European Assembly would require Treaty change and could not therefore happen without the approval of Parliament. Thus, on past form, any future increase in the Assembly’s powers would be embodied in a Treaty and put to Parliament for ratification (a) by the usual negative resolution procedure used for treaties generally or (b) by means of an affirmative resolution under Section 1 (3) of the European Communities Act. However, Owen argued, if implementation of any future Treaty involved substantive change to UK law, the Government might choose to introduce a separate Bill which could contain clauses achieving the same effect as under an affirmative resolution.47 “It is for serious consideration,” Owen concluded, “whether, in an attempt to limit any successor Government’s freedom, it would be worth inserting a provision which would ensure that an increase in the powers of the European Parliament would have to have specific legislation and that the European Communities Act could not be used.” Callaghan’s initial reaction was a manuscript comment: “I doubt we can do this.” He was echoed by the Cabinet Secretary, who opined: “It is arguable that for the Government to volunteer provisions of this kind would only invite ridicule.”48 For the next few months, Callaghan abided by that view. On 1 November 1977, the Lord President wrote confirming Callaghan’s agreement that such additional provisions should not be made, and that the Bill should be reintroduced in the new session of Parliament with only minor drafting amendments. The main reason for rejecting the additional provisions was, according to Hunt, that they added little to the existing safeguards. This would not, however, prevent Ministers from restating in the debate their opposition to additional powers for the Assembly or excessive salaries for its members in the debate.49 However, in a letter of 30 September to the Secretary General of the Labour Party, Ron Hayward, Callaghan (who was attempting to find common ground between the Government’s positive approach to the EEC and the Labour Party’s growing scepticism) undertook that any change in the powers of the European Assembly would require an Act of Parliament and not simply be introduced by an affirmative order under the European Communities Act. Against this background, during the second reading of the European Assembly Elections Bill on 24 November 1977, there was strong pressure

The Problematic Presidency and Old Wounds Reopened 83 from MPs on both sides of the House that a provision should be added to the Bill requiring an Act of Parliament for any extension of the Assembly’s powers. On 30 November, therefore, Owen was able to report to Callaghan that he had agreed with the Lord President and the Home Secretary that such an amendment should be offered. As often happens when legal precedent comes up against political necessity, the view of the Attorney General, as reported by Owen, was that “the constitutional objections were not overriding to a provision under which the Crown could ratify a treaty extending the Assembly’s powers only after the passing of an Act of Parliament”.50 Hunt made a last ditch attempt to prevent the amendment, using the best Sir Humphrey arguments: “The FCS should confine himself to an expression of readiness to examine the case for such a provision”, he urged Callaghan. “There is plenty of time to amend the Bill if that is desired and it does not seem necessary to make an immediate constitutional change before its full implications have been examined. There would in any case be a need to tell the Palace.”51 Hunt did not prevail. At the Committee stage on the following day, Owen promised the House that an appropriate amendment would be brought forward; and an amendment was incorporated into the Bill that eventually became law in 1978. This was not the end of the Government’s difficulties in holding a coherent Ministerial line. Callaghan had reluctantly agreed to a free vote, including for Ministers, before the summer. But reintroduction of the Bill to implement direct elections was in the Queen’s Speech for the new session and Callaghan felt that an important corner had been turned. On 27 October, he wrote to Foot: “I must tell you that, in the light of events during the last twelve months I feel we must come together much more on this matter than we have done. It is a great source of weakness and the enemy can exploit our divisions. It seems to me that if members of the Cabinet vote for the Queen’s Speech then they must also regard themselves as committed to voting for the Second Reading of the legislation which is set out in the Queen’s Speech, and that includes Direct Elections. I would be quite ready to agree that there should be a free vote on the method of election but, considering that the House has already given a Second Reading to the Bill and that it will be included in the Queen’s Speech by the agreement of Cabinet, I must ask that members of the Cabinet should accept the verdict on the principle. I should be very sorry if any of them resigned but I think we should have to accept that and I do not think there would be much sympathy for those who did.”52 In the end, Callaghan compromised, as his own manuscript speaking notes for Cabinet on 17 November show: “Like to make a statement to Cabinet. Last session, in deference to opposition in the PLP, and also to the declared view of Conference, we brought on the Bill very late. It was given a Second Reading by a large majority. There was a free vote of Ministers. Now the issue has come round again and a number of Ministers would prefer to be able to vote freely on the principle as they did before. There have been discussions going on with some Ministers which Michael [Foot] undertook . . . Devolution. Related issue. This week we saw a remarkable demonstration by a number of backbench MPs

84 The Problematic Presidency and Old Wounds Reopened of their willingness to support Government in a crucial situation despite their deeply held personal views. Some of them had genuine heart searching for many days and then decided to subordinate their personal views. The result was a triumph for the Party in the House and has left the Tories floundering. “Morale is important as we move closer to an Election. Don’t want to see us slip on this issue. I understand that opponents of this Bill in Cabinet are ready, reluctantly, to forego their strong desire to repeat last Session’s vote; and would be ready to abstain, and that junior Ministers would do the same. This will strengthen us considerably, and I am ready to push collective responsibility to the limit on this matter in view of their gesture. . .As regards system of voting, the Free Vote will continue to apply to everyone. “I hope my colleagues who are in favour of the Bill will not press the issue any further. Would hope we need not embark on discussion on the matter because that will only open differences of view: got solution I am ready to accept and so are minority.” 53 I have quoted Callaghan’s note in full because it illustrates not just Callaghan’s skill as a political leader, but also something that is often overlooked, namely the amount of time, ingenuity, blood and sweat that a Prime Minister has to spend on managing his or her colleagues and Party, in this case with marked differences within the Parliamentary Labour Party and between the PLP and the Labour Party outside Parliament. Callaghan had to keep his Ministers, his backbenchers, his Party members and the Liberal Party onside in an effort both to meet his international obligations while avoiding Assembly elections under a first past the post system which would massively favour the Conservatives, and to prevent the defeat of the Government, which would almost certainly have precipitated a General Election. Direct Elections was but one of the issues which put Britain, occupying the Council Presidency in the EEC, at odds with her partners. Summer Time and Weights and Measures were relatively minor irritants in terms of EEC relationships, but exactly the kind of issue where both sides of the House could unite in righteous indignation against the Government. Callaghan had no hesitation in putting those issues on the back burner. Much more problematic was the issue of JET, which was dear to Callaghan’s heart. Things started off promisingly, with the UK Presidency seeking to reach a compromise with the French and German Governments which would ensure that JET could go ahead on a basis which would be satisfactory to the three main participants. It was thought that the five smaller members of the Community would go along with a compromise in order to see JET settled. Contacts at both Ministerial and official level indicated that agreement would be reached for JET to be sited in the UK, although the Germans did indicate that they would have to put up a fight in the Research Council in order to be able to defend an outcome that saw JET being sited in Britain. The most important assurance from the Germans had come some time before the start of the British Presidency, in the form of a conversation between Callaghan and Chancellor Schmidt and the German Research Minister, Hans

The Problematic Presidency and Old Wounds Reopened 85 Matthoefer in June 1976. The British record showed that, on that occasion, both Schmidt and Matthoefer gave a clear indication that JET should be sited at Culham but that, for internal political reasons, the German Ministers could not agree to it happening before the Federal elections in October 1976. The Germans subsequently denied that the conversation had taken place in the form recorded by No 10. Despite this difference in the respective records, shortly after the start of the British Presidency, Matthoefer told Tony Benn, the British Energy Secretary, that he would like to tie the UK to Europe by having JET at Culham, though, of course, he could not say so in Germany if he hoped to survive politically. Matthoefer even gave Benn a shopping list of seven points the German Government would wish to see conceded by the UK in return for German acquiescence in the choice of Culham as the site for JET. Benn replied that, in principle, there were no difficulties for the UK in agreeing the list but that it would be necessary to satisfy the French Government as well. Matthoefer said that he could not offer open support for Culham and would continue, right up to the point of Council agreement, to press the case of the German site at Garching in Bavaria. Some of this ambivalence also, unsurprisingly, emerged in official level discussions. When Bavarian officials were not present, the Germans tended to speak frankly about JET coming to Culham. In the presence of the Bavarians, the line was to support Garching.54 In the event, this carefully laid plan came unstuck at the Research Council on 29 March 1977. Agriculture Ministers had been meeting in Brussels for the annual CAP price fixing, and their meeting finished, without agreement, after four days of negotiation, culminating in an all-night session. Since eight Member States could agree on a compromise package tabled by the Commission, there was scope for the Presidency to conclude an agreement. But the UK would not accept the package because it involved a 3% devaluation of the Green Pound and additional price increases, above those originally proposed, of 0.5% across the board, while the butter subsidy offered to the British was not enough to offset that overall increase. The UK Permanent Representation in Brussels reported that “in a meeting restricted to Ministers only, Mr Silkin (the Minister of Agriculture) . . . was subjected to powerful appeals in highly political terms for the UK to fall into line. It was claimed that the UK were holding the Community to ransom for paltry sums, and bringing the Community into disrepute.” Silkin both appealed for compromise in his Presidency capacity and, as British Minister of Agriculture, explained the political difficulties of accepting the level of price increases proposed without offsetting benefits. Eventually, Silkin floated, without commitment, the possibility of a compromise, but this was rejected out of hand. Silkin subsequently discussed by phone with Owen the possibility of a further compromise, but Owen advised against further concessions. After a period of bitter confrontation, tempers cooled, but the meeting ended on a note of deep disappointment.55 With the Agriculture Council meeting running into the morning of 29 March, its ill-tempered conclusion coincided with the start of the Research

86 The Problematic Presidency and Old Wounds Reopened Council. It would not have escaped the notice of continental Ministers that both Councils were chaired by two of the most Eurosceptic members of the British Cabinet (Silkin and Benn). So the atmosphere of the Research Council was bad from the start. Delegates were aware of the problems of the CAP negotiations and also that concern was being expressed by the smaller Member States about the German/French/UK negotiations that had resulted in a Presidency compromise note on JET. The smaller Member States, led by The Netherlands, objected to the note and this gave an opening to Matthoefer to change the German position, abandoning the Presidency compromise to which Germany had hitherto agreed, and which had laboriously been put together by France, Germany and the UK. This move resulted in the smaller Member States coming out in favour of the Germans, i.e. that JET should be sited at Garching. From that point on, it was clear that a vote on the site would have given a clear majority for Garching. But the French, who had stuck with the British, would not have agreed to a decision being taken then, and Benn and his deputy Gerald Kaufman were able to bring the meeting to a conclusion without a vote being taken. The issue continued to cause friction, especially between Britain and Germany. The fact that Schmidt claimed to have no recollection of the conversation in which he had assured Callaghan of his support was an aggravation. When Roy Jenkins warned Callaghan that UK conduct over this and other issues had undoubtedly affected unfavourably attitudes elsewhere in the Community, Callaghan retorted that he was not prepared to have an issue of this magnitude settled on the basis of pique by other members of the Community. If JET were not to be sited in the UK, then he would ensure that the UK vetoed its being sited anywhere else and no-one would get it. After that meeting, Callaghan commented to his Private Secretary that he had been very tough with Jenkins on this point and that Jenkins had been surprised by Callaghan’s strength of feeling.56 At the European Council in London at the end of the British presidency there was a bad-tempered exchange between Schmidt and Callaghan. Schmidt argued that Germany was constantly giving and the UK was constantly taking. Callaghan countered this vigorously, pointing out that the UK was being asked to contribute yet more to the EEC budget because of changes in the unit of account; that British waters provided most of the fish caught by other Community countries; and he reminded Schmidt of the cost to Britain of stationing her troops in Germany for that country’s defence. Schmidt backed off a little, though Callaghan told him after the lunch that he was angry with him “for having used, at an earlier stage, temporary electoral considerations as an excuse for delaying his agreement that JET should go to Culham”.57 The issue passed to the Belgian Presidency in July 1977 and, as memories of the British Presidency faded, Culham again started to emerge as the site favoured by a majority of Member States. As a result, the German Government deployed delaying tactics throughout the autumn of 1977 and there were extensive Ministerial contacts with the Germans and others, particularly by Owen and

The Problematic Presidency and Old Wounds Reopened 87 Callaghan. As it became clear that there was an emerging majority for Culham in the Council of Ministers, so the British Government realised that their best tactic was to accept a head count in the Council. At talks in Bonn with Schmidt on 18 October, Callaghan was at his tactical best. He told Schmidt that he regretted the way in which the JET issue had gone. There had been misunderstandings on both sides; but he and the Chancellor should put all that behind them. The argument should not be allowed to drag on. The technical merits of the case on both sides were equal. The UK wanted the project to go to Culham for political reasons given the hard battle they had to fight on the EEC domestically. Nevertheless, Callaghan continued, he would put his cards frankly on the table as he always did with Schmidt. The UK would not die in the last ditch for JET. If the FRG vetoed Culham, the UK would not veto Garching. There would of course be strong feeling in the pro-EEC camp in the UK. But the FRG was free to exercise its veto and the project would then go to Garching. Schmidt then suggested that something could be done to offset the issue for the UK if Garching were chosen, and vice versa. Callaghan, who had clearly worked out that his best chance of securing JET was to put Schmidt on the spot morally should he instruct his Ministers to veto Culham, said that he felt instinctively that there could be no bargains on the question. If the FRG wanted JET for Germany, the Chancellor could instruct that Culham should be vetoed. If he did not wish to do this, the Belgian Presidency could be asked to count heads. It was on this basis, together with a formula which made clear that, if there were a JET 2, it could go to any EEC country other than the host of JET 1, that the stage was set for the Research Council on 25 October 1977. The Belgian Foreign Minister, Henri Simonet, reported on his bilateral soundings of Member Governments. On procedure, the Germans were alone in wanting an open vote. Simonet added that he was not willing to assume responsibility for a public vote that was not wanted and to which three delegations (the Netherlands, France and Denmark) were vigorously opposed. The Council as a whole would have to assume responsibility if insistence on an open vote caused the project to fail. Matthoefer replied that Germany had always said that it would accept a majority. He would not wish to stand in the way, but he did insist on knowing how the majority had been reached in order to explain the results to German public opinion. A majority of delegations opposed an open vote. Simonet then conducted a further series of private soundings, at the end of which he announced that five Member States had preferred Culham, two had preferred Garching and two had abstained, although one of these was willing to join the majority. Simonet therefore concluded that the majority had pronounced in favour of Culham and that no delegation had raised any objection to this majority being established. Culham had therefore been selected as the site of JET. Before the Council ended, Benn took the floor to praise the Belgian Presidency’s handling of the matter. The Community had undertaken a longterm commitment to a programme of world importance. We were now looking towards the 21st century.58

88 The Problematic Presidency and Old Wounds Reopened In respect of other European issues, on the face of it is surprising that, with a European Council under his chairmanship due to be held in London at the end of June 1977, it was not until a few days beforehand that Callaghan had asked his new Foreign Office Private Secretary, Bryan Cartledge, to give some thought to the theme, from the political point of view, that he, as Chair, might most usefully emphasise at the meeting. After consulting Bernard Donoughue and Tom McNally, Cartledge replied that “purely in the domestic political context, the most popular line might be a vigorous confrontation with some of our partners on, for example, the CAP or some other aspect of Community affairs which is at present a major target for criticism in the UK”. But, Cartledge continued, there was a much stronger argument for ending the Presidency on a positive and forward-looking note, while giving prominence in the process to an issue which was of major domestic concern, namely, unemployment, and, in particular, youth unemployment. In an argument that echoes to this day, Cartledge advised the Prime Minister to make the point to his European colleagues that the Community and its policies were unlikely to fire the imagination of the younger generation of the Nine until the Community as a whole could demonstrate a less sluggish and more constructive approach to the problem.59 Callaghan took the advice, chairing what he later told the House of Commons had been a “useful but not dramatic” meeting.60 Behind Callaghan’s relative inattention lay something much more significant to him than an EEC summit. On 26 June 1977, Ministers had met at an informal political Cabinet at Chequers. At the very outset, Callaghan told his colleagues that the first question on the agenda was whether to go on or to have a General Election forthwith. The Conservative Press were talking about a dying or tottering Administration, but that was not the view he got from Government supporters in the country. Nevertheless, whether to go on or not was a valid question for a minority Government. One reason for an early election would be if authority had drained away from the Government. He recalled that, in 1951, the Civil Service had been looking over its shoulder and that the public had felt that the time had come for the Government to go. The argument then had been that the longer the Government stayed, the greater the defeat would be. That was not the case now. His own feeling, rather, was that the Government’s image was of worthiness and competence but not of excitement. The Government needed to create a sense of excitement and to set the Thames on fire—at least in moderation. The ensuing discussion touched on the European Community. The Minister of Agriculture, John Silkin, argued that the Government should be prepared to consider the implications of a real confrontation on the Common Agricultural Policy and the Common Fisheries Policy. Ten years previously, the Labour Party’s aim had been to scrap the CAP. Now, the line had weakened to simply seeking improvements. Peter Shore (Secretary of State for the Environment) said that he did not wish to reopen old arguments, but much of public opinion favoured a policy more closely related to national interests.

The Problematic Presidency and Old Wounds Reopened 89 Callaghan commented that Shore’s observation had been helpfully expressed and he thought that there would be a lot of agreement with that approach. However, the Lord Privy Seal, Fred Peart, (himself a former Minister of Agriculture) thought there was great danger in the EEC argument made by Silkin and Shore. Of course, the Government must defend its interests in the EEC and it was right to criticise the CAP, but it would be disastrous to start a movement to come out. The UK had done very well on issues such as beef, sugar and the treatment of developing countries. On no account should Ministers divide the Party on the EEC, and thus let the Tories in. In a summing up, whose record contains no mention of the EEC, Callaghan said that the Cabinet were united in their intention, not only to survive, but to govern. He was glad to see that nobody was looking over his shoulder, making dispositions against defeat. The Cabinet did not intend to stay on sufferance and its view of the medium term was both optimistic and realistic. The Government’s aim for the next election was not to minimise defeat, but to win. The Cabinet was ready to make a further deal with the Liberals for the next year, and longer if necessary, and he and the Lord President (Michael Foot) would undertake the necessary negotiations. The Cabinet, the Prime Minister continued, had noted that, assuming the increase in earnings could be limited to 10%, the Chancellor saw the possibility of £1 billion reflation in the autumn and, very tentatively, £3 billion in the Spring. It was important to make clear that there was a sense of direction and of light at the end of the tunnel. He had been deeply encouraged by the day’s discussion, although there were doubtless many difficulties for the Government. The central theme, he concluded, was the determination of the Cabinet to succeed for the sake of the Labour movement.61 The first British Presidency of the Council of Ministers of the EEC, then drawing to a close at the end of its six months of office, had not been an unqualified success. In a candid assessment, Sir Donald Maitland could record that, set against the Government’s modest objectives for the Presidency, the balance sheet on 30 June was on the whole positive: “We completed at least as much routine business as our predecessors. We settled the difficult and important dossier on the VAT Sixth Directive. We made appreciable progress on standardisation of vehicle requirements. We achieved a comparatively advantageous agricultural price fixing. On fisheries, we made surprising progress on a gamut of awkward external issues—and brought the Russians into their first negotiation with the Community—without allowing the basic disagreement over the revision of the CFP to boil over. Our handling of the Community’s external affairs was generally successful. We steered Portugal’s application for membership through difficult discussion in the Council. We initiated the debate on enlargement. We closed the Community’s ranks on the North-South dialogue. We injected new warmth into the Community’s relationship with the Lomé countries at the joint Council in Fiji. Our ideas on development policy made further painful headway. We ran Political Cooperation in closer harness with Council business. We gingered up the

90 The Problematic Presidency and Old Wounds Reopened Community’s information effort. We achieved our main objectives in Social Affairs and had a relative success with transport policy. The two European Councils under the chairmanship of the PM, and a private meeting of Foreign Ministers which you [Owen] held at Leeds Castle, were profitable occasions and contrasted favourably with some previous high level meetings in the Community.”62 But, wrote Maitland, there had been failures too. The UK had, for the first time in its membership of the Community, been taken to the European Court of Justice over the subsidisation of its pig meat industry. The UK had succeeded in distancing itself from the French in the argument about Jenkins’s attendance at the Downing Street summit, but had not escaped suspicion that it had been at best indifferent. Probably because of lack of consultation, other Member States had been suspicious of some of the UK’s ideas for procedural improvements. Nobody had liked the suggestion of opening Council proceedings to the public. The British Presidency had failed, as other Presidencies had, to prevent a pile-up of Council meetings at the end of its term. Britain’s cultivation of the European Parliament had not offset the effect produced by the UK’s continuing difficulties over Direct Elections. Maitland posed the question: what would the balance sheet look like as drawn up by Britain’s partners or by Community officials in Brussels? Some of the evidence, he suggested, was of the kind that one’s best friend would not reveal. On the whole, though, at the technical and administrative level, the UK Presidency was thought to have been excellent. At first there had been some discontent at the British style of leadership. British chairs were accused of preventing their partners from having their say, of railroading the discussion towards a predetermined conclusion, of failing to give weight to wider considerations, and even of confusing briskness with the effective despatch of substantial business. British attempts at humour were sometimes misunderstood, though other Member States had gradually come to terms with this British peculiarity. The UK’s management of business had been called ‘technically perfect’, but the reaction to British attitudes on issues of substance had been less complimentary. Britain had been widely accused of setting aside her Presidency responsibilities in order to pursue her national interests, without regard for the Community proprieties or the susceptibilities and interests of her partners. Many in Brussels had been puzzled by the apparent ignorance of the British, and their misunderstanding, of the functions of the various Community institutions, and of the relationship between them. Was this misunderstanding deliberate? Did we simply not care about the governing principles on which the Community was constructed? Had we really no feeling for the sharing of common goals? These sentiments had sharpened opposition to British wishes: over agricultural and budgetary matters and over JET. British motives had become increasingly suspect, accompanied by a growing reluctance on the part of other Member States to give the British Presidency the benefit of the doubt. More than one

The Problematic Presidency and Old Wounds Reopened 91 sympathetic observer had concluded that the British Presidency had brought no profit to the Community as a whole; and that—contrary to what might be thought in London—British tactics had not been particularly successful in forwarding British national interests. Britain’s partners had hoped that the Presidency would confirm the process of Britain’s acclimatisation to the Community. Instead they had ended up feeling that the British had behaved with less tact after they had taken the Chair than they had before. They believed that the British might have missed an opportunity that would not recur. Maitland concluded with some lessons for the future. Negotiation inside the Community was, he argued, unlike other forms of international negotiation, since the subject matter of most Community business was intimately domestic. In the last analysis, all the participants had to be on the same side and committed to eventual agreement. The parallel was much more with inter-departmental discussion in Whitehall than negotiations in, say, the United Nations. While a rumbustious refusal to accept the interests of others could often succeed, such an approach often generated needless friction since the same objectives could usually be attained by playing the game according to its rules. And at times, such tactics were positively injurious: the acrimony aroused in one field could affect Britain’s ability to achieve her objectives in another. “It is therefore argued”, Maitland wrote, “that the right course is to pursue our own interests but to clothe them in European language. This principle was endorsed by Ministers in the run-up to our Presidency. On reflection, I think that this may be misleadingly phrased. It would be absurd for us to use the language of Monnet and to mouth the shibboleths of the Community of Six: it is a Community of Nine. Its current policies are our policies. We are as entitled as anyone else to say what we think about these policies and to try to change them if we think this necessary. Some of our partners did not like what you [Owen] and Commissioner Tugendhat said about the reform of the CAP. But there is no reason why we should not express our views clearly and constructively . . . The Community will not collapse if we do so; nor should we be inhibited by hints that we still have to pay for the fact that we were not on hand when the Six forged their original policies in the 50s and 60s. But we shall be listened to more readily, and advance our interests more effectively, if we conduct the debate with due regard for the interests and sensibilities of our partners, and with the air that we too are insiders.” Maitland’s report was sent, at Owen’s request, to Callaghan. The Prime Minister read it without recorded comment.63 If Maitland’s verdict was harsh, it had at least been wrapped in palatable language. From Bonn, however, Britain’s Ambassador, Oliver Wright, was even more forthright. “Good Riddance” was, he said, the most precise description he could come up with to characterise the German reaction to Britain’s conduct of the Presidency. In the Federal Republic, Britain had come out of the Presidency with a worse reputation than at its start. During her Presidency, Britain had established herself as the bad boy of the Community. Wright cited three reasons for this German verdict. The first was that, as the Germans saw it, the Community could not flourish without give and take.

92 The Problematic Presidency and Old Wounds Reopened The UK had given all too little. The Germans considered this a poor return for all the Germans had done to help the Community and the UK. Secondly, the UK was considered to have failed to discharge the impartial and solution-seeking role of the Presidency. This charge varied from Council to Council. It applied very little to the European Council itself and not very much to the FAC. It applied most to the Agriculture and Research Councils. Britain, from whom ‘fair play’ was still expected, had not behaved as had been expected of her. Finally, and most importantly, the suspicion had grown in Germany that some of British behaviour in the Community was being governed less by a desire to reach agreements favourable to Britain than by a wish, by prematurely terminating the search for consensus, to provide ammunition to fuel antiEuropean sentiment at home. British behaviour had succeeded progressively during her Presidency in reawakening doubts about Britain’s basic commitment to the Community. There had been a feeling—particularly towards the end—that the Community was being subjected to a re-run of renegotiation; and for much the same reasons. Fortunately, according to Wright, British relations with the Federal Republic went wider than shared partnership in the European Community. There was coresponsibility for Berlin. There was the number of British soldiers stationed on German soil. The Queen’s visit to Sennelager on 9 July for a Silver Jubilee review of the army had been a magnificent occasion, with a large and distinguished German attendance. “It demonstrated”, said Wright, “that there are still some things we do supremely well, provided we try. Good riddance then to the British Presidency: ‘Glanz und Gloria’ for the Queen and the British Army . . . ”64 There was a curious footnote to the British Presidency. On 27 July 1977, at the request of the Luxembourg Permanent Representative to the EEC (Albert Dondelinger), a special meeting was called of Permanent Representatives only. Dondelinger said that he had been asked by his Prime Minister to express his distress at the criticisms being made outside the Council of the way the British had conducted the Presidency. It was established practice that, if any Member State objected to any aspect of the Presidency’s conduct, this would be stated in the Council, when the Presidency would have an opportunity to reply. What had happened in the case of the British Presidency was unacceptable. The Belgian chair of the meeting agreed. Like all Presidencies, the British had done some things well and others not so well. The FAC and Coreper had been managed in exemplary fashion. The Press highlighted the bad news and ignored the good. These points were repeated by all Permanent Representatives in turn. Eugenio Plaja (Italy) said that the criticism in this case could be attributed to three special factors: this was the first British Presidency; there were known to be important differences of opinion about the Community within the British Cabinet; a number of important British national interests had been at stake. Maitland thanked his colleagues for their comments, which he undertook to convey to Dr Owen. It was helpful to have these sober judgements.65

The Problematic Presidency and Old Wounds Reopened 93 Whatever the truth of the matter, the first British Presidency was remembered inside the British official machine as an object lesson on how not to do it; and elsewhere in the Community as a warning of what to expect when the British rode into town.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

30 31

32 33 34 35

PREM 6/1625, TNA. PREM 16/1221, TNA. PREM 16/1180, TNA. Ibid. PREM 16/1407, TNA. Ibid. PREM 16/1624, TNA. CM (77) 5th Conclusions, 10 February 1977, CAB 128/61, TNA. It was at about this time that Giscard telephoned a French official working in the cabinet of the European Commission: Dîtes à Monsieur Ortoli qu’on ne dit pas ‘non’ au pays de Platon”, said Giscard. (Author conversation) PREM 16/1253, TNA. Author recollection. PREM 16/1407, TNA. PREM 16/1276, TNA. PREM 16/1277, TNA. PREM 16/1246, TNA. Jenkins, European Diary, p. 61. PREM 16/1221, TNA. Ibid. PREM 16/1248, TNA. PREM 16/1221, TNA. Ibid. Ibid. PREM 19/1253, TNA. PREM 16/1221, TNA. CM (77) 13th Conclusions, 24 March 1977, CAB 128/61, TNA. PREM 16/1254, TNA. PREM 16/1221, TNA. PREM 16/1221, TNA. “The President of the Council and the President of the Commission will be invited to take part in those sessions of the Downing Street Summit at which items which are within the competence of the Community are discussed. And examples of such items are negotiations about international trade and the North South dialogue.” PREM 16/1254, TNA. In comment to the author, Lord Owen said that Callaghan had been determined not to be overshadowed by the presence of his former rival, Jenkins. Had he (Owen) tried to keep open Jenkin’s candidature at the first discussion among EEC Foreign Ministers, “apart from fury from Callaghan, for he was watching our meetings like a hawk, I would have lost all influence over him”. Morgan, Callaghan, pp. 567–70; PREM 16/1257, TNA. PREM 16/1256, TNA. Ibid. CM (77) 8th Conclusions, 25 February 1977, CAB 128/61, TNA.

94 The Problematic Presidency and Old Wounds Reopened 36 37 38 39 40 41 42 43 44 45 46

47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

PREM 16/1258, TNA. CM (77) 16th Conclusions, 21 April 1977, CAB 128/61, TNA. PREM 16/1258, TNA. Ibid. Ibid. PREM 16/1258 PREM 16/1258, TNA. PREM 16/1258, TNA. CM (77) 21st Conclusions, 26 May 1977, CAB 128/61, TNA. PREM 16/1258, TNA. (26 May 1977): “I do not think that any of us should try to silence the legitimate criticisms of weakness in the EEC structure . . . But that does not alter the basic fact that our Presidency has certainly been at least as successful as those of our predecessors [An Hon, Member: “Oh, yes?”]. Oh, yes! I have been there and seen. For the future, it is our job to play our full part in developing a new and wider Europe . . . ” Parl. Debs., H. of C., 5th ser.,vol. 932, col. 1546. This is what has been done for EEC/EU Treaty changes from the Single European Act of 1986 onwards PREM 16/1529, TNA. PREM 16/1632, TNA. PREM 16/1632, TNA. Ibid Ibid PREM 16/1632 PREM 16/1626, TNA. PREM 16/1251, TNA. PREM 16/1222, TNA. PREM 16/1250, TNA. PREM 16/1626, TNA. PREM 16/1263, TNA. Parl. Debs., H. of C., 5th ser., vol. 934, col. 545. PREM 16/1227, TNA. Progress had been made under David Owen’s chairmanship to open the way to the accession, not just of Greece, but of Portugal and Spain as well. [Information given to the author] PREM 16/1625, TNA. PREM 16/1625, TNA. PREM 16/1492, TNA.

4

Britain, France and Germany: The End of the Affair: 1977–1979

The idea that the direction of the European Community should be set by the three largest members was one that commended itself to Jim Callaghan as Prime Minister, just as it had to Edward Heath. Callaghan and Helmut Schmidt liked each other. Callaghan and Giscard d’Estaing had been Finance Ministers at the same time and often found themselves in agreement, especially in their scepticism about the European Community institutions. For a brief time, in the aftermath of the decisive referendum vote in Britain in favour of staying in what most Britons at the time referred to as ‘the Common Market’, there were hopes that such an informal triumvirate might happen. But the hopes were to be short-lived. The British Presidency, despite the attempts of Callaghan and Owen to satisfy the French over Commission attendance at the Downing Street summit, had damaged Britain’s reputation in the Community, including in France. The comportment of John Silkin, as Chair of the Agriculture Council, where he had robustly defended the national interest, was a particular irritant to France, for whom the CAP was the bedrock of the Community. There had been bad blood between the British and Germans over JET. The parlous state of the British economy, the strident scepticism of some British Ministers and the continued hostility to the EEC of much of the Labour Party were both inhibitions on Callaghan’s freedom of manoeuvre and signals to Britain’s partners that Britain was not on the same page as France and Germany, let alone the other Member States. In July 1977, from Paris, Henderson sought to explain what was happening. There was nothing, he suggested, to substantiate the view that a new, exclusive Bonn/Paris axis was being created. Nevertheless, the Franco/German side of the European triangle was being strengthened compared with the other two sides. Henderson did not attribute this inequality to the irritation of the French Government at the attitude of the British Government on a number of European issues. Rather, this Franco-German communality was partly a reflection of Britain’s economic weakness and appearance of decline. The French were worried by Germany’s economic predominance in Europe. Their response was to show, insofar as they could, that the French economy was moving closer to the German. At the back of French minds was the belief that ‘if you can’t beat them you’d better join them’. In this, according to

96 The End of the Affair: 1977–1979 Henderson, the French Anglo-Saxon fixation played a part. The French felt that the way the British had reacted since the advent of Jimmy Carter as US President in 1977 showed how ready the British were to understand the American point of view. This was not a new resentment. It was simply a constant ingredient of the French analysis, reinforced by recent evidence that, regardless of British behaviour in Brussels, the British instinctively tried to see things from the American angle whenever it was at variance with that of the Europeans. It had thus come as something of a gift to Giscard that Schmidt and the Federal German Government were apparently willing, for the first time, to question the absolute nature of their link with Washington and to take up a stance closer to the French on issues such as détente. Moreover, Schmidt’s illconcealed desire to see Giscard prevail over the Left in the forthcoming French legislative elections served to strengthen the Bonn/Paris link. “So we have a situation”, Henderson advised, “in which Giscard, perceiving a vacuum caused by the Washington/Moscow coolness, the weakness and detachment of Britain, including our apparent wavering over Europe, and the deterioration of Bonn’s relationship with Washington, seeks to advance France’s claim to a special role as arbiter of Europe’s foreign policy . . . France and the FRG’s relations with each other are more important to them than those of either with us; and they did after all get along in the Community for a decade or more without us. Nevertheless, I suggest that remedial action is called for if we are to fortify our place in the European triangle—the strength of which is necessary for the stability of Europe”.1 The growing warmth of Franco-German relations was in stark contrast to the resurgence of divisions over Europe within the Labour Party and in the UK more generally. Opinion polls taken during the year suggested that EEC membership was not a dominant issue in the public mind; but nor was it of negligible importance. 14% of voters thought it was one of the major issues, well below prices (67%) and unemployment (36%), but ahead of housing/rates/rents (8%) and immigration (6%). For the first time since 1973, more people thought the EEC a bad thing (40%) than a good thing (35%), according to a poll organised by the European Commission. Similar hostility was expressed, albeit less directly, in a Marplan poll taken in mid-July. 55% of those questioned thought that the EEC Commissioners had a lot of power but only 39% thought that they used this power well to the benefit of Britain, whereas Cabinet Ministers scored 61%, and even Trade Union leaders scored 46%.2 The Foreign Secretary, David Owen, turned his mind in mid-year to the issue in a comprehensive paper (for which No 10 had asked) on how to define the essential elements of a distinctive policy over Europe that would distinguish Labour from the Conservatives and meet the legitimate concerns of the British people. Owen, who sought advice from Callaghan’s political advisers as he wrote, started from the premise that the decisive verdict given in the referendum could not be reopened at the next election without calling into question the Government’s sincerity and the credibility of the Labour Party as a Party of

The End of the Affair: 1977–1979 97 Government, and without splitting the Party for a generation. Owen saw five key political areas of EEC policy for a Labour Government “with a coherent strategy and not simply drifting from one confrontation to the next”: reform of the CAP; the handling of the enlargement of the Community; democratic control of Community business; a commitment to defend the rights of the British Government and Parliament; and energy policy. Owen advocated continued support for enlargement as part of the Government’s overall political commitment to the strengthening of democracy in Europe and its support for friendly political forces, in particular in Portugal. Enlargement could, Owen argued, also have important strategic advantages for the West as a whole. Moreover, enlargement was acceptable to critics of EEC membership in that it could only weaken trends in the Community towards federalism. Britain’s interests could be adequately protected with full enlargement to 12, and such enlargement should help, especially over CAP reform. Much of this was fairly conventional fare, but Owen ventured onto less familiar ground in addressing what kind of political beast the European Community was— or should be. He cited the preamble to the Treaty of Rome, which spoke about laying the foundation “of an ever closer union among the peoples of Europe”. But this, Owen argued, had meant different things to different people, and it had always been clear that it was not a commitment to any specific kind of union in any definite timescale. No British Government had ever been committed to a federal solution. Indeed, a federal Europe was unpopular with the British electorate. To the extent that the Labour Party was seen as opposed to federalism and the Conservative Party in favour, said Owen, this gave Labour electoral advantages. The Gaullists in France had played the same card to good effect: they favoured the European Community but were against federalism and in favour of a confederal Europe. The French Socialists were now on the same line. Owen saw the development of a similar political philosophy in respect of the EEC as a way of effecting compromise between different views within the Labour Party and giving Labour a distinctive electoral image in the UK. The notion of the EEC as a confederation could help to channel anti-EEC sentiment in the Labour Party—so long as it was not seen as a launching pad to destroy the Community. Were that to happen, then all the divisive arguments within Labour would soon return. Owen then set out to describe the European Community as he saw it, giving a precise and accurate account of the authority and role of the Institutions but denying that there was an in-built tendency in the Community towards continued integration in the direction laid down in the Treaties, since all the processes which made the EEC a distinctive Community were closely monitored by the member Governments and would thus stop short of anything that could be called federal. Of course there were federal tendencies in the EEC, for example in the German Free Democratic Party (FDP) who advocated a Union covering defence as well as economic integration. But the German Chancellor had made clear his view that the argument between federalism and confederalism was one “for our grandchildren and not for the present generation”. France, Owen thought, was the best example of a country that constantly opposed supranational tendencies while

98 The End of the Affair: 1977–1979 paying eloquent lip service to continued integration, e.g. steps towards EMU. The French had contrived skilfully to present their essentially negative position in positive language. In a speech on 30 June 1977, Giscard had set out his aim of “a united France in a confederate Europe”. “Why a confederation?” Giscard had asked: “Because we must unite our economies, align our policies and, at the same time, retain the ancient and powerful policies of our countries. Such a confederation is without precedent both as regards the size of the states to be brought together and as regards the diversity of their natures. It will therefore be a new and original undertaking, expressing the personality of Europe and its independent contribution to the world of our time.” For Owen, the new and original theme about this concept of confederation was the emphasis on the development of inter-governmental cooperation between members of the Community, both within and outside the terms of the Treaty of Rome itself. Both for electoral reasons, and to avoid charges of negativism from other EEC members, Owen advocated developing a positive confederal concept of Europe and identifying the Labour Government with it before the election. To a considerable extent, this was what Callaghan and Crosland had done before him, he concluded, but hitherto it had been done ad hoc and without an explicit Governmental or Party commitment.3 Owen’s paper, prepared as background to a political meeting of Cabinet Ministers to be devoted to European questions, was supplemented by a paper from the Government’s policy think tank, the Central Policy Review Staff (CPRS). Their conclusion was that, in opting to stay in the EEC, the British people had presumably wanted it to be a success. It was therefore in the British interest both that the Community should succeed and that the UK should do well within it. That was why, in June 1976, Ministers had agreed to pursue a positive approach. In that, the Government had not wholly succeeded, and UK attitudes to the Community and Community attitudes to the UK had become negative. This was the setting in which Ministers, the CPRS advised, should discuss a number of points, the principal ones being: The main effects of EEC membership would be longer term and the exceptionally bad economic conditions of Britain’s first four years of membership were chiefly attributable to events outside the EEC “and to ourselves”; The Government’s main aim was to improve growth, employment and inflation performance. Within the EEC, that implied convergence – a long term process dependent more on UK and EEC macro-economic and industrial policy and progress than on the operation of funds like the Regional Fund and the Social Fund; Presenting UK policies towards the EEC as battles to be won or lost was bad PR domestically since the inevitable negotiating compromises looked like defeats (e.g. in the 1977 agricultural price fixing). This was not to say that important UK interests should not be vigorously promoted or the veto never used.4 The meeting of Ministers was held at the end of July 1977 against a background in which, Callaghan told his colleagues, the Labour Party’s National Executive Committee, in their discussions and papers on Europe,

The End of the Affair: 1977–1979 99 had concentrated on the weaknesses of the Community and on those aspects of the Community which stood in the way of the Government fulfilling its own objectives within the UK. Some of these NEC positions were unrealistic, or so negative in spirit, as to suggest that leaving the EEC was the ultimate objective. The NEC papers seemed to be saying that it was for the Government to devise a Socialist Britain and then demand that the EEC should adapt itself to it. This was not sensible: the better way was to devise a positive policy for Europe within which the UK could attain its objectives. David Owen presented his paper. The ensuing discussion showed the extent of the divisions. Some Ministers thought the NEC were right to be arguing for the restoration of Parliamentary democracy so as to recover the sovereignty that had been transferred by the 1972 Act to the Community. At the same time, the UK should use its best endeavours to harmonise UK policies with a looser Community. Others argued that the Government would only succeed in securing its objectives if it recognised that pure nationalism was unworkable. If the Party failed in the superhuman effort required to achieve common ground between the NEC and the Government before the next election, there would be a violent spasm which would both lose the election and split the Party. Summing up, Callaghan said that the Community generated great emotional surges. Some members of the Government had such a deep and settled conviction of the importance of the EEC to British interests that, if the Labour movement determined to leave Europe, this would drive them out of Government and out of the Labour Party. The Cabinet must find ways and means of preventing this. The danger to be avoided was one of a simple confrontation between a resolution in the NEC and a Government statement saying it was unacceptable. It was the clear view of the meeting of Ministers that, although some felt that the issues that divided colleagues were too deep to be bridged, a great effort must be made.5 Callaghan made the attempt to bridge the gap in a letter to the Secretary General of the Labour Party, Ron Hayward, of 30 September 1977. He stated at the start that insufficient weight was given, in measuring dissatisfaction attributed to EEC membership, to the coincidence of British accession with a five-fold increase in oil prices and the worst world recession in 40 years. There were of course aspects of existing EEC policies that did not work in the British interest, but the solution did not lie in withdrawal from the EEC, and he welcomed the fact that the NEC statement fell short of that. The alternative, Callaghan suggested, was to produce a long-term perspective for reform and change within the Community in order to shape the policies of the EEC so that, in serving the interests of all EEC members, they would also complement the policies of the British Government in regenerating British industry and revitalising the British economy. A British-led reform programme would encompass the maintenance of the authority of national Governments and Parliaments; democratic control of Community business; common policies that recognised the need for national Governments to attain their economic, industrial and regional objectives; reform of the CAP; the development of a

100 The End of the Affair: 1977–1979 Community energy policy compatible with national interests; and enlargement of the Community. The alternative to a serious and substantial programme of reform would be merely to react to events. The course he, Callaghan, was proposing “will enable a united Labour movement to offer the British people a programme of radical reform within an evolving European Community. We would once again be the only major political party to offer the British people the prospect of changing those aspects of Community policies which cause dissatisfaction whilst, at the same time, working for the development of the Community and the growing unity of the people of Europe.”6 The passage in Callaghan’s letter referring to enlargement made the positive case for using the Community’s democratic strength to support democracy in Greece, Spain and Portugal. But, Callaghan added, “the dangers which some have seen of an over-centralised, over-bureaucratised and over-harmonised Community will be far less with twelve Member States than with nine”. Not surprisingly, Callaghan’s letter (by then publicised in the UK) was a topic of conversation at an informal lunch of EEC Foreign Ministers on 8 October. Generally, reaction to the letter was favourable since it at least promised an end to outright opposition to the EEC. But both Commission President Roy Jenkins and the German Foreign Minister, Hans-Dietrich Genscher, criticised the references to enlargement: the British Government appeared to be welcoming enlargement because it would weaken the Community. Although the tone of the discussion was not acrimonious, it was extensively reported in the British Press that Owen had been treated to a hostile reception. Genscher’s office telephoned Owen’s Private Office to say that Genscher had been shocked at the Press reporting and that he wished to assure Dr Owen that he had not briefed the Press about the discussion. This disclaimer prompted a cynical, but almost certainly realistic, comment from Callaghan: “Noted. But I don’t trust Genscher’s Press briefing. He is notorious.”7 In Paris, Henderson sought a view from the French Government on the Callaghan letter. The Secretary General at the Foreign Ministry, Jean-Marie Soutou, replied that the Gaullists had never believed that Britain would identify itself with Europe. They noticed, as did everybody else in France who followed these things, that a considerable number of members of the British Cabinet had refused to accept the referendum and the spirit of British membership of the Community. The Gaullists knew that Britain would never renounce the special relationship that it sought with the United States and, for that matter, with the outside world. They were not at all surprised, therefore, with the present attitude of the British Government. Henderson pointed out that the Gaullists did not in practice want to move any faster than the British Government towards creating European union. It suited them to be able to shelter behind the British. Soutou did not dissent, but when Henderson asked him about French opinion more generally, Soutou replied that there was no doubt that French opinion had taken very badly Britain’s attitude to Europe since French opinion, though perhaps not very articulate on the subject, wanted to make progress towards greater European unity. For some, this was a

The End of the Affair: 1977–1979 101 way of constructing something that was completely independent of the USA. The French President was a committed European. When Henderson said that Britain was being chastised in France for its failure to accept in the immediate future progress towards economic and monetary union, even though the French themselves seemed to have lost interest in the subject, Soutou replied that the French had not dropped EMU but they were realistic and knew that quick progress towards the goal could not be made in present circumstances. In a separate conversation with Jean-David Levitte, a Diplomatic Adviser at the Elysée, Henderson was told of French sadness at the tone and implications of Callaghan’s letter. The French had concluded that the British Government had decided to take a minimalist line on European Union and were unwilling to move down the road towards confederation, on which the French had hitherto thought that Anglo-French views were close. What Callaghan had said about enlargement left no doubt that the British Government wanted the Community to remain as loose a group of states as possible. To make himself absolutely clear, Levitte added that the British would be deluding themselves if they thought that French views on the development of the Community were so negative that they would go along with the sentiments expressed in Callaghan’s letter. It was only the difficult economic circumstances of individual member countries which were preventing President Giscard from trying to press ahead with EMU. When Callaghan saw Henderson’s telegram he minuted: “Tell our people not to be on the defensive on this”. His Private Secretary, Bryan Cartledge, subsequently wrote to the FCO, in terms cleared in advance with Callaghan: “The PM is likely to have in mind the fact that the letter, which has removed any possibility of the Labour Party campaigning at the next election on the basis of possible withdrawal of the UK from the EEC, has achieved political results which should be welcome to our partners and on which due emphasis should be placed; and the fact that, on any one of the six areas identified in the letter as ones in which the UK would wish to see reform the Government is not alone among the Governments of the Nine in reflecting a popular desire for change.”8 Of course, in reality, both sets of perception were accurate. Callaghan had skilfully prevented a schism in the Labour Party but he had been compelled to intervene by the extent of the divisions and the fact, plain for all to see, was that his achievement was essentially negative: there was no consensual sign-up in the Cabinet or the Party for the kind of confederal narrative which Owen had outlined and to which Callaghan himself would have subscribed. That EMU had not been forgotten became abundantly clear from a speech given by Commission President Roy Jenkins in Florence on 27 October 1977. Jenkins himself, in his European Diary, made relatively little of the speech, though, in his end of year reflections, it assumed rather larger proportions, with the first half of his first year as Commission President being “on the whole dismal”, whereas, since the return from the holidays in early September, “my sense of direction (provided by EMU) and morale have improved greatly”.9

102 The End of the Affair: 1977–1979 In his speech, Jenkins advanced a number of reasons why monetary union was relevant to the problems of unemployment, inflation and international financing. They were summarised in an analysis by the British Treasury: “The crux of Mr Jenkins’ proposals is a great leap forward to full-scale monetary union, with a central authority responsible for management of a single European currency and issuing target rates of growth for monetary expansion. Underpinning this monetary union would be a mechanism for resource transfers through Community institutions, designed to insure weak members of the Community against the fear that monetary union would aggravate their economic difficulties, and provide stable and prosperous markets for the strong regions . . . A central part of Mr Jenkins’ case is that in recent years the principal objection to monetary union— that different states make different political/economic choices between low inflation and high unemployment, and that such choices can be maintained in a floating regime—is no longer valid. Both the more gradual approach favoured by Ortoli [the French European Commission member responsible for monetary matters] and Mr Jenkins’ more root and branch proposals reflect a common concern about the possible effects of enlargement and hence the need to establish closer economic integration as a long-term goal.” The Treasury’s analysis of Jenkins’ speech was that he had been extremely circumspect in that he had not suggested specific immediate measures, nor a timetable for the achievement of monetary union. He recognised that a good deal more convergence in the economic policies of Member States would be necessary first. Jenkins was almost certainly right to emphasise the weakness of a floating rate regime as a means of accommodating different choices between unemployment and inflation. The majority of countries, the UK included, were experiencing both simultaneously. What was less clear was whether a centrally imposed growth of monetary supply would be more effective than similar policies imposed by individual national authorities. The Treasury thought that Jenkins’s claim that monetary union would promote growth and employment by establishing a low common rate of inflation was highly contentious, and underplayed the crucial importance of external markets for growth rates. Even if the desired outcome could be achieved, there was a high risk (which Jenkins acknowledged) that a common currency would lead to pay claims based on inter-State comparisons of pay levels and pay increases, without regard for differences in productivity, leading to increased unemployment in the low productivity, high inflation, States. A monetary union that did not devise means of countering this development would have little chance of success. As for Jenkins’s argument in favour of a powerful system of inter-regional transfers, the Treasury thought it unrealistic to assume that the richer members of the Community would be prepared to pay the sums required and, in effect, to subsidise pay claims in excess of productivity in the weaker regions. The assumption that the richer members would be prepared to pay in the foreseeable future seemed to the Treasury the most questionable part of the lecture. Moreover, a particular difficulty for the UK was that the system envisaged by Jenkins seemed to assume that all resource transfers would be concentrated on

The End of the Affair: 1977–1979 103 the poorest regions. Under such a system, it was questionable whether the UK would be a net beneficiary from redistribution. Overall, the Treasury believed, Jenkins had produced some telling, but not conclusive, arguments in favour of monetary union. They merited serious consideration, but what had yet to be demonstrated was that a political system of regional guarantees could be designed to meet the needs of intermediate regions, or that the stronger members would be prepared to make the necessary sacrifices in favour of the weaker.10 Piers Ludlow, in his comprehensive analysis of Jenkins’s Presidency of the Commission, reports mixed reactions at the European Council a few weeks after the speech. The Italian Prime Minister, Giulio Andreotti, and several of the smaller Member States were enthusiastic, Giscard was supportive and Schmidt and Callaghan cautious but not wholly dismissive.11 Jenkins himself thought Giscard “a shade cooler” than the enthusiasts. Schmidt had been more supportive (when not appearing to be asleep, “which he mostly does when anyone other than himself or Giscard is speaking”) in private than in the semi-public setting of the Council. The same was true of Callaghan12

1978 1978 was the year in which Callaghan allowed speculation about an early General Election to gather pace in the early autumn, but then took the decision not to go ahead. That decision was a reflection of the precarious position of the Government, dependent on Liberal support in Parliament and with Callaghan struggling valiantly to secure the support of Party and Trade Unions for wage moderation. The winter of 1978/79, which became known as the winter of discontent, made famous by photographs of coffins unable to be buried until striking workers consented to return to work, sealed the fate of the Labour Government, not just for one Parliament, but for eighteen years. 1978 was also a decisive year in terms of British membership of the European Community. The familiar irritants persisted, prominent among them continued Labour Party discontent over Direct Elections, and a fraught negotiation between Britain and her EEC partners over reform of the Common Fisheries Policy. But 1978 was also the penultimate year of the transitional period following UK accession to the EEC in 1973. From the end of 1979, Britain would be paying her full financial contribution to the EEC budget, a fact that was to loom large in the attention of the Press and as a preoccupation for the Prime Minister. Indeed, he seems to have been more alert than official Whitehall to the magnitude of a problem that was to dominate British EEC policy for half a decade and, arguably, to lead to British public perceptions of the Community, and Community perceptions of Britain, that soured definitively the mutual relationship. To this already potentially toxic mix was to be added a dramatic initiative by the German Chancellor and the French President. Their proposal to create, in the Exchange Rate Mechanism (ERM), a major new instrument of economic and monetary convergence as a significant step towards EMU, was to spell the

104 The End of the Affair: 1977–1979 end of any realistic prospect, or even pretence, of a triangle of European leadership of which Britain was still a part. The nature of British attitudes emerged starkly in a private meeting between Callaghan and the Greek Prime Minister in January 1978. Callaghan started by asking Karamanlis to tell him frankly what advantages he saw in Greece joining the EEC. The advantages for the rest of Europe were clear since membership would help to preserve Greek democracy, but what was Karamanlis’ economic assessment? Karamanlis replied that by its history, its culture and in many other ways, Greece was part of the European family. Membership would remove the temptation of dictatorship in Greece and would encourage the Greek people to make great efforts to catch up with the more developed members of the Community both economically and politically. Callaghan then said that the EEC aroused no feelings of emotion in the UK. He was bound to say that he was uncertain as to whether an economic assessment of British membership of the Community would be positive or not. For his part, he fully accepted the political advantages of belonging to the EEC, but the British people did not. It was more credible to them to think that the UK should have close ties with India than that it should have close ties with Europe. In the run-up to accession, some people had exaggerated the economic attractions of membership, with the result that a degree of backlash was now being experienced.13 Part of Callaghan’s downbeat assessment may have been induced by a row over fisheries. EEC fisheries Ministers were due to meet informally in Germany on 27 January 1978 to try to reach a package settlement of the long-running negotiation over reform of the CFP. A policy stance had been agreed in the Ministerial subcommittee of Cabinet (CQM). The Government would settle for adequate fishing quotas (defined as corresponding broadly to the UK industry’s existing catch levels); a set of Community conservation measures, subject to a reserved right to take national measures under certain conditions; ultimate exclusive access to waters within 12 miles of the British coast and preferential access to waters between 12 and 50 miles.14 It was thought that more than one more EEC Ministerial meeting would be required. But the position was further complicated by a link to the separate annual negotiations on the CAP price fixing in which Britain was seeking a significant devaluation of the green pound.15 Farming and Fish were both dealt with by EEC Agriculture Ministers and Silkin had told his European colleagues that he would not attend the informal meeting in Germany on fish unless German, Dutch and Belgian reservations on the devaluation of the green pound had first been withdrawn. Given this linkage, Silkin judged that it would be contrary to UK interests for him to participate in discussions in Berlin under what amounted to duress, as he saw it. Apart from other considerations, his attendance would antagonise the fishing industry. So seriously did the Germans take the issue that they sent a junior Foreign Office Minister, Klaus von Dohnanyi, to London to remonstrate with Frank

The End of the Affair: 1977–1979 105 Judd, Minister of State at the FCO. But the standoff continued, and Callaghan was obliged to get involved after receiving a message from Chancellor Schmidt urging him to arrange for Silkin to attend the meeting. Callaghan asked Silkin to call on him in Downing Street. Silkin stuck to his guns, leading a frustrated Callaghan to tell him that his position was all very well but that he, Callaghan, now had an international incident on his hands. Schmidt had appealed to him personally and this created a new situation. It might be said that the reason Silkin was not going to Berlin was because he was an anti-marketeer. Silkin said that if he did go to Berlin this would be interpreted as a climb down. It was the Germans, not he, who were creating an international incident. Callaghan responded that the Chancellor’s message nevertheless had wider implications than Silkin’s own departmental responsibilities. Silkin contended that his fellow EEC Agriculture Ministers, whom he now knew better than his fellow Cabinet Ministers, would not make any connection between his known views on the Common Market and his decision not to attend the Berlin talks. In the end, Callaghan felt that he could not force Silkin to go to Berlin. Instead of taking up such a firm public position in the House of Commons, Silkin could have adopted a ‘wait and see’ approach. But, now that the situation had been created, and Silkin had taken a public position, he would have to back him up.16 Callaghan and Schmidt exchanged polite messages—polite because both men found themselves caught up in a quarrel not of their own making. Silkin did not go to Berlin. The reservations on the Green Pound devaluation were lifted shortly afterwards. No progress on fisheries was made at the next Council meeting, in part, perhaps, for reasons adduced by Michael Franklin, Head of the European Secretariat in the Cabinet Office, in a letter to John Fretwell at the FCO, copied to Brian Hayes, the senior official involved at MAFF. “No doubt” Franklin wrote, “we have all been reflecting on recent events . . . Even before our request for the Green Pound change, the Germans were unhappy about our performance in general, and on fish in particular, but there is no evidence that the events of 24 January were part of an orchestrated plot by the Germans. The orchestration was organised afterwards. This means that the reservations might have been lifted without much ado, had Mr Silkin not threatened the empty chair. Once that threat had been made, suspicion was rife . . . Had we been in Berlin, it is possible that we could have secured something comparable to the terms which bought off the Irish, or alternatively that we could have prevented the potentially damaging 8 to 1 situation with which we are now presented in Brussels . . . ”17 Hayes replied, agreeing with much of what Franklin had written but questioning whether Silkin’s presence in Berlin would have led the Germans to lift their reservations. Franklin, Hayes thought, downplayed unduly the hope which Josef Ertl, the German Agriculture Minister, may have had of using the Green Pound devaluation to put pressure on the UK over fish. The

106 The End of the Affair: 1977–1979 Germans had been forced to repudiate any such intention; but this did not mean that they had not cherished one.18 This ongoing spat over the CAP and the CFP did not escape the attention of the continental Press. The British Embassy in Bonn reported that even the Süddeutsche Zeitung, known for its balanced reporting, had accused the UK of recklessly defending its interests like scarcely any other country: the hostile popular mood towards the EEC encouraged British Ministers to play the strong man in Brussels. The German Press accused Silkin of being ‘full of tricks (Frankfurter Allgemeine Zeitung), of causing a ‘crisis of confidence’ and of ‘making no attempt to hide his intention of aiming for a breakdown’ (Bonn General-Anzeiger). The French Press reaction to the Fisheries Council was uniformly hostile, according to the Paris Embassy. Le Matin quoted the Dutch Agriculture Minister as asking: “Are we going towards a situation where all decisions will be blocked except those favourable to the UK?” The polemic widened in the French Press to cover Britain’s attitude to the Community as a whole. An editorial in Le Monde was, said the Embassy, that paper at its most critical. “The sad spectacle of the last two days in Brussels”, the editorial said, “confirms that the language of the Community is unknown to the British. The crucial point is to know whether the British are prepared to respect the Treaties and to take part in Community action or whether the Community is moving into a period when all discussion will be blocked if it is not favourable to the UK.” After renegotiation, “the UK solemnly assured the Community that it would now act like all other Community members, but the evidence of day to day business in the Community shows that these promises have not been kept. On industrial questions, on agriculture, on fish, on energy, on the institutions, when the British do not block the discussion completely, they ask for derogations and exceptions. After all, it is their fault that Direct Elections have been put back a year, that without justification British food imports continue to be massively subsidised by FEOGA, while at the same time, by a perversion of the financial rules of the Community, London’s contribution to the Budget fails to reflect Britain’s true economic weight.” In submitting this report to Callaghan, Cartledge minuted: “You will recall President Giscard’s remark to you at Chequers that we should stick up for our interests more robustly in the Community!” “Aye Aye”, wrote Callaghan.19 The atmosphere continued to deteriorate. At his weekly Press Conference, on 13 February 1978, the Dutch Prime Minister, Dries van Agt, said that Britain’s eight partners were preparing retaliatory measures against the tough British stance on the CFP. Increasingly, van Agt said, the British appeared, not as a member of the Community, but as a country negotiating with it. The Dutch Prime Minister declined to give details of the proposed measures but said they would be “not aggressive, but effective and inventive”. A senior official in the Dutch Fisheries Ministry told the British Embassy that he was not aware of the Prime Minister’s intentions, and the Embassy speculated that van Agt might have been sabre rattling.

The End of the Affair: 1977–1979 107 In London, the Government did not wait to find out. Frank Judd summoned the Dutch Ambassador to the Foreign Office to ask for an explanation. Judd rebutted the general charge that the UK was dragging its feet in the Community. He noted that only the UK and Belgium had been ready to implement the Own Resources (OR) system on 1 January, that the UK was making a large and growing net contribution to the Community budget and that it provided a huge market for other Member States, with a current trade deficit close to £2,000 million a year. He contrasted the scale of German and UK receipts from the FEOGA (agriculture) budget. As to the fisheries negotiations, it was, said Judd, the Germans who had taken the lead in creating an atmosphere of crisis and it was very disappointing that the Dutch Government appeared to be adding fuel to the German fire. Nothing would be gained by ganging up against the UK. The rest of the Community had to understand the political reality, which derived from the fact that the UK contributed 60% of the available fish stocks. Judd expressed serious concern at the reports of retaliatory measures and sought an explanation. The Dutch Ambassador replied that his Prime Minister was not, in the Dutch system, responsible for foreign policy. He would ask his Foreign Minister for information and guidance. He thought that fears about the general British approach to the Community were comprehensible, even if they were exaggerated, and noted the tendency in Britain to refer to the Community as if the UK did not consider itself a part of it.20 When the British Ambassador in Bonn, Oliver Wright, bumped into Chancellor Schmidt at a social occasion in Hamburg, at the height of the fish dispute, “as you can imagine, there was not a lot of warmth in the conversation since the Chancellor, when angry, tends to iciness”. Schmidt asked Wright to draw to Callaghan’s attention an exchange of correspondence he had had with Franz Josef Strauss, leader of the Bavarian-based Christian Social Union (CSU), the junior partner in the Opposition coalition and, according to Wright, “still the most formidable figure on the Opposition benches”. The correspondence was about the Bavarian claim to host JET. “It is not of course for me to interpret the Chancellor’s mind”, Wright wrote, “but I think the message he wished to get across to the PM was that, while our domestic difficulties on fish are understood, we should not lose sight of the fact that other people have their domestic political problems too when concessions have to be made in the general interest.”21 Wright had highlighted a feature, not just of the fisheries episode, but of British negotiating in the EEC more generally. Perhaps because of the absence of coalition politics in Britain, the spasmodic nature of contact between British political parties and their continental opposite numbers, and the monoglot capabilities of British politicians (between Macmillan and Blair no British Prime Minister spoke French, for example), there was a consistent failure to understand, let alone take adequate account of, the domestic political pressures on other European leaders. Schmidt knew and understood the politics of the British Labour Party subtly and intimately. Callaghan did not have the same understanding of the German Social Democratic Party (SPD). It had taken

108 The End of the Affair: 1977–1979 Henderson, a career civil servant, to urge more contacts between the British Labour Party and Mitterrand’s Socialist Party. There, the fault lay on both sides, but Mitterrand and Callaghan were largely strangers to each other. The relationship which David Owen established with Michel Rocard was with a rising star of the French Socialist Party, but one who was out of sympathy with Mitterrand, his Party leader. Despite the Anglo-German tensions over fish, Callaghan and Schmidt did understand their respective political difficulties, at least to the extent of both having to manage Agriculture Ministers (Ertl in Germany and Silkin in Britain) who created waves. Callaghan was in Bonn for talks with Schmidt on 12 March 1978. When both men were watching the German TV news, and Schmidt commented that the reporter was saying that the two men were discussing fish, Callaghan replied that that was splendid, and “they had now discussed fish”.22 The Bonn meeting was, however, highly significant in other ways. As Callaghan told President Carter in a message of 13 March, he had found Schmidt pessimistic, almost fatalistic, as regards world economic problems. Schmidt was concerned about the recession but saw no prospect of agreement between Europe and the US on the way through the problem of low growth and high unemployment. He was pessimistic in his view of the prospects for growth in the US economy—fearing that the US would not be able to sustain it —a view which, Callaghan wrote, he did not share. Against this backdrop, Callaghan worried that the prospects for a worthwhile result from the Economic Summit (which both Carter and Callaghan were due to attend in Bonn in July) were very poor unless there was first a greater meeting of minds. “Given what is at stake”, Callaghan continued, “I do not feel able to sit back and let the free world economies drift downwards, and we have . . . now developed [in the UK] some ideas for collective action to restore confidence, generate growth and develop world trade”.23 What Callaghan was referring to was a five-point plan for a series of measures in different fields to be taken by different countries, which together would comprise a package to be agreed at the Bonn Summit. The five issues would be: commitment to growth; the maintenance of world trade; currency stability; the long-term use of capital surpluses; and conservation of energy.24 The five-point plan was a British initiative and a clear attempt by Callaghan both to tackle a major problem and to demonstrate that Britain and its Government were capable of serious leadership. So when, during the visit to Bonn, Schmidt, in private, explained to Callaghan what he called “an exotic idea” that he was pursuing, it cannot have been altogether welcome, although its full significance was not immediately apparent. Schmidt’s idea was to create another European currency snake, but of a different kind. Schmidt would not, he said, go as far as Roy Jenkins wished to go in terms of EMU, but what he would propose was that the FRG and certain other members of the Community should each put half their reserves into a new currency pool, the currencies of which would be fixed against a European Unit of Account. This Unit of Account would be the currency which operated vis-à-vis the dollar, and would be the sole unit of intervention.

The End of the Affair: 1977–1979 109 The pool would be managed by Finance Ministers. Countries in difficulties could borrow from the pool and repay in one of three periods: over eight weeks; over six to twelve months; or over two years. Schmidt added that he would not want this pool to be tied to the dollar because the US economy was too large and uncontrollable: the captain was not in charge, even though he was well-meaning. On this basis, the FRG would put in $20 billion and the UK $10 billion, with the French making a comparable contribution. If President Giscard won the next round of the legislative elections currently in train, he would put this suggestion to him. He had not told his own Finance Minister and he particularly asked that Callaghan should not tell Healey. Callaghan’s initial reaction to Schmidt was that he had no technical understanding on which to form a judgement of the proposal. Schmidt said that one effect would certainly be to weaken the German Mark. In reporting the conversation to Ken Stowe, his Principal Private Secretary, Callaghan said that he could not consult Harold Lever (the most economically literate, and the least discreet, of all the Cabinet members) but that he might ask Ken Couzens, Second Permanent Secretary (Overseas Finance) at the Treasury, to advise him.25 Stowe reverted to Callaghan later on 13 March. Nigel Wicks, the No 10 Private Secretary seconded from the Treasury to handle economic issues, had reminded him that during the Heath Administration, there had been a proposition somewhat similar to Schmidt’s that had been explored at the highest level.26 Stowe advised that there were only two wholly competent sources of advice: Ken Couzens and the Overseas Director of the Bank of England, Kit McMahon. It would be easier, given the embargo on Ministerial consultations, to ask McMahon on a personal basis, and with the consent of the Bank Governor, Gordon Richardson. Schmidt and Callaghan had briefly discussed another issue (that of EEC budget contributions) and Schmidt, according to Callaghan, had been “astonished” when told that Britain was the second highest net contributor to the EEC budget, with only Germany (much wealthier) paying more.27 Callaghan was familiar with the problem of the level of Britain’s budget contribution. It had been one of the central issues of the Renegotiation which he had conducted as Foreign Secretary. With little help from Wilson, who did not take the matter as seriously as he should have done, Callaghan had negotiated an arrangement for Britain to be compensated if her contribution became excessive. This mechanism had been designed, at German insistence, with complex triggers that meant that, in practice, it never came into operation. Now, according to a letter from Cartledge to Kingsley Jones (Healey’s Private Secretary), “the Prime Minister has commented that we and the Germans are the largest contributors to the European Communities. The PM has made the point that in 1977 the disparity between UK receipts and UK expenditure will be even greater. Since the UK is one of the poorer members of the Communities, the PM asks whether this is not absurd. He is inclined to give consideration to making some public statement to this effect.” Before doing so, the PM wished to see estimates of the

110 The End of the Affair: 1977–1979 likely figures. (Cartledge was the iron fist in the velvet glove. What Callaghan had actually written, in a manuscript note to Wicks, was: “As we are one of the poorer Members, is this not absurd? And should I not say so? Let’s put the wind up the FCO.”)28 The Treasury’s response confirmed Callaghan’s conclusion. In 1976, the UK had been the second largest net contributor to the Community Budget. The largest was Germany, whose net contribution in 1976 was perhaps three times as great as the UK’s. The UK net contribution would increase as Britain moved to full application of the Own Resources system in 1980. The Community Budget, the Treasury advised, did have a redistributive aspect but it was primarily as an instrument for agricultural subsidy. Moreover, the Budget redistributed from countries that were primarily industrial to countries with a very large agricultural sector. “This means”, the Treasury wrote, “that the main beneficiaries are Ireland, Denmark and the Netherlands, and the enthusiasm of these countries for Community preference is no doubt associated with a lively sense of self-interest.” On the other hand, the relative strength of the industrial sectors in France and Belgium meant that they were now net contributors. The Treasury noted that the UK had always known that the Own Resources (OR) system would result in UK budget contributions significantly exceeding the UK’s share of Community GNP. But the OR system, which had been accepted by the UK as a condition of EEC membership, was regarded by other Member States as a basic Community achievement. They would strongly oppose any alteration to it and Callaghan himself, in the speech with which, as Foreign Secretary, he had begun Renegotiation, had stated that the UK was not seeking to overturn it. Nonetheless, the Treasury agreed that it was not generally recognised, either in the UK or elsewhere, that the UK was, and was likely to remain, the second largest net contributor. This indicated an area of common interest with the Germans. It would be worth drawing attention to the issue even though, the Treasury warned, it might provoke those opposed to the UK’s membership of the EEC.29 The question of Britain’s excessive budget contribution was to influence the British Government’s attitude to Schmidt’s proposals for what became the European Exchange Rate Mechanism (ERM), as the question of resource transfers came to play an increasingly important role in British thinking. But Callaghan’s initial preoccupation was to avoid a European currency scheme militating against effective action at a more global level. In a telephone conversation with Roy Jenkins on 31 March, Callaghan told Jenkins that he had found Schmidt in a frame of mind where he was inclined to argue that nothing could be done with the Americans and that, as a result, Europe would have to have its own currency block. For Callaghan, this posed a clear question: “Do we”, as he put it to Jenkins, “try to build a world monetary system, or are we going to have a European one?” Jenkins did not think the two approaches contradictory. Europe ought to play a larger part. By that, he did not mean the creation of a European single currency but of a substantially more coordinated European monetary position that could help to create a better world monetary position.

The End of the Affair: 1977–1979 111 Callaghan was unpersuaded: “I must say, prior to July, before we see what the Americans are ready to do on these things, I would be very much against us moving on the European front on currency because it might give the impression to the Americans that we weren’t really interested in them. And that would be a great mistake.”30 The European Council was to meet in Copenhagen on 7/8 April 1978. The French President telephoned Callaghan a few days beforehand, after a visit from Schmidt in which he had been briefed on Schmidt’s ideas. Schmidt and Giscard had agreed to meet for breakfast on the Saturday morning of the Council since “Helmut thinks he needs, in a word, our help to develop the conceptions”. Callaghan readily accepted the invitation but issued two words of warning: “My view is quite a clear one, that if the effect of the arrangements is to prevent the strengthening of the DM even further to the disadvantage of sterling, I would not find it very attractive.” Callaghan also made it clear that he saw the breakfast discussion as taking place in the context of the wider monetary disorder which, in his view, was the cause of a great many other troubles. He had spoken to President Carter “very strongly on these lines”.31 Before travelling to Copenhagen, Callaghan and Owen were briefed on Schmidt’s embryonic plans and their implications by the Governor of the Bank of England, the Cabinet Secretary, Couzens and McMahon. Both Couzens and McMahon, at Callaghan’s request, sent him briefing notes that were largely factual but began to sketch out a British reaction. Couzens argued that it was not obvious that the prospect for a durable relationship between currencies was better now than in the recent past. Indeed, the contrary was arguably the case. In a currency snake the adjustment of rates, up or down, was, Couzens argued, always a political act. Even with the help of the French and the smaller EEC countries, the chances of influencing German economic policy strongly and consistently did not seem good. The existing snake was “basically a German economic zone”. Couzens went on to argue that at least a considerable part of British industry would regard joining a snake as a threat to UK competitiveness. In spite of the relative success of Stage 3 of the Government’s pay policy, Industry saw UK increases in wage costs as moving further out of line with wage cost increases in Germany. It was their expectation that the sterling exchange rate would have to decline over a period to reflect that. Industry would probably be right in assuming that the effect of UK membership of the snake would be to keep the UK average exchange rate higher relative to the competition than if the UK stayed out. Equally, it was likely that the average effective rate would be rather lower than otherwise. So, Couzens advised, it would be German industry that would benefit unless the UK secured a consistently higher rate of German growth to offset this. Couzens concluded: “There is clearly a problem here in dealing with a German proposal which, with or without intent, may have the effect of cutting across the five-point plan. We would want to lead Chancellor Schmidt

112 The End of the Affair: 1977–1979 back to the need for more growth in Europe and the need to take serious actions to stabilise the dollar. The PM may feel that, given his relationship with Chancellor Schmidt, it may be possible to do something like this without appearing totally negative about his snake proposal.” In his separate brief, McMahon made a similar point: “The advantage of the arrangement would presumably be that, with more support visibly mobilised, it would be easier to keep up the exchange rates of the countries concerned. The arrangement, however, would not appear particularly relevant to the present world problem of a weak dollar. It would do nothing to support the dollar, or to hold down the exchange rate of any of the countries concerned against the dollar. Rather the reverse: if heavy support operations were necessary, the intervention carried out would tend to weaken the dollar.”32 The Cabinet Secretary, Sir John Hunt, added a political comment in a minute to Wicks: “Some of the disadvantages to us are fairly clear. This could, however, be a move towards a two-tier Community. The Prime Minister will obviously bear in mind the political and other implications if this happened and we were not in the top tier. Thus there is a case for ensuring that this is a scheme that we can live with, or that it founders.”33 At the Copenhagen meeting, Schmidt did not wait for his breakfast meeting to reveal more of his scheme. He evidently felt confident enough in Giscard’s reaction to outline it at a dinner of the Heads of Government on Friday, 7 April 1978. Stowe wrote down Callaghan’s verbal account of the discussion. Schmidt had outlined his scheme (on the lines already explained to Callaghan), concluding with the observation, in response to question from the PM, that this was a scheme, not to replace the snake, but to swallow it. Giscard had responded positively, arguing that the Community was now at a crossroads: either they took action along these lines, or France would act independently and join the snake. If they acted together, then it could create a European Bretton Woods with a European exchange rate against the dollar, based on the European Unit of Account (EUA). It was important to get an answer to these proposals in the coming months. He would much prefer a nine-country basis. In further discussion, Schmidt had commented that the possibilities were not restricted to either pursuing his idea or remaining in what was effectively a twotier Community. There was also the possibility that the European Community might break up as a result of the stresses brought about by the present situation. Callaghan commented to his officials that, at first blush, this was a very interesting and constructive proposal, but it plainly needed a lot of working out, and needed to be worked out without publicity. Roy Jenkins, who participated in the de-brief, added that Chancellor Schmidt had evidently completely sold his proposal to President Giscard.34 On the return journey from Copenhagen to London, Callaghan gave Couzens an account of his breakfast discussion with Schmidt and Giscard on the morning after the dinner discussion. It had become clear, said Callaghan, that the proposal was basically for a new European snake. The intention was that the EUA should

The End of the Affair: 1977–1979 113 be used for settlements between central banks only. It was, however, intended that the EUA should develop into a new currency in the longer term. It was imperative for political reasons that the Italians should be included in the scheme, though Schmidt accepted that the EEC would develop into a two-tier Community following enlargement. There was a belief that the United States would become more protectionist. They must be informed about the new snake proposal at the right stage, but it was clear to the Prime Minister that the scheme reflected a turning away from the dollar and from US financial policy. President Giscard had said that a strong currency was important psychologically, and that he did not believe it would have any great unfavourable impact on exports. If a decision on the wider proposal could not be reached by midyear, France would probably wish to enter the existing European snake. France would never become protectionist against Germany. Giscard accepted that the final result of the evolution being discussed would be a DM zone, just as there had formerly been a sterling area. Schmidt, for his part, accepted that the DM was bound to become increasingly a reserve currency. Callaghan had, so he reported, made it clear that he would have to express scepticism to the Press or in the House of Commons if questioned on a proposal for entry to an extended snake of this kind. As to follow-up, he had resisted a proposal from Schmidt that one paper should be prepared by each of the three countries for the three Heads of Government. Schmidt, on the other hand, did not like the idea of a single paper only, produced by Germany. The conclusion was that there should be two papers: one French and one German, and the Prime Minister would adopt a neutrally critical stance. The two papers would be considered by three people only, being one nominee from each Head of Government: Horst Schulman from Germany (Schmidt’s senior economic adviser) and Bernard Clappier, governor of the Banque de France. Callaghan wanted Couzens to be his nominee. The three chosen men would have six weeks in which to complete the examination, and the three Heads of Government might well meet on the evening before the Bremen European Council in July to discuss the results. Callaghan, Couzens recorded, “wished me to work direct to him on this, on a strictly confidential basis”.35 By mid-April 1978, the Chancellor of the Exchequer had been brought into the circle. Reports of the Schmidt initiative were starting to appear in the Press. Wicks provided Callaghan’s Press Secretary, Tom McCaffrey, with a note for a background discussion with one journalist that spoke of two broad strands in international discussion about how to achieve upward convergence. There was the Five Point Plan, based on re-invigorating the world economy. This was the PM’s approach and the UK had already had some success in getting the concept accepted. “Then there is the European approach”, the note continued, evidently involving a re-invigorated snake, pooling of reserves and enhanced role for the EUA. The Prime Minister, Wick’s note continued, was quite willing to examine these ideas on a technical basis but was not greatly attracted to them at this stage, since they could appear in conflict with the wider Five Point Plan and

114 The End of the Affair: 1977–1979 might also appear to be anti-dollar. “So the central message”, Wicks concluded, “is that the PM is fighting for the preservation of a financial and economic structure, based on the world economy, the IMF and the SDR. This needs to comprehend both Europe and the United States.” The Five Point Plan needed a response from both Europe and the United States but if the Bonn Summit—and the Plan—did not succeed, “then we might have to consider other approaches. But do not assume that the only approach to be considered would be the ‘European’ approach. Some other approaches might be forced on us which might not be to the liking of proponents of ‘European’ ideas. Make no mistake, the PM is not siding with the US in any dispute with Germany. Thinks that reports of such a dispute are exaggerated. Indeed, one of the elements in the Five Point Plan is monetary stability. Possible that ‘European’ ideas, properly developed, could be brought into harmony with the Five Point Plan. But we need to be convinced of that and therefore are willing to engage in technical discussion.”36 A first Ministerial discussion of Schmidt’s ideas, involving both Callaghan and Healey, provided further evidence of Callaghan’s reservations. At the root of the plan, Callaghan thought, was disillusion with US policy. The Prime Minister was concerned, and had told Schmidt, that the latter’s ideas would adversely affect the UK regions and did not chime with the philosophy of the five-point plan. He feared that the UK economy would be harmed by a too dominant DM zone. It would be very difficult to do anything on the lines Schmidt was proposing before the General Election. Healey was also sceptical but did say that, if anything did come of Schmidt’s ideas, he hoped the UK would be associated with them because he believed that the skill of the UK’s negotiators would “get something for the United Kingdom” from them. Only Harold Lever (Chancellor of the Duchy of Lancaster) and Gordon Richardson (Governor of the Bank of England) showed positive interest in the plan, Richardson indicating that, if it could be demonstrated that Schmidt’s ideas held no dangers for the dollar, then they would be worth considering in the interests of greater monetary stability.37 Ahead of a meeting at Chequers between Schmidt and Callaghan, Couzens drew up a note on various pertinent questions which Callaghan might ask. His note contained warnings: “A fixed currency relationship between partners of about equal strength with similar dynamism should present no problems. But if the relationship is between countries or regions differently endowed, or on different paths as regards growth and inflation there is, first, an underlying implication that there will have to be resource transfers, on a continuing basis, to equalise standards of services etc. This happens via the UK budget between, say, the South East and the North East, the former paying more tax per head and taking out less per head in social benefits . . . But, in addition, the features of the relationship will be that its maintenance will dominate other aspects of domestic policy, with probably painful choices about growth, employment and price stability and between different policy instruments, incomes policy, monetary policy and fiscal policy.”

The End of the Affair: 1977–1979 115 It followed, Couzens argued, that the undoubted benefits to be secured from the greater exchange rate stability associated with the fixed relationship could only be secured at a price. The smaller members of the existing snake were willing to pay the price: their economies were so dependent on Germany’s that, unlike the UK, they had no real choice. The question for the UK would be whether any new ideas would involve a price worth paying. To judge by the number of manuscript ‘ticks’ alongside Couzens’ note, Callaghan was sympathetic to these arguments of caution. Couzens also made a wider political point. The German plan provided for the gradual evolution of the EUA into a currency in use among Governments, institutions and, finally, among individuals. This was very attractive to those who believed in very close integration, and who believed that the development of a parallel currency would foster this. To use the EUA as a currency basket for, say, bond issues, might be useful. But the development of the EUA as an actual currency would soon bring up as a critical issue the role of the Community institutions, and in particular the Commission, in determining the fiscal and monetary policies of the Member States.38 At dinner with Schmidt at Chequers on 23 April 1978 (St George’s Day), with Healey, Lever, Richardson and Couzens all present, Schmidt complained that his ideas had been leaked to the Press in London, and Callaghan and Healey agreed that leaks should be avoided. Neither man ruled out Schmidt’s idea but Callaghan was sceptical, not least because, if the UK were to join in, it would have to do so at a lower exchange rate than the existing one since, given her trading position, the UK could not afford to commit to an uncompetitive rate. But that in turn meant that a decision to join was, with a General Election within a year or so, a political act. It was not feasible for him, as Prime Minister, to go to the country saying that the Government had taken the UK back into the snake with a 20% devaluation. Moreover, a devaluation of the pound on entry would result in a rise in the price index. Healey added that a full 1% fall in the effective rate of the pound against the basket of currencies would lead to a half per cent rise in the price index within six months.39 As a consequence of the Chequers dinner, work was set in hand at Callaghan’s behest to analyse the costs and opportunities for the UK of Schmidt’s scheme and of any decision in France to return to the snake. Callaghan also asked for alternative UK ideas which would best serve the British interest and for a tactical plan. All this was to be done on a very restricted basis, limited to those already in the know.40 The evidence that Callaghan’s mind was already almost made up was clear from an article by Malcolm Rutherford, the Diplomatic correspondent of the Financial Times, on 28 April. “Anyone who watched Mr James Callaghan and Chancellor Helmut Schmidt interviewed on the BBC’s Panorama programme last Monday evening can scarcely have failed to notice the extreme respect that they showed for each other’s views. The greatest pains were taken on both sides not to say anything which might give offence . . . Perceptive viewers might also have noticed, however, that it was all a little too pat. The two men

116 The End of the Affair: 1977–1979 were united on being united, but they had yet to agree on substance . . . Herr Schmidt, to put it crudely, wants to stop the DM going up; Mr Callaghan wants to preserve his freedom to allow the pound to go down . . . The British view on currencies, expressed with varying degrees of tact, tends to be that Herr Schmidt has thrown a spanner in the works”. Rutherford went on to describe, in well-briefed detail, the sequence of meetings between Schmidt, Giscard and Callaghan. He continued: “At this stage, it is necessary to say something of what the Schmidt plan is, though it has not been published and one must assume that it must be somewhat more coherent than the rather grudging versions available in London. It appears to consist of three parts. The first would be an enlarged European currency snake bringing in the weaker currencies—perhaps with a larger amount of fluctuation—as well as the stronger. The second would be a partial pooling of European reserves for support operations to keep the snake, or whatever it might then be called, in being. The third would be an arrangement under which settlements between Community central banks would be in European Units of Account. These would become a new kind of reserve asset . . . “When Mr Callaghan first heard of the plan in Bonn, his automatic reaction was that it would be construed as anti-American, even if it not intended to be so. It would not be wise, he said, to be seen to be building ‘a defence against the dollar’ at the very time when American cooperation was needed, and was being offered in so many other areas. Besides, Europe itself could do very little. The real remedy to the instability produced by currency flows had to be international . . . But there was another more national, though no less immediate, reservation about Herr Schmidt’s thinking. The Prime Minister said that he fully understood the German concern about the continuing appreciation of the DM, but he himself had to think about the pound. It might not be entirely in Britain’s interests to have sterling tied too firmly to the stronger European currencies and there might even be new constraints involved, for example on regional policy . . . As Mr Callaghan put it at the joint Press conference on Monday, the two men had found out, after 24 hours ‘living in each other’s pockets’, that they usually agree on analysis, but not always on the solutions. The best that they have done is to have agreed to go on talking.”41 Callaghan’s concern about regional policy led Couzens to raise with his French and German interlocutors the issues of credit (outside the proposed EUA issue) and resource transfers from richer to poorer. Couzens reported to Callaghan after a meeting on 16 May: “I thought it right at this stage to stake out a UK position on resource transfers within the Community, as well as on such matters as the flexibility of the proposed exchange rate links, the scale of reserves and the terms and length of credit. I also mentioned the link with efforts to achieve higher growth in the Community. It seemed right to deploy the arguments now both on the merits and as a matter of tactics.”42 Rutherford, in the Financial Times, had described the British role: “the British task will be not exactly to knock them [the Schmidt/Giscard ideas] down, but to subject them to a rigorous technical examination.” It was,

The End of the Affair: 1977–1979 117 however, already becoming apparent that Callaghan’s self-appointed role as critic in chief was leaving the Germans and French to work up the proposals without British input. In effect, Giscard had bought into the Schmidt plan and it quite quickly became a Franco-German plan that the British could buy into, but not influence. The political implications of this evolution were not lost on Whitehall. The Treasury, in a paper sent to Downing Street on 19 May 1978, pointed to the risk that “the UK would be rather more isolated in the Community. There might be a tendency for the French and Germans to work together, with other Snake members, to the exclusion of the United Kingdom . . . There could be a risk of a two-tier Community from which we were excluded. It would be possible to exaggerate this risk. The main organs of the Community and their procedures would be unaffected. There could often be occasions when the French, and the smaller Community members, wanted our support; and just as many issues on which they would pursue their self-interest contrary to our wishes, whether we were in the Snake or not. Moreover, if our relative economic importance continues to dwindle, that is bound to reduce our influence anyway, in or out of the Snake, and there would be no guarantee of enhanced influence even if we joined. Nevertheless, the risk of UK exclusion from the upper tier of a two-tier community is perhaps there in the longer term. The UK Government would come under increased pressure from strong supporters of the European movement to join the Snake and, of course, from opponents of the EEC to keep out of it.”43 At Ministerial level, only Healey, Owen and Lever were in the loop. Lever was in favour and Healey, not for the first time on a European issue, havered, making two speeches within a relatively short period, one of which was in favour and the other against. The reason lay in the United States. The Economist reported at the end of May that “thanks to pressure from America, Britain’s Mr Denis Healey has now changed his tune on currencies. He had originally been sceptical of the Schmidt initiative, arguing that it would be seen as anti-American and would do nothing to solve the dollar problem. But when EEC Finance Ministers met in Brussels on May 22nd, he sounded almost enthusiastic about the new currency zone.”44 Owen too, concerned at the poor prospects for the July summit, favoured a positive approach. “The Germans”, he wrote to Callaghan, “hope that there will be more growth if there is greater stability, but are reluctant themselves to move on growth. The Americans hope that there will be more stability if there is greater growth outside the United States, but are reluctant themselves to move on stability . . . I am in favour of making a positive response to Schmidt’s initiative. If we could ensure that we entered any currency arrangement at the right parity, and that the Government retained the freedom to adjust our exchange rate as necessary to maintain our competitiveness, there are obvious advantages for us in having German reserves in support.”45 But suspicion was growing in Whitehall that at least part of German motivation lay in diverting pressure on them for growth to pressure on the UK for monetary reform, to which the British were expected to be resistant.

118 The End of the Affair: 1977–1979 Callaghan was therefore asked to approve a speaking note for Healey to deploy at the EEC Finance Council on 19 June 1978. For the first time, the British Government set out a formal response to the German plan: “In the UK view, any new scheme . . . embracing most, or all, EEC countries would have to have the following characteristics: It ought not to be just a scheme for keeping the DM at a lower level relative to other currencies; The convergence of economic policies, which everyone recognises is needed in such a scheme, should not just be convergence from the side of the weaker or deficit countries. There would have to be disciplines on persistent surplus, as well as persistent deficit, countries. The scheme ought not to have a persistent deflationary bias and arrangements would be needed to secure this. It is a normal feature of currency unions that there are resource transfers between the stronger and weaker parts of the union. This happens in the UK and many other countries, including federal ones. There are transfers in the Community, but some of them are perverse. If the Community moves towards tight currency relationships, this will have to be rectified; There will be a need for credit arrangements on a scale which would match the need created by the inclusion of more countries with currencies in wider use, and by the greatly increased volume of funds now used in speculation against currencies.” Callaghan approved the speaking note, adding in a minute of his own: “URGENT. Yes. This will do. There should also be a strong reference to the need to reform the CAP which at present distorts our membership and results in us being second only to Germany in the contribution we make to the Community Budget (Tie it up together).”46 Callaghan had asked for a special seminar on the Schmidt proposals to be arranged at the end of June. Couzens had already warned Stowe that his continuing contacts with his French and German opposite numbers had led him to believe that the Germans were attempting to go too far, too fast—perhaps deliberately so as to provoke UK resistance. Healey, on the other hand, at the meeting of the EEC Finance Council on 19 June 1978, had formed the impression, from talking to his French opposite number, René Monory, that the French wanted to defer entry to any new scheme until the following year.47 This conversation, however, was evidence of a gap between the French banking and official establishment, which was cautious, even sceptical, about the Schmidt plan and the French President, who was enthusiastic. Healey himself later judged that “the European Monetary System would never have come into existence without the remorseless pressure of Schmidt and Giscard; it is an undeniable example of the power of political leaders to triumph over their advisers when they know what they want”.48 From Paris, Henderson reported the hesitations which the British Embassy were picking up from their French contacts, but Henderson’s own judgement was “to believe that Giscard will wish to go along with Schmidt. The fact that the British do not agree will not affect him. I would therefore expect a

The End of the Affair: 1977–1979 119 Schmidt/Giscard line-up, whatever cautious noises the officials in the two countries are making.”49 Henderson’s prediction was validated when Schmidt and Giscard met in Hamburg on 23 June, with both Agence France Presse and Le Monde reporting (on the basis of briefing by the Elysée) that agreement had been reached between the two men to present a joint Franco-German text on European monetary cooperation at the next meeting of the European Council to be held in Bremen.50 Couzens was accurate in his own prediction that “the French and Germans seem to accept that the UK could hardly enter into a commitment, even in principle, on a European currency scheme in July, if there is a serious prospect of an early UK election”. He was slightly wider of the mark in also forecasting that the UK would be under no serious pressure in Bremen.51 Opinion among Ministers at Callaghan’s briefing meeting on 3 July 1978 was divided between those who argued for positive engagement in order to shape the proposed scheme to suit British interests, and those who believed that, to be attractive to the UK, the proposals would need to be matched by reductions in the burdens imposed by the EEC budget, the CAP and the British Army of the Rhine (BAOR). The existing plan, it was felt, merely involved imposing strict external monetary discipline on countries other than Germany, while helping to keep down the DM. Callaghan summed up that he was prepared to discuss the scheme at Bremen, but would look for assurances which would protect British interests, especially on questions of growth and resource transfers. He would certainly not be prepared to reach any final conclusions at the Bremen meeting. When Callaghan met Roy Jenkins later in the day, Jenkins argued the advantages for the UK in a more stable currency. Callaghan agreed that this would be helpful, in certain circumstances, as far as internal discipline was concerned. But he would prefer to fight this battle on its domestic merits, rather than in order to keep the UK in the Snake: “unless the advantages to the UK were readily demonstrable, pressure would build up to ease the UK, not only out of the Snake, but perhaps out of the Community as well.”52 Callaghan secured approval from Cabinet for his stance on 6 July, immediately before flying to Bremen for the European Council. He went straight to a meeting with Schmidt and Giscard at which Schmidt told him that he wanted the European Council to be able to announce that they had reached agreement in principle on the new scheme, which would be launched on 1 January, 1979. Callaghan said he would be prepared to participate in the working out of the details of a plan of reform but that this could not be preceded by agreement in principle. Schmidt, in an evident attempt to conciliate Callaghan, suggested (though this was not wholly clear) that the European Council should ask officials to work on the details of a scheme for presentation to, and final determination by, the next meeting of the European Council, in late November 1978. But Giscard refused to accept this, insisting that there must be agreement in

120 The End of the Affair: 1977–1979 principle at the Bremen meeting and that, if necessary, such agreement could be subscribed to by seven of the nine Member States, leaving Ireland and the UK to join the scheme later. The implication was that Ireland and the UK would enjoy only observer status during the working out of the scheme. When Callaghan offered to join in working out the details of the scheme, even if the UK could not agree the scheme in principle, Giscard said that that was not acceptable.53 In the end, however, after hours of discussion, the outcome was, at least procedurally, more to Callaghan’s liking than to Giscard’s, a fact borne out by French Press reports of the meeting (always based more heavily on official briefing than was the case in Britain). Their theme was that progress had been made despite British efforts to obstruct it: “Albion remains perfidious” being one especially barbed comment. Left wing papers in France managed to be both hostile to the notion of monetary cooperation, but still willing to condemn British refusal to join in. Le Monde perhaps got closest to the politics of Bremen and its aftermath, claiming that the creation of a European monetary system seemed irreversible “despite the irritating obstruction of Great Britain”. The paper continued in similar vein: “The United Kingdom finds itself isolated: unless there is some unexpected development, it does not seem to be in a position either to prevent the process from coming to fruition or to alter greatly the Franco-German project.” Le Monde’s editorial went further: “Europe”, it argued, “is making progress: at least it dares to try. Federal Germany, disappointed by the egotistical and irresponsible character of American economic policy, will henceforth practise an active European policy under the determined direction of the Chancellor. This is the sort of policy France dreams of and can be asserted independently of the United States . . . The English, perhaps because they have never chosen Europe, are surprised and do not like this new determination, but by dragging their feet and splitting hairs, they have much wearied their partners and their cleverness will certainly not be enough to frustrate the Schmidt-Giscard initiative . . . If the UK joins in, so much the better; if not, Europe will go on without them.”54 These appeals to French atavistic sentiment may, in part at least, have been designed to rally French doubters about the new scheme under a flag of patriotic duty. They also undoubtedly reflected the fact that, according to Roy Jenkins, discussion in the European Council had “got rather bad-tempered between Callaghan and Schmidt, less so between Callaghan and Giscard, mainly I think because Giscard cared less than did Schmidt whether Callaghan came along”.55 Callaghan’s position was set out more equably in the House of Commons on 10 July, when he reported that the EEC Heads of Government had agreed that a zone of monetary stability in Europe was a highly desirable objective; that the German and French Governments had put forward for consideration a scheme for a European monetary system; and that a number of Heads of Government, himself included, wished to see the details fully worked out before entering into any commitment. Callaghan also told the House that any

The End of the Affair: 1977–1979 121 new system must be one which would last and would take full account of the economic as well as monetary interests of each member of the Community. He had therefore pressed in Bremen for parallel studies to be made of the action that would be necessary to ensure greater convergence in the economies of the member countries, especially in such matters as the commitments to growth and transfers of real resources. These studies would now be carried out. The Leader of the Opposition, Margaret Thatcher, criticised the Government, in particular because, as she saw it, the British people were faced with the shocking fact that the UK was now in the second division economically of European countries. Since Britain had been the victor in Europe, this, she argued, came very hard to the British people. As regards the proposed new scheme, Mrs Thatcher criticised the Government for standing aside, but was careful to say that “we have to determine precisely where the British interest lies and we must look at the details of the present scheme and any strings which are attached to it”.56 President Giscard also provided a more sober assessment than had the French media in an interview with Le Monde on 12 July. Asked what British accession had brought to the European Community, Giscard replied: “If the Community had remained limited to a very small group it would have progressed faster, but in that case it would not have been Europe.”57 After a rather scratchy economic summit in Bonn at which President Carter, needled by Schmidt’s criticisms of American economic policy, made comments on the EMS which were more critical than the US Government had been hitherto, the issue went off the boil, as all European issues tend to do in August. Callaghan spent much of August at his Sussex farm, considering whether the largely favourable opinion polls would allow him to call an early General Election. In the end, his study of the position constituency by constituency led him to the conclusion that an early election risked narrow defeat and he decided, to the dismay of many of his supporters, against going ahead.58 In mid-September, Healey remained optimistic about his ability to shape the EMS in Britain’s interest. He minuted Callaghan that “in view of your announcement about the General Election, it will be important to demonstrate to our partners that we still intend to participate fully . . . This should not be too difficult. Our approach is an attempt to construct a system which balances discipline and flexibility, and which is capable of including all the members of the Community, with a fair chance of keeping them in it . . . We can present this approach in Brussels as one which is more thoroughly European than something which is closer to a simple extension of the present ‘Snake’.”59 But Callaghan’s Treasury Private Secretary, Nigel Wicks, injected a note of caution, warning the Prime Minister that Healey, and other Ministers in the special Cabinet sub-committee set up to study the proposed EMS, seemed to be focussing entirely on means, not ends or results. Healey’s minute, according to Wicks, was almost entirely concerned with procedure and made no attempt to assess the UK interests involved.60

122 The End of the Affair: 1977–1979 There was plenty of momentum on the continent. After a Franco-German summit at Aachen on 14-15 September 1978, Giscard claimed that “the spirit of Charlemagne breathed upon our labours” and, in Germany, the meeting was also presented as being of exceptional importance, with references to Charlemagne much in evidence.61 EEC Finance Ministers were to meet the following week and, in a telephone conversation with Healey, Callaghan told him that there was no need for him to be rough in Brussels but added that he himself was cooling off on what he called the whole business of the EMS. He saw nothing tangible for the UK in the way of resource transfers and was becoming more and more doubtful whether there was anything worthwhile for the UK in the whole scheme. The French seemed to be behaving badly on everything. He saw no reason to go along with an EMS unless it was clearly and absolutely in the UK’s interest. The two men discussed the legislative consequences of any decision to adopt the scheme and agreed that the anti-Europeans in the Labour Party might combine with the monetarists in the Conservative Opposition to defeat the Government.62 In October, in an effort to focus the Community discussions on resource transfers, the British Government tabled a paper on the topic in Brussels but by then the Franco-German scheme was pretty firmly set and Callaghan himself was very sceptical about any potential advantages for the UK. At a meeting in early October, in the margins of the Labour Party Conference in Blackpool, Callaghan had a meeting with President Carter’s National Security Adviser, Dr Zbigniew Brzezinski, at which he told the American that he took the view that the proposed EMS was a device through which the French President was seeking to secure the backing of the FRG’s reserves. He would not wish the UK to join the EMS only to have to leave it again at a later stage. This had nothing to do with being for or against Europe. His approach would be essentially pragmatic.63 As far as the European politics of the issue were concerned, Maitland advised the Foreign Secretary from the UK Representation in Brussels, in a message also seen by the Prime Minister, that much of the doubt about the British commitment to the Community, which had been expressed at the end of the British Presidency, had dissipated. More recently, however, doubts had been revived. This was largely a reaction to criticism of the Community voiced in the course of the continuing public debate in Britain. So, the UK was “once again in one of those troughs into which our standing in the Community slides from time to time”. The hesitations which the PM had expressed when the EMS was discussed at Bremen were seen by Britain’s partners against that background. The EMS had a particular appeal for other Member States, for whom monetary cooperation remained a desirable objective despite past setbacks. This did not mean that individual members would not look to their own interests and examine the fine print, “but, because of the greater sense of commitment to the Community amongst their public opinions, they may be more inclined on the day to join the scheme as an act of faith, rather than hesitate on practical grounds, even if some of them

The End of the Affair: 1977–1979 123 acknowledged privately that they might have to leave the system within a comparatively short period”. Maitland drew attention to the relative success that the British Government had enjoyed in getting issues such as CAP reform onto the agenda. “I cannot tell you”, he concluded, “that this or that particular UK interest would be damaged if we were to stand aside while the other eight (contrary to logic and the Community spirit) went ahead. But the eight could become accustomed to working without us in the monetary field and the habit could spread. This would make it that much harder to promote and defend our interests.”64 By this stage, British thoughts were turning to how to safeguard the position, legally and practically, if the proposed Exchange Rate Mechanism were to go ahead without British participation. In early September, Owen and Callaghan had lunch together at the Athenaeum, a club of which Callaghan had been made an honorary member. As the two men walked back across St James’s Park, Callaghan made clear to Owen that he believed the Labour Party would not be prepared to take a decision in favour of EMS membership. Owen then tried out on Callaghan an idea which had sprung from the fertile brain of Michael Butler, then the senior FCO official in charge of EEC issues. Butler had put a paper to Owen asking whether he would contemplate the UK joining the European Monetary System, but not its Exchange Rate Mechanism. In Owen’s mind, it was rather more than a face saver: it would allow the British Government to assent to the scheme, and to its implementation under European Community law, whilst preserving UK national control over the exchange rate of sterling. Callaghan was prepared to give the idea a fair wind if Healey was also prepared to buy into it. To Owen, this was “a perfect example of Jim’s method of working. I knew then exactly what to do. No more discussion, nothing on paper . . . This was party political management: he wanted me to have, very privately, this guidance on how to handle a hot potato for the party . . . If I could process the idea in the right way, he’d give it a try”.65 Callaghan’s woes within the Labour Party were made yet worse by the decision of the Party Conference to reject the Government’s proposal of a 5% cap on pay increases. “Oh, I’m in terrible trouble”, Callaghan told Schmidt on the phone a few days later. “The Party came down against the 5%. I told them that in Germany the metal workers had settled for 5% and that your average was 5.5%. But it made no difference and we’re going to face a crunch pretty soon, I think . . . So, we’ve got a pretty difficult winter here . . . I need a strong pound to dissuade people from giving too much away in wages.”66 Meanwhile, the bricks were being put in place in the edifice which would become the ERM. In the margins of an informal meeting of EEC Foreign Ministers at Schloss Gymnich in Germany, Roy Jenkins told David Owen that the Germans and others were actively working out precise details of what could be done to help the Irish and Italians to overcome the economic impact of joining the ERM. If Britain joined, then the same help would be extended to her. But no work was being done on this for the present, as the impression

124 The End of the Affair: 1977–1979 had been given that Britain did not intend to join. Jenkins added that the help to Italy and Ireland should be channelled through the Community budget so as to underline the fact that it was a Community scheme. Jenkins hoped there was no question of Britain frustrating a Community scheme simply because the UK was not qualified to benefit from it. To do so would cause great resentment. It would not stop the richer Member States from helping the Irish and Italians. But it would stop the scheme from going ahead on a Community basis, which would be very damaging. Jenkins must, or should, have known Owen well enough to anticipate the reaction that his remarks provoked. Owen told him bluntly that he could not see Britain agreeing to Community sweeteners being given to Ireland and Italy to persuade them into the ERM while the UK or any other eligible Member State was excluded. If Germany wanted to do it bilaterally, then that was her affair. But, Owen said, his immediate reaction, though he would have to consult, was that the British Government would veto any such measure. When told by Jenkins that this would create a major row, Owen said: so be it. He was surprised that anyone could think that the British Government would react otherwise. Owen subsequently commented to his Private Secretary that “Mr Jenkins was showing signs of being away too long from domestic politics. The conversation was friendly throughout but Mr Jenkins was left under no illusion that, though we would not seek a row, we would not shrink from one either.”67 As it turned out, Callaghan was more relaxed on the matter. When Jenkins called on him in Downing Street on 3 November 1978, he told Callaghan that Schmidt and Giscard were determined to stick to 1 January 1979 as the starting date for the ERM. If, in the event, the UK decided not to enter the scheme, there should be no great difficulty in keeping the door open for entry at a later date. He also thought, however, that it would prove possible to help Ireland and Italy, if they joined the scheme, in ways which would not be open to the UK if she did not join. Callaghan suggested that this would not concern him very much, but asked Michael Franklin, the Head of the European Secretariat in the Cabinet Office, to comment. Franklin, perhaps taking his cue from the stance taken by Owen, said that such an approach would amount to using the EEC machinery in order to bribe countries to join the EMS. The UK might wish to seek the same benefits as were given to the Irish and the Italians. Jenkins responded that, if the UK wished to be in a position to enter the scheme at a later stage, it would be important for the UK to cooperate in the kind of arrangements he, Jenkins, had outlined. Callaghan accepted this, commenting that he had no desire to get across the EEC or to adopt a dog-in-the-manger attitude. Franklin said that, if the door was to remain genuinely ajar to the UK, it should not be necessary for the UK to go to the Council of Ministers for permission to join the EMS later. Callaghan added that insistence on this point could be the UK’s price for cooperating in preferential arrangements for the weaker countries who chose to join. Given the hostility to the EEC that

The End of the Affair: 1977–1979 125 already existed in the UK, he had no wish to see the EMS negotiations break down through ill will. There was considerable electoral capital to be gained through attacking the EEC on all fronts; but it would be important for the UK to keep the door to the EMS ajar. The only point of principle on which the whole Cabinet were agreed on this matter was the belief in the value of monetary stability. The British Government had to bear in mind, however, the question of how much unnecessary inflation the EMS could force on the UK. This would mainly depend on FRG policies.68 Callaghan’s description of his Cabinet’s divided views led him to characteristically shrewd handling: there was a first meeting, largely procedural and, on 2 November, a second one where substantive differences were aired but where Callaghan summed up that it would be premature for the Cabinet to reach a decision. The Cabinet, Callaghan said, had noted the Chancellor’s view that, unless the German position could be shifted in the coming weeks, he could not advise his colleagues that Britain should join the EMS. There was no objection in principle to a European zone of monetary stability provided the Government’s criteria were met and provided it was not to the detriment of the world monetary system. Cabinet would revert after the meeting of the EEC Finance Council on 20 November 1978 and before the European Council meeting on 4 December.69 Even then, when Cabinet discussed the issue again on 23 November, Callaghan confined the decision to agreement on the text of a Green Paper to be presented to Parliament. But Callaghan and Healey cleverly used what was ostensibly a description of the text to slip through Cabinet the crucial point that Britain would sign up to the EMS, but not the exchange rate mechanism. The Green Paper, Healey told Cabinet, “explained the EMS in the form in which it had emerged from negotiations and spelled out the criteria against which we had consistently said it should be judged. It discussed its possible effects on the exchange rate and the domestic economy, and gave the reasons why we were unlikely to join the exchange rate scheme unless there was a significant change in the German position . . . The exchange rate scheme itself was only a limited part of the framework of the EMS. If we decided not to join that part of the system, it would still be important to retain our influence over the development of the rest of the EMS. Community decisions would be required, which would give us some leverage. This would help in the establishment of a new machinery for concerted action on economic performance, which in practice meant persuading the Germans to reflate their economy. It would also help over the concurrent studies [of resource transfers from the richer to the poorer Member States] and on the relationship between the EMS and the dollar. If these aspects could be dealt with, it would reduce the chance that the introduction of EMS would damage the British economy.”70 It was on this basis that Cabinet agreed to Michael Butler’s original idea, to which Callaghan had assented on a stroll back from lunch at a London club in September.

126 The End of the Affair: 1977–1979 Callaghan aired the agreed policy line at a discussion with members of the Committee on Invisible Exports on 27 November. There were, he said, three main questions that the Government had to consider: first, would the EMS interfere with the development of a more stable world system; second, would the EMS collapse soon after it got off the ground; and third, were the conditions for Britain joining in at the present time right? The Government’s view, Callaghan continued, was that the scheme, as it was now emerging, could well be helpful in establishing a wider zone of monetary stability, but it was doubtful whether the conditions for Britain joining the exchange rate regime were adequate for Britain’s purposes. So it was unlikely that Britain would join the Exchange Rate Mechanism. But the Government would not act as a dog in the manger; it would participate in other aspects of the EMS and would join in its management. The Government’s reason for not wishing to join the ERM as it was currently planned was that it did not wish to expose the economy to undue risk in the coming winter: there was already plenty of turbulence in the currency market and, for the present time, the risks were just too great. The establishment of the EMS was, Callaghan concluded, very much a political act, in contrast to the setting-up of the original Snake. It would be a political misfortune if it failed and, for that reason, all the more did the Government hope that it would succeed. Sir Gordon Richardson, the Governor of the Bank of England, who was at the meeting, backed Callaghan, even though he had, on balance, been in favour of Britain joining. The objectives of the scheme were right, he said, but it was proper for the UK to feel cautious about the detailed arrangements. The Government’s commitment to anti-inflation and stability provided every reason to be careful before joining the ERM.71 At Cabinet on 30 November 1978, Healey reported that there had been a good reception at home and abroad for the emerging British Government position and, in particular, for the distinction which it now drew between the EMS as a whole and the ERM within it. Despite the critical motion passed by two committees of the NEC, the reaction of the PLP had been generally favourable to the Government’s line. In discussion, only the Secretary of State for Energy (Tony Benn) argued that the decision represented a watershed in Britain’s relationships with the EEC. It would, he said, be a mistake to enter the EMS in any form. It would be better for the Government to use its influence in the Community to delay the implementation of the EMS and to seek agreement first on the necessary budgetary reforms. The proposed half-way house meant the creation of an unstable two-tier Community. The deflationary aspect of the EMS was so serious that it called for a reappraisal of the Government’s whole industrial strategy. If, however, the EMS was set up, and the door was left open for Britain to join the ERM at a later stage, it would be important to ensure that this did not create an automatic commitment to eventual entry. If it did, the UK would inexorably be sucked in, thus achieving federalism by default. Other Cabinet members felt that the Government’s conditions had been met and they expressed wide support for Healey’s approach. Even so,

The End of the Affair: 1977–1979 127 Callaghan summed up that, in the remaining days before the European Council, it would be essential to avoid any impression that the Cabinet had taken a final view. He and the Chancellor would avoid going beyond the position agreed by Cabinet and, if there were any unexpected developments at the European Council, he would reserve his position and consult Cabinet again before modifying the UK stance.72 Some days earlier, Callaghan had been forthright in explaining his personal view to the Danish Prime Minister when Anker Jorgensen telephoned him to make clear that the Danish Government favoured the scheme for its great political importance to Denmark. “Yes”, Callaghan retorted, “but it’s no use political ambitions outrunning economic or financial reality . . . I am looking at this from the angle of whether it is financially and economically sustainable, quite apart from the politics, because you disillusion people. You go into projects that in the end are not durable, with a great flourish of trumpets, and then they find that immediately afterwards currencies are devalued, or whatever it may be, and you find people moving in and out. I think it’s got to be on a very secure foundation, Anker, myself. But in principle I am in favour of a zone of monetary stability in Europe”.73 In the end, the European Council from 4-6 December 1978 failed to meet advance expectations. Callaghan signed Britain up for the EMS but not the ERM, telling a Brussels Press Conference that whether he would recommend joining the ERM in future would depend in considerable measure on the progress that was made on the concurrent studies. Not enough progress on concurrent studies had been made to persuade Ireland and Italy to join. As Schmidt put it in his Presidency Press Conference, the Italian and Irish leaders “had had more far-reaching ideas for concurrent studies and had expected a greater volume of aid to be offered”. Germany had been ready to go further but others had not. Asked if the outcome increased the dangers of a two-speed Europe, Schmidt said that this danger could not be discounted. Commission President Roy Jenkins agreed that such a danger did indeed exist. He had greatly wished the UK to have participated fully. Overall, however, while the result of the Council was no cause for jubilation, “neither was the result a setback.”74 The French Press was taken by surprise by the lack of a clear outcome, Le Monde seeing the European Council as having been caught between the “technical arrogance” of Giscard and Schmidt and the “greedy obstinacy” of Lynch and Andreotti. According to Le Monde, Britain could not be blamed for the semi-failure. On the contrary, Callaghan had given his agreement to the scheme. Le Figaro, in an analysis by Olivier Wormser, the former Governor of the Bank of France, pointed out that the British Government was asking for sacrifices from the Trade Unions in the national interest: “If it had to do this having taken the pound into a fixed parity system, British opinion, which has just begun to evolve, would think that these sacrifices could have been avoided it the pound had continued to float. In these conditions, what can we do except to wait for better times?”75

128 The End of the Affair: 1977–1979 In reporting to Cabinet on 7 December, Callaghan said that the Irish and Italian Governments had either misled themselves into believing, or had been led to believe, that more Community aid was available to them as an inducement to join the EMS than had proved in fact to be the case. President Giscard had played a surprising role. While the French had seemed to want Italy and Ireland to participate, Giscard had brusquely rejected their demands for resource transfers and had refused to agree to any increase in the Regional Development Fund. In contrast, Giscard had gone out of his way to describe the British attitude as helpful.76 In the House of Commons, the previous day, Callaghan had been candid. “I would not hesitate”, he said, “to recommend to the House a departure from our national sovereignty for an international monetary system if I thought that it would increase growth, reduce unemployment and make for better trading relations between the countries of the world as a whole, or a part of them. But that must be a deliberate and conscious decision by this country and its people”. Economic convergence between the EEC Member States was important, but it was also important to have a rate of inflation that was as good as those of Britain’s major competitors and partners in Europe. Callaghan regretted that it did not look as if Britain would move far in that direction over the ensuing twelve months: “We shall have to take measures to achieve that, over a period of two or three years, in order to get where the Germans are now.”77 By mid-December, both the Irish and Italian Governments had decided to join the ERM. But then the French put a spanner in the works. “As you may have seen from today’s FT”, minuted Tim Lankester, Callaghan’s new Treasury Private Secretary, “the French have been saying that they will not agree to the EMS starting on 1 January unless the new MCAs, arising out of the creation of the EMS, are set to last for only one year. In other words, they want harmonisation of agricultural prices in the Community after one year. This would probably mean devaluation of the Green Franc and other green currencies including the Pound and the raising of agricultural prices to the German level. Any such move would, to say the least, be seriously against our national interest . . . The alternative of lowering German prices, rather than raising prices elsewhere in the Community, seems only theoretical: Schmidt’s coalition would not stand it.” “It is mere conjecture”, Henderson wrote from Paris, “but I suspect that Giscard was extremely conscious of the increasing political pressure from the farmers’ lobby here, particularly the pig producers in Brittany, which could play an important role in the European elections. It is all very well for him to be striking a pro-European posture but he must be able to show that he was standing up for France’s agricultural interests, the core of the Community from the French angle . . . Barre has agreed with the Germans that both Governments should try to de-dramatise the problem. Certainly, the French Press and television have been undramatic on the subject so far, conspicuously so when you think of the fuss there would be if it had been anyone else causing obstruction.”78

The End of the Affair: 1977–1979 129 In a Personal Memoir, published in 2013, Sir Michael Franklin, who was head of the Cabinet Office European Secretariat at the time of the 1978 decisions on ERM membership, posed the question whether Britain could and should have joined the ERM at that time.79 Franklin took as his starting point the annual Ditchley Foundation lecture given, in 1985, by Giscard d’Estaing— by then no longer in office. The theme of the lecture, chaired by Jim Callaghan, was “The ECU and its contribution to the stability of the international monetary system”. “During the discussion that followed the lecture”, Franklin wrote, “Sir John Hunt, who had then been Cabinet Secretary, made the remark that in fact he had been in favour of British entry to the ERM. Callaghan shot back: ‘I wish you had told me at the time’.” Franklin posed the question whether the Cabinet Office had done its duty in advising the Government, and whether such advice would have altered in any way the decision that the Government had taken. Franklin attributed some responsibility for the absence of Cabinet Office procedures, and therefore advice, to the fact that Couzens, the senior Treasury official, refused to attend the Cabinet Office coordinating meetings which were otherwise the norm, even after the issue had been aired to a wide group of Ministers and officials. This absence of discussion between Whitehall departments meant, Franklin concluded “that the wider political considerations of joining largely went by default”. This and other evidence80 suggest that Hunt would have had difficulty in countering the Treasury’s jealous guarding of what they regarded as their own turf. But there were plenty of opportunities for Hunt to formulate and offer a view and the fact that he did not do so seems more likely to have been down to his appreciation of the difficult domestic politics of the issue and of Callaghan’s view, which started out as sceptical and, from the documentary evidence, did not waver. Callaghan, in his memoirs, bears out this interpretation: “I favoured the general idea . . . but quite apart from my technical concerns, I could not travel fast. Many people in the Labour Party remained suspicious of what they thought was too close an entanglement with Europe and this, coupled with my own and the Treasury’s belief that sterling was standing too high to make our entry advantageous, led me some days later [than 4 April 1978] to tell Schmidt and Giscard that we could not enter the EMS at the outset”.81 Did Callaghan’s comment to Hunt at the Ditchley lecture suggest, as Franklin speculates, that in later years Callaghan came to regret his decision? It seems to me more likely that Callaghan was, less directly than was his wont, chiding Hunt for laying claim to a view of which he had given no evidence at the time. The British emphasis, in the ERM negotiations, on the so-called ‘Concurrent Studies’ reflected Callaghan’s growing preoccupation with the size of the UK’s net contribution to the EEC Budget. In response to Callaghan’s request for work to be done “on the fact that the UK is a substantial net contributor to the EEC Budget and bears a disproportionate burden of

130 The End of the Affair: 1977–1979 Community funding in relation to our comparative prosperity”, Treasury officials began a programme of work, leading to a minute from Healey to Callaghan in late June 1978. This work demonstrated that, to make any kind of meaningful dent in the problem, the British position needed to be improved, on both the revenue and the expenditure sides of the Budget. The principal aim must, Healey argued, be to reduce or restrain Community expenditure on the CAP. But the European Commission had estimated that, by the early 1980s, the 1% ceiling on the Community’s budget would have been reached.82 That ceiling could only be raised with the unanimous agreement of, and ratification by, all the Member States. Thus, Healey reported “Officials are also examining possible ways of modifying the Financial Mechanism [agreed as part of the 1974/75 renegotiation] to our benefit. The underlying idea, negotiation of which was bitterly contested, is that where a county with below average GNP makes gross contributions which are judged excessive in relation to its ability to pay, as measured by its share of GNP, it should have part of its contribution reimbursed.” The mechanism, Healey, concluded, was complicated and the UK had never benefitted from it. It was not due to be reviewed until the end of 1981 but the enlargement of the Community might provide an earlier opening to seek modifications.83 By November, opinion on a mixed approach was crystallising and Callaghan used one of the major public set pieces of the annual calendar, his speech to the Lord Mayor’s Banquet at the Guildhall on 13 November 1978, to fire the opening shot in a battle that was to last until 1984 and beyond. The problem of the lack of equity in the Community’s financing arrangements was, Callaghan told his audience, one that must be faced squarely in the interests of the Community as a whole. Nobody would argue that each Member State must benefit equally from every Community policy but the outcome of the Community’s policies, taken as a whole, should reflect a balance which was broadly satisfactory to all its members and not only to some of them. This was not the case. Before Britain’s entry into the Community, both the Commission and the Member States had indicated that there would be a major shift over a period of time in the pattern of Community policies that would reduce the burden of Britain’s contributions to an acceptable level. It had been the stated intention to develop policies in the industrial and regional sectors so as to diminish the proportion of the EEC Budget spent on agriculture. But this promised shift had not been made. As a result of the high level of expenditure on agriculture, some of the wealthiest members of the Community were also those who got the most benefit from the Community Budget. “We cannot agree”, Callaghan went on, “that Britain should become the largest net contributor to the Community Budget. If this situation were to remain uncorrected, it would do long-term damage to the Community as a whole as well as to Britain.”84 As the year turned, the attention of Britain’s EEC partners focussed on the refusal of the French Government to allow the start of the ERM. The British Government were at pains to point out that the decisions on MCAs that the

The End of the Affair: 1977–1979 131 French were demanding went beyond Franco-German interests since the decisions would impinge on agricultural prices for the UK and on the production of surpluses. But the main focus of the British Government remained on how to reduce the UK’s net contribution to the EEC budget. Callaghan and Hunt discussed the issue on 28 February 1979. Callaghan recognised that an opportunity for Britain to secure redress would arise when the ceiling on the EEC’s budgetary resources was reached, but he doubted whether public opinion in the UK would be prepared to wait that long. Hunt agreed: all the saving devices worked out by officials would bring a saving of £400 million out of a £900 million overall net contribution. He had concluded that “at some stage we would have to tell the Community in clear terms that we were not prepared to tolerate a situation in which countries with a below average GDP could be net contributors to the Budget”.85 Callaghan favoured a two-pronged approach, focussing the effort at the 12/13 March European Council on reducing the costs of the CAP and farm prices, and concentrating on the budget at the June European Council meeting. But, in the event, the two approaches merged at what was to be Callaghan’s last European Council. At the December meeting, in what Maitland described as a “business-like and relatively low key meeting of the European Council, we made substantial progress with our arguments both on convergence and the CAP”.86 The British delegation had tabled a formula under which the Community would commit itself to the principle that ‘over a limited but fixed period of years, the pattern and scale of net resource transfers attributable to Community instruments should be brought into conformity with the Community’s objective of bringing about convergence in the economic performance of the Member States’. This formula had been neither accepted nor rejected and Callaghan now thought it too weak: it would be better to devise one which related Budgetary contributions directly to GDP.87 Callaghan’s intervention at the March summit was a powerful one. The Council’s discussion of the economic and social situation in the Community offered a chance, he said, to bring together the issues of the wasteful use of resources in the CAP; the failure to develop policies to deal with unemployment and social problems in industrial areas; the Community’s inability to meet its objective of economic convergence and “in the case of my own country, the unacceptable position that is approaching when we become by far the largest net contributor to the Community’s financial resources”. The answer to the question whether the Community’s priorities were right, was that they were not, Callaghan said. The CAP absorbed 76% of the Community’s financial resources. This had been understandable two decades earlier when Europe’s rural economy was relatively depressed. But now it was not agriculture that was in crisis. It was industrial unemployment, the decline in the urban environment and the restructuring of industries: these were the evil that commanded the attention of all the EEC’s Governments. Yet, how could these problems command the resources they merited when 40% of the EEC Budget was spend on storing food that the EEC did not need and then selling

132 The End of the Affair: 1977–1979 it to other countries at a loss? There was a butter surplus that cost over £50 million a year to buy and store; there was 20% over-production of sugar in the Community, although other countries could grow it more cheaply. So, the Community sold the surplus abroad at a loss, thus depressing the world market and reducing the export earnings of poor countries which depended on sugar exports for their revenue. Then, having undercut their prices and shut out their produce, the EEC offered them financial aid. In three or four years’ time, Callaghan continued, the Community would be unable to waste money in this way because there would be no additional resources available. The Community would have reached its budget ceiling. When that happened, certain Member States would be unwilling to increase their contribution simply to finance waste. So, time was short to put the matter right. As the European Commission had recognised, the way to control and reduce the wasted surplus production was to reduce guaranteed producer prices. Callaghan’s peroration was to set the scene for a confrontation between Britain and her EEC partners which was to dominate the next five years, sour relations between Callaghan’s successor, Margaret Thatcher and her fellow EEC leaders, and, arguably, to cement irrevocably the feeling in Britain that the Community represented a battlefield, not a common enterprise. This is what Callaghan said: “At the last Council, I drew attention to the inequity of present net financial contributions by the Member States. Britain suffers from this. Today, we are the second largest net contributor to the Community. By 1980, Britain will be the largest net contributor to the Community. This is not a tolerable situation when our net contributions are measured against our national income. “I must earnestly and urgently ask the Community to face up to this problem. I will produce details on another occasion. The purpose of the European Community Treaty is to ensure harmonious development by reducing the differences between various regions and countries. That means convergence of our economies. The present financial arrangements are more likely to encourage them to grow further apart. “I do not raise the cost of our contribution towards the common defence of Europe, the cost of which has increased dramatically in recent years. But the overseas expenditure which has grown fastest, and which produces least by way of offset to our national interest, is our financial contribution to the Community. We cannot accept that we should become, by a substantial sum, the largest net contributor to the Community Budget. “I must ask the Community to take this problem seriously in the months ahead and set ourselves a period to narrow the economic gap that exists at present and achieve a degree of convergence in the Community. Only in this way will we make success more likely in our joint ventures.”88 The stage had been set, but Callaghan was no longer to play on it. On 28 March 1979, his Government was defeated by one vote in a confidence motion and a General Election was called from which the Conservative party under Margaret Thatcher emerged the decisive winner.

The End of the Affair: 1977–1979 133 Callaghan’s time as Prime Minister was brief and controversial. He inherited a divided Party and a failing economy. He and his Chancellor, Healey, strove with determination to turn the economy round, against the equal and opposite determination of much of the Labour and Trade Union movements. He put his Premiership on the line to secure an agreement with the IMF that saved Britain from bankruptcy. The so-called winter of discontent, marked by deeply unpopular strikes in opposition to the Government’s policies, led to defeat in the 1979 election and to a Labour Party out of office for the next eighteen years. As far as Europe was concerned, there was one brief period, following Labour’s surprise defeat in the 1970 General Election, during which Callaghan openly espoused the anti-European cause as a vehicle that might, he hoped, win him the leadership of the Labour Party in place of Harold Wilson. Back in government from February 1974, Callaghan conducted the renegotiation of Britain’s terms of membership in a way which was, by agreement with Wilson, designed to achieve success. But Callaghan was capable of a brutal style, in which the glove was made of more iron than the fist within it. By keeping as an open question in public what recommendation they would make to the British people at the end of the negotiation, Wilson and Callaghan held a divided Government together. Although the Labour Party remained divided on the outcome of renegotiation, Callaghan’s conduct of the negotiations made him Wilson’s, and ultimately the Party’s, choice as Wilson’s successor. As Prime Minister, Callaghan was the exemplar of attitudes to the EEC that have characterised virtually every British Government since then—at least until 2016. He was a European of the head rather than the heart. Even if the politics had permitted it, Callaghan would not have signed up to the goal of European Union which other European leaders espoused. He saw the advantages, economic and political, of EEC membership and contrived as positive a stance as was feasible given the divisions in the country and, even more so, in the Labour Party. He saw the merits of a close relationship with the leaders of France and Germany. With Giscard, he was only partly successful. With Schmidt, he had a genuinely warm relationship—probably closer than that between a British and German leader either before or since. Callaghan’s decision not to take Britain into the ERM turned out to be something of a watershed decision as far as Britain’s relations with France and Germany were concerned. In the light of subsequent events, this was, historically, the last moment at which a European triumvirate might have been established. It is hard to see how Callaghan could, in the light of Britain’s political and economic circumstances at the time, have taken any decision other than the one he did without incurring enormous risk. For a Government with no majority, facing a General Election, it would have been a potentially suicidal step.

Notes 1 PREM 16/1492, TNA. 2 Ibid.

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PREM 16/1492, TNA. PREM 16/1492, TNA. PREM 16/1639, TNA. PREM 16/1630, TNA. PREM 16/1639, TNA. PREM 16/1639, TNA. Jenkins, European Diary, p. 194. PREM 16/1640, TNA. Piers Ludlow: Roy Jenkins and the European Commission Presidency, 1976–1980, At the Heart of Europe (London: Palgrave Macmillan, 2016), p.131 Jenkins, European Diary, p. 181. PREM 16/1624, TNA. PREM 16/1646, TNA. For an explanation of the system of Monetary Compensatory Amounts (MCAs) see at Appendix A, Jacques and the Green Rate: A Farming Tale, written in 1982 by FCO official Nick Witney as a guide for Officials and Ministers. PREM 16/1629, TNA. PREM 16/1647, TNA. PREM 16/1629, TNA. PREM 16/1647, TNA. Ibid. PREM 16/1626, TNA. PREM 16/1656, TNA. PREM 16/1656, TNA. James Callaghan: Time and Chance (London: Collins, 1987), pp. 480–98. PREM 16/1615, TNA. See Wall, Official History of Britain and the European Community, Volume II, pp. 459-62. PREM 16/2036, TNA. PREM 16/2036, TNA. Ibid. PREM 16/1641, TNA. Ibid. PREM 16/1615, TNA. Ibid. PREM 16/1615, TNA. PREM 16/1615, TNA. PREM 16/1616, TNA. Ibid. PREM 16/1616 and 1654, TNA. PREM 16/1655, TNA. PREM 16/1616, TNA. PREM 16/1616, TNA. Ibid. Ibid. PREM 16/1616, TNA. Ibid. PREM 16/1634, TNA. Ibid. Denis Healey: The Time of My Life (London: Michael Joseph, 1989), p. 439. PREM 16/1634, TNA. PREM 16/1634, TNA. Ibid.

The End of the Affair: 1977–1979 135 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82

83 84 85 86 87 88

Ibid. PREM 16/1634, TNA. PREM 16/1642, TNA. Jenkins: European Diary, p. 289. Parl. Debs., H. of C., 5th ser., 10 July 1978, vol.953, cols. 1025–41. PREM 16/1618, TNA. Morgan, Callaghan, pp. 636–44. PREM 16/1635, TNA. Ibid. Ibid. PREM 16/1635, TNA. PREM 16/1636, TNA. PREM 16/1636, TNA. David Owen: Personally Speaking to Kenneth Harris (London: Weidenfeld & Nicolson, 1987), p. 117 PREM 16/1636, TNA. PREM 16/2038, TNA. PREM 16/1626, TNA. CM (78) 37th Conclusions, 2 November 1978, CAB 128/64, TNA. CM (78) 40th Conclusions. 23 November 1978, CAB 128/64, TNA. PREM 16/1638 CM (78) 41st Conclusions, 30 November 1978, CAB 128/64, TNA. PREM 16/1579, TNA. PREM 16/1643, TNA. PREM 16/1644, TNA. CM (78) 42nd Conclusions, 7 December 1978, CAB 128/64, TNA. PREM 16/2032, TNA; Parl. Debs., H. of C., 5th ser., vol. 959, col. 1428. PREM 16/2032, TNA. Michael Franklin, ’Could and Should Britain have joined the ERM in 1979? A Personal Memoir’; Journal of Contemporary European Research, Volume 9, Issue 5 (2013) Ian Beesley: The Official History of the Cabinet Secretaries (London: Routledge, 2017), p. 361. Callaghan, Time and Chance, p. 493. The Own Resources Decision of 1970 provided for a Community Budget consisting of receipts from Customs and Excise levies and duties on imports from third countries and the yield from a notional VAT rate of up to 1% of a harmonised base throughout the Community. PREM 16/2036, TNA. PREM 16/2041, TNA. PREM 16/2036, TNA. PREM 16/2044, TNA. PREM 16/2036, TNA. PREM 16/2043, TNA.

5

The Tiger Unleashed: May 1979–May 1980

Margaret Thatcher did not enter Downing Street in May 1979 as an unknown quantity. She had spent four years as Leader of the Opposition and four years before that as Secretary of State for Education. The Russians had done her the unintended favour of insulting her as “The Iron Lady”. She and her Party had been elected because they promised a radical change from years of economic and political decline. But, if Whitehall thought it knew what to expect, nothing could have prepared officials for the sheer force and vehemence of the wind of change that swept through Government. Neither Wilson nor Callaghan had been absent from the helm but they steered with a measured touch, allowing others space to run their bits of Government and striving to achieve consensus in Cabinet. Margaret Thatcher was not just the first female British Prime Minister. She brought a new style of confrontation and intervention to the conduct of business. The wind of change was refreshing but it was also, for officials and Ministers alike, an unruly wind, blowing away dust and sending the paperwork of convention blowing about the corridors of Whitehall. The European Community had been addressed in relatively conventional terms in the Conservative Party manifesto, which promised “to restore Britain’s influence by convincing our partners of our commitment to the Community’s success”. The manifesto was not blind to the Community’s failings, in particular its over-spending on agriculture. But on the issue of the British contribution to the EEC Budget, which was to dominate the next five years, it gave very little warning of the storms to come, saying, with sweet reasonableness, only that “national payments into the Budget should be more closely related to ability to pay”. Thus, in sending a minute on Europe to the new Prime Minister, on day one of her mandate, the Cabinet Secretary, Sir John Hunt, would have felt himself on relatively firm ground in advising that “the new Government faces both a challenge and an opportunity in Europe – a challenge because it has a number of difficult negotiating objectives (not all that dissimilar from those of its predecessors) in respect of our contribution to the EEC Budget, a freeze on farm prices, etc.; and an opportunity, because a greater commitment to Europe, expressed publicly and in direct contact with our partners, will ensure a more sympathetic hearing”.1

The Tiger Unleashed: May 1979–May 1980 137 Hunt reminded the Prime Minister that she had agreed at the start of the General Election campaign that, in the event of her election, arrangements for a long-planned visit by Chancellor Schmidt should stand. There was, he said, a well-established pattern of two meetings a year (one in each direction) and these bilateral meetings, with France and Germany, were important in maintaining relations between the three countries on a triangular basis. But Mrs Thatcher was not convinced. “I note”, she wrote crisply, “the observations on the value of these visits, but there are really too many of them.”2 She was similarly averse to attending the signature of the Greek Treaty of Accession late in May.3 Equally robust were her comments on a lengthy Cabinet Office briefing paper on EEC issues. On the EMS, where the Cabinet Office had proposed “an open-minded approach to the concept of a zone of monetary stability in Europe consistent with the mainstream of Community development”, the Prime Minister “expressed doubt as to whether the concept of a zone of monetary stability in Europe can be achieved by a currency system. She does not believe that this would be possible unless all the underlying policies of each country are right.” On the Common Fisheries Policy, the Prime Minister raised “the general question of whether it would be possible to go right back to the Treaty of Rome itself. Fish should never have been made a common resource: this is quite wrong and the UK is unlikely to get a satisfactory solution unless it is changed . . . She would like to have a 50-mile exclusive zone, which is much simpler than having to monitor two zones of 12 and 50 miles respectively”.4 The Cabinet Office had drawn Thatcher’s attention to the fact that the UK’s net contribution to the EEC in 1978 had been £747 million—on some measures the largest of any Member State, and on any measure, the second largest net contribution after Germany. The less prosperous members of the Community, the paper argued, should not be significant net contributors to the Budget. The task for the UK at the June European Council would be to get agreement that a problem existed, that a specific solution was required and that a mandate should be given to the Commission to make proposals for remedial action in time for decisions at the December European Council.5 On 8 May 1979, the Prime Minister held a meeting with her new Foreign Secretary, Lord Carrington, and the Lord Privy Seal, Ian Gilmour, who was responsible for leading on foreign policy issues in the House of Commons. At that meeting, Thatcher was clear that “the present situation was unfair, unreasonable and unjust” and that it was “essential to make progress towards changing it before the European Elections [due in June]. The calculation of budgetary contributions should in future be directly related to a country’s GDP.”6 In response to her question as to whether the Government could not find an early solution to the budget problem by relating contributions to GNP shares, Hunt advised that adjusting the UK gross contribution in this way would not be enough. The real problem lay with the net contribution and, to tackle that adequately, required a change in the level or pattern of expenditure or the introduction of a mechanism that, more effectively than the 1975

138 The Tiger Unleashed: May 1979–May 1980 Financial Mechanism, would reduce the net amount which the UK paid over. But if the Government went too bald-headedly for a solution based on ability to pay, they would be accused of asking for each country to get back just what it put in, “the so-called juste retour which is anathema to most of our Community partners”.7 At the first meeting of the new Cabinet on 10 May, Carrington predicted that the EEC would be moderately quiescent until after the Italian elections on 3 June and the first direct elections to the European Parliament on 7-10 June. But the Prime Minister argued that Schmidt’s forthcoming visit should be used, not just to underline the Government’s European commitment, but to stress that, in order to carry public opinion, the Government would need German help over their legitimate interests on fisheries, the Community Budget and the CAP. The way in which the original members of the Community had rushed through the CFP before UK accession had been disgraceful.8 Thatcher’s meeting with Schmidt in Downing Street on 10 May 1979 proved to be more congenial from her perspective than she had anticipated. She began by explaining that the new Government’s approach to Europe would differ from that of the Labour Government. Labour had put it about that the Conservatives would be more pliant on such issues as fisheries, the CAP and the EEC Budget. In fact, the Government’s approach was that Britain belonged to Europe for the big reasons: in order to work together and to cooperate with her partners and to contribute to a strong, free Europe. But, she added, the Government would in no way lack determination to change what was unjust or unreasonable, especially on the issues of fish, agricultural surpluses and the budget. However, the new Government would tackle these problems against the background of a more positive approach to Europe than that of its predecessors. She saw the EEC as the economic structure of liberty. But some structures designed to protect liberty failed to touch the economic strata, which was what really mattered. Schmidt said that he had abstained in the Bundestag on the ratification of the Treaty of Rome because, as someone with a deep commitment to Europe as a young man, he had thought it wrong to go ahead with the European Community without the UK. He had been very glad when the UK had eventually joined the EEC. But he had been disappointed with the results. There was a certain tendency in the Community to lapse back into nationalistic attitudes and that had certainly been a feature of the Labour Government’s European policies. When the two leaders got down to detail, the gaps between them became more evident. They agreed in their analysis of the flaws in the CAP but Schmidt explained his difficulties, in a coalition Government, in trying to persuade his Agriculture Minister, Ertl, to accept any reduction in DM prices. Thatcher retorted that food prices in the UK had risen by 150% over five years. It was essential that the Government should be able to point to some progress on the CAP very quickly. On the Community budget, Thatcher said that it made no sense that the third poorest country in the Community should pay the largest, or second largest, budgetary contribution. Schmidt said that she should not be too quick

The Tiger Unleashed: May 1979–May 1980 139 to believe her briefs. She said that the brief she was quoting from was one written by the Bundesbank. Nothing daunted, Schmidt replied that only a very few people in the FRG really understood the EEC finances and the Bundesbank was not among them. He advised the PM to ask Roy Jenkins for his views, since he took an objective approach to the issue. The Prime Minister explained that the Government were anxious to show willing on the EMS, but that the high level of the pound posed problems. For the time being, the Government wished to maintain the value of the pound in view of the switch they proposed to make from direct to indirect taxation. Schmidt advised her that if the UK were to join the EMS by, say, August 1979, and then proceed to negotiate on the three issues of concern to the UK, she would find the UK’s partners more responsive to UK views than might otherwise be the case. Thatcher did not reply but Carrington said that he had already concluded that the UK’s attitude towards the EMS would be regarded as the touchstone of her attitude towards the EEC in general.9 That evening, the Prime Minister gave a dinner in honour of Schmidt in 10 Downing Street. It contained tough language on British grievances. But Thatcher herself had a considerable hand in drafting the peroration on the basis, as she put it, that “it is unwise to come to a conclusion so abruptly after saying something unpalatable to our guests”. “Let me say a word about my own European philosophy”, she said. “It is founded in the belief that the variety of our distinct nation states, which we must always cherish, is enriched by a common purpose; that the view of free Europe is stronger when we pursue our ideals together. The vision of Europe which I am sure you, Mr Chancellor, will recognise and share, is one that, first and foremost, offers peace, prosperity, liberty and democracy to all within it. A Community whose voice will always be heard throughout the world, advocating the cause of justice. A Europe within which freedom means also free enterprise, fair competition and the chance for every citizen to take his own decisions and to develop his own talents. I believe that this concept of Europe is nearer to realisation than many people suppose and that, by our joint effort in the Community, we can bring it closer still.”10 At their joint Press Conference, the following day, Schmidt was asked whether he found Mrs Thatcher’s Government more conciliatory than that of Mr Callaghan. Schmidt replied: “I will not try to compare consecutive British Governments with each other. I will only say that I had the feeling that they were fairly conciliatory.”11 German Press reaction to the visit was positive, though Der Spiegel claimed that one observer had commented that “the two had cordially spoken past each other”. One or two newspapers noted Thatcher’s “frank, almost brusque, way of speaking about Europe”. She had been “noticeably hard”. Schmidt himself was quoted as saying that there was a change of style in British policy towards Europe but no change in basic attitude. According to the Bonn Embassy, Schmidt had, however, told his Cabinet that “this is a Government with which we can do business”.12

140 The Tiger Unleashed: May 1979–May 1980 Reporting to Cabinet on Schmidt’s visit, the PM said that “while the talks with Schmidt had gone well, the Germans had not yet accepted our case on the Community Budget. They disputed our figures and this would have to be remedied. We should be careful not to appear to be renegotiating the terms of entry but it was clear that we needed an effective safeguard mechanism, which the previous Administration had failed to get”.13 When Roy Jenkins called on Thatcher a few days later, he told her that he thought that what she had said to Schmidt on the budget had sunk in. But he warned her that the UK was operating against the background of the 1974/75 renegotiation which had produced the present financial terms: there was a disposition to argue that the UK had made her bed, and should lie on it. It would be difficult to achieve the necessary adjustments unless the UK was seen to be cooperative in other fields. Other members of the Community were antipathetic to the notion that the UK was a permanently less prosperous country. They were inclined to the view that the UK’s lack of prosperity was largely her own fault. President Giscard, whom the PM was shortly to meet, would not be keen to give ground on budgetary matters and he, as President of the Council, would have a major say in the agenda of the European Council in Strasbourg in June. The right strategy might be to aim for a solution by the time of the December European Council, under the Irish Presidency.14 For Jenkins, this was, as he wrote in his diary, almost the first time that he had talked to Thatcher seriously. “She was anxious to be pleasant, came downstairs to meet me, arriving very faintly flustered two seconds too late to be at the door . . . Rather to my surprise, she began by offering me a drink, which Callaghan certainly wouldn’t have done at noon . . . I rather primly refused . . . She looked rather disappointed.” The meeting, in Jenkins’ estimation “didn’t go too badly at all”. For ten minutes or so he had listened to what he considered a rather simpliste European lecture but when it died away Mrs Thatcher had listened as well as talked and Jenkins estimated that he had had sixty percent of the remaining hour. “She was”, Jenkins thought, “fairly rigid on a number of things, notably fish, but was, however, very anxious to strike a positive note on others: very determined to get something on the budget; willing I think to give something—I’m not quite sure what beyond general cooperative goodwill—in exchange for this; anxious to grasp points of detail and quite quick at doing so . . . the general impression was quite good and certainly friendly.”15 Jenkins’s warnings about the difficulty of the Government’s task were reinforced in a Cabinet Office note in advance of the Prime Minister’s visit to Paris in June. “It has to be recognised”, said the note, “that our three principal objectives—the budget, CAP and fish—are in no sense complementary. While a reduction in the cost of the CAP will undoubtedly help our budget position, it is not true that attacking the CAP will help us to secure a change in the budget mechanism itself. Moreover, our objectives run counter to the interests of most other Member States. On the budget, attainment of our aim will increase the net contributions of all other Member States, except

The Tiger Unleashed: May 1979–May 1980 141 Italy and possibly Ireland. Holding down prices on agricultural products in structural surplus until the surpluses are eliminated, although it makes economic sense, will be opposed by the Irish, French, Germany and Benelux. On fisheries, our interests conflict with those of the Danes, French and Germans. The Irish have been bought off.” There would, the Cabinet Office advised, be some scope for trade-offs and for exploiting the goodwill which the Government’s more constructive attitude had generated, but it would be limited. It would not be compatible with the Government’s more constructive attitude to threaten blocking tactics at the outset, but at some stage such tactics might prove necessary. The brief went on to canvass various possibilities: withholding part of the UK’s assessed contribution to the Community Budget; refusing to participate in Community activities; the de Gaulle ‘empty chair’; blocking some part of the Community’s budget procedures; blocking agricultural price increases; blocking an increase in Community Own Resources when the 1% limit on VAT contributions was reached (a point which was underlined by the PM when she read the note). All these options presented serious problems. The UK could not, for example, resort to withholding without facing speedy legal challenge and dissipating any goodwill for the UK within the Community. “We should”, the note concluded. “begin by pursuing our objectives on their merits and building up goodwill in the rest of the Community, but be ready to consider blocking tactics at a later stage if necessary. Further consideration should be given to exploiting German and French defence requirements to secure their support for our Community objectives, especially on the budget.”16 Officials, however, and indeed Ministers, had still not come to terms with a very new style of Prime Ministerial discourse. Here are extracts from a minute from Lord Carrington to Mrs Thatcher about proposals put forward by the Minister of Agriculture, Peter Walker, for handling the Common Fisheries Policy. Carrington is reporting on his discussion with Walker: “We agreed that our negotiating leverage on this issue is likely only to deteriorate as time goes by”. [MT: “No”]; “I therefore firmly endorse Peter Walker’s recommendation that we should seek a settlement on the CFP within the next few months”. [MT: ‘No”]; “If you can agree to an approach along the lines of Peter Walker’s minute [MT: “No”], I would propose that he gives Mr Gundelach [the European Commissioner responsible for Fisheries] an indication of the way we are thinking”. [MT: “No”]; “We must remember our pledges”. [MT: “Yes, they are contrary to everything in this minute”].17 The Prime Minister’s first meeting with the French President in June 1979 was not a success. According to her Foreign Office Private Secretary, Bryan Cartledge, Giscard was insufferable towards her.18 A good relationship was never established, as noted by Roy Jenkins at Mrs Thatcher’s first European Council in Strasbourg two weeks later. At the opening lunch, Giscard placed Thatcher, Jenkins and Carrington together, “no doubt

142 The Tiger Unleashed: May 1979–May 1980 thinking it was good to have all the English cuckoos in the same nest”. But Jenkins thought it “amazing that, at her first European Council, he didn’t have her next to him”. After lunch, Giscard suddenly announced that the Heads of Government were to do a walk around the old part of Strasbourg. “Giscard, Mrs Thatcher and Schmidt were in the front row . . . I was told subsequently that Giscard had decided on it at short notice because he thought Mrs Thatcher might do a walkabout on her own—perhaps he was confusing her with the Queen”. At dinner, “Mrs Thatcher, still more surprisingly again not placed next to Giscard”.19 The dislike was mutual: “She disliked his supercilious airs and his technocratic mind-set. Giscard in turn took to calling her ‘la fille de l’épicier’.”20 Yet, the content of the first meeting between Thatcher and Giscard, in Paris on 5 June, was not confrontational. The Prime Minister began by telling the President that there would be a change in British policy towards Europe. She was the leader of a Party devoted in its philosophy to Europe, dedicated to the idea of the European Community and determined to pursue a policy of genuine cooperation. There were, of course, particular problems over which the UK would have to fight for her interests, but this would be done against a background of committed Europeanism. For his part, Giscard explained that, while he and Jim Callaghan had enjoyed a good and easy personal relationship, the last British Government had shown no interest in joint action in Europe, nor any faith in the European Community. They had been interested only in unilateral advantage. The result had been the formation of a kind of front from which the UK had been excluded. Despite their history as adversaries, France and the FRG had formed the habit of working very closely together. Schmidt had tried very hard to bring Britain in but, following a series of disappointments, it had proved impossible to do this. The fact was that important goals could only be achieved by those countries that had the means to do so. He hoped that the UK would now be a more active partner in the Community. Her contribution was badly needed. The Prime Minister responded in kind, noting that there were things in common between France and Britain, such as defence cooperation, which did not exist as between Britain and the FRG. Giscard said his reading of history and historical biography had impressed him with the very special nature of the Anglo-French relationship: there had been competition between them for hundreds of years, interspersed by close links and bitter fights. During the 19th century, the relationship had been characterised by suspicion and irritation. That period was now over: neither country was any longer competing for international supremacy. Both now faced similar problems. It should not be difficult to create an atmosphere of partnership between France and Britain. On the substantive issues of the Budget and the CAP there was, not surprisingly, no meeting of minds but Giscard, as President of the European Council, did agree to have the UK’s budget grievance discussed at the European Council later in the month.21

The Tiger Unleashed: May 1979–May 1980 143 The French Press conveyed what the British Embassy in Paris called “a distinctly positive impression” of the visit, but it was a view tempered by realism. Le Figaro, briefed by the Elysée, noted Giscard’s satisfaction at Britain’s intention to take a more active part in the search for solutions to European problems but added that the Prime Minister’s declaration of intention had been “appreciated on the French side at its true value. No-one doubts that the British will continue in future to defend their interests in Brussels with firmness.”22 Three British Ministers had the leading interest in the EEC Budget problem: the Prime Minister, the Foreign Secretary, and the new Chancellor of the Exchequer, Sir Geoffrey Howe. In his first minute to the PM on the budget issue, Howe advised her that “we are in a position to approach this problem in a more direct, forthright and confident way than our predecessors. Since we are unequivocal supporters of Community membership, our partners know that they have got to face the issue . . . This means that we need not be frightened by attempts to use pejorative formulae to rule us out of order like ‘renegotiation’, ‘juste retour’ or ‘acquis communautaire’. We should be ready to say—as we said in the Conservative Manifesto in 1974—that ‘renegotiation’ of a kind is a continuous process, essential if the Community is to evolve and survive. But it is quite a different process from ‘renegotiation’ in the sense of British withdrawal, which is what part of the Labour Party still hankers after. Similarly, what the Community has ‘acquis’ cannot be treated as immutable if the Community is not to ossify . . . I think we should now try to talk less about resource transfers and convergence, and more about the simple proposition that our net budgetary contribution is unjust . . . The central plank of our case is that those below average GNP per head should not be net contributors to the Budget . . . There is a real risk that if little or nothing is done to right the budgetary wrong, the Labour Party will become committed to taking Britain out of the EEC. If and when it returns to power, it will use the budgetary argument to gain support for this.”23 On the same day in early June 1979, Carrington sent to the PM a draft of the kind of statement that the British Government might seek to get into the conclusions of the Strasbourg European Council. Carrington was for sugaring the pill for Britain’s partners, and avoiding a rebuff, by not seeking too explicit a statement that Britain ought not to have to make a net contribution to the EEC Budget at all. Accordingly, the FCO draft spoke of solutions being required “to ensure that the Community budget produces a fair balance of costs and benefits for all Member States and, in particular, does not hinder Member States with below average GDP per head in their efforts to improve their economic performance”. Thatcher’s reaction was twofold. Interestingly, and realistically, she commented that she did not support no net contribution: it was the size of the contribution that, in her view, was prohibitive. In taking this view, she was agreeing with Carrington and disagreeing with Howe. But she was also very impatient with the tangential (but sensible in negotiating terms) language of the FCO draft, commenting: “I despair of FCO memos. This is jabberwocky to me. What is it supposed to mean?” Not altogether uncharacteristically, the PM subsequently

144 The Tiger Unleashed: May 1979–May 1980 approved a revised text little changed from the first effort. Even so, Howe had another go at changing the draft, but his version did not meet with the Prime Minister’s approval since, in her view, it went “right away from the ‘inequitable’ argument”.24 At a meeting with the Italian Prime Minister, Giulio Andreotti, on 15 June, Mrs Thatcher reaffirmed her commitment to Europe. Her Government, she said, believed positively in the European ideal: the UK would not be able to go ahead except as a member of Europe. Britain’s membership of the EEC was the best solution for the country, and the best for Europe as well. She and her Ministers were wholly devoted to the cause of Europe and, for that reason, would do everything possible to make the European ideal work and to cooperate to the greatest possible extent on all issues.25 Fish, however, was evidently not one of those issues where cooperation with Britain’s partners was uppermost in her mind. On the same day that she affirmed her European faith to Andreotti,26 the PM held a meeting on fisheries with Carrington, Gilmour, Walker and Christopher (now Lord) Soames (the senior Cabinet Minister in the House of Lords). Thatcher opened the meeting in combative form: “The Community had already grasped the UK’s markets and her money: she was determined that the Community should not have our fish as well.” Later in the meeting, the PM said that it should be clearly understood that she would never agree to terms that the fishing industry found unacceptable. In the last resort “she was prepared to take the fisheries issue right down to the roots of the UK’s membership of the EEC”. Carrington commented that this was a very serious statement to make and Gilmour added that the PM’s comment seemed to come close to the Labour Party’s position on EEC membership. In minuting out the content of the meeting in Whitehall, Cartledge did not include the exchange between Thatcher on the one hand and Carrington and Gilmour, on the other.27 After a series of bilateral meetings with other European leaders, Thatcher felt frustrated that they had not grasped the seriousness of the British case on the budget. The Cabinet Secretary sought to reassure her about “the extent of the progress which you have already made in getting the main Heads of Government to accept there is a problem which has to be taken seriously”. Even so, “the walls of the EEC Budget are not going to collapse at the first sound of the trumpet . . . It would be foolish to think that our partners will lean over backwards at Strasbourg to meet us. You will not get the remit to the Commission that we want without a fight; and even if we get it the real battle will only have begun.” Hunt went on to argue that the UK had few cards, other than determination, and reiteration of the Government’s commitment to Europe, to play. But he did recommend that swapping some of the UK’s reserves for ECUs would be a painless card, and the advice was accepted.28 The British difficulties arose from the fact that, if the UK paid less, others would have to pay more. They were compounded by the fact that the Government were fighting on more than one front, namely in arguing for a

The Tiger Unleashed: May 1979–May 1980 145 significant reform of the CFP and in resisting price increases in the annual agricultural price-fixing negotiations. It was not long before the French Foreign Minister made clear to Carrington that it would be very difficult for the French Government to accommodate the UK’s requirements on the budget so long as the British remained inflexible on agricultural prices.29 While the French showed no eagerness for the UK to join the ERM, because of the unexpected strength of sterling, joining would have been a card to play in order to influence the German Chancellor. At this stage, early in the life of her Government, the Prime Minister’s caution was primarily based on economic grounds and was shared by Geoffrey Howe. In advice sent to her just before the Strasbourg European Council, Howe argued that “when the time comes for a decision, we shall have to take account of the possible value of joining as a bargaining counter, and of its political significance. But the economic implications are such that I believe the decision will have to be taken primarily on the merits for the economy.”30 Thatcher’s first European Council in Strasbourg on 21/22 June 1979 produced mixed results. She certainly established herself on the European stage, noting proudly the overheard remark of a continental official: “Britain is back.”31 The Prime Minister’s early interventions were, in Roy Jenkins’s view, “quite good”. But when she opened up on the budget, “she immediately became shrill, and even more so in her quickly following second intervention”. She also got into an argument with Schmidt, on whose support she crucially depended. It began to look to Jenkins as if she would not get support for her request for a study of the problem and proposals from the Commission. When Thatcher made to intervene a third time, Jenkins cut her off and proposed that the Commission should present a study of the facts to the Finance Council followed by a programme of remedies for submission to the next meeting of the European Council. Jenkins concluded that it had been a not bad afternoon “and, on balance, not a bad performance on her part”.32 Thatcher herself was frustrated, telling Cabinet on 5 July that “it had proved very difficult to get the other Member States to recognise that the UK had been badly treated over the Community Budget . . . Progress had been made but we faced a real battle if were to secure an adequate response form the rest of the Community.”33 Just before the summer break, Michael Franklin, Head of the Cabinet Office’s European Secretariat, presented an end-of-first-term report to Carrington. Like an English summer’s day, Franklin’s account started out sunny and breezy, but with dark storm clouds soon in evidence. “We have lifted UK reserves on several outstanding issues. We have made considerable efforts to reach Community solutions in the Lomé negotiations and, more recently over interest rate subsidies within the EMS. We made considerable efforts at the Tokyo Economic Summit to maintain the Community’s position on energy and to protect the interests of the non-Summit EEC countries. We have shown flexibility in arriving at Community positions . . . We must take credit

146 The Tiger Unleashed: May 1979–May 1980 for all these moves, as well as for the unexpected settlement of the CAP price package in June. Finally, we made a positive gesture towards the Community in agreeing to exchange reserves against ECUs . . . All this has substantially relieved the growing sense of frustration which our Community partners had been feeling . . . “At home, too, the Government’s stance on Europe has been registered by the media and by public opinion generally. No sea change in public attitudes has yet taken place as a result . . . The inherent conflict between our firm commitment to the Community and the pursuit of our national objectives on the Budget, Fisheries and the CAP, has not come into the open, though difficulties on this front, or others like North Sea policies, could restore to the anti-Market lobbies a popular base for attack . . .” It would be wrong, Franklin argued, to look for immediate dividends from this changed climate: “We have made no progress towards settling the fisheries issue. Thanks to the French Presidency, the issues remained as polarised as before and the threat of unhelpful rulings from the European Court looms nearer. It can thus be said that, with the exception of fisheries, the period up to the Summer Recess has been well spent in clearing the decks. The rest of the Community is now convinced that things have changed. They also know that the budgetary imbalance poses a major problem for us and hence for them. The testing time will come in the autumn. The positive gestures which we have made, and expect to make, in no way balance our tough requirements on the Budget and fish. We have set ourselves an extremely tight timetable to achieve such a formidable objective as to reduce our net contribution of over £1,000 million to something like balance. Other major issues will be facing the Community in the autumn.”34 Come the autumn, the Cabinet Secretary was bemoaning to the Prime Minister the “extraordinary” inability of the Treasury to make any concrete recommendation on what solution to the budget problem would best suit the UK. It was vital, Hunt argued, that the Commission’s recommendations, when they came, should come as close as possible to the conditions which Howe stipulated i.e. that it should act on the UK net contribution; last as long as the problem; and avoid increased Community expenditure. But all Howe was recommending was that officials should sound out their contacts in the Commission before the Government made up its mind.35 If Howe was not fired up to ask for anything more precise than that the UK target was to reach a broad balance between the UK contribution and UK receipts,36 Thatcher was in full cry, with visits planned to Rome and Luxembourg, a meeting with Schmidt at the end of October and with Giscard in November, all leading to the European Council in Dublin on 29/30 November. In the meantime, the PM had asked the Foreign Secretary for a paper on what Hunt called “the threats which could, if necessary, be used to get our way. This will cover, not just ways of turning off the tap (where the Chancellor of the Exchequer is already looking at the legalities) but the range

The Tiger Unleashed: May 1979–May 1980 147 of possibilities for blocking progress in other areas of Community activities (new expenditures, CAP prices and the 1% VAT ceiling etc.)”37.” Chancellor Schmidt had already sensed the direction in which the British political wind was blowing. On 19 September 1979, Schmidt dined with the British Ambassador in Bonn, Oliver Wright. Schmidt did not usually dine with Ambassadors but the occasion was an unusual one. Henry Moore had presented one of his major sculptures on long-term loan to adorn the grounds of the Chancellor’s office in Bonn and Schmidt came to a dinner given by the Wrights in Moore’s honour. “After dinner”, Wright reported to Carrington, “while my wife and staff kept the rest of the guests amused, the Chancellor kept me for over an hour on a sofa while he unburdened himself of his thoughts on Britain, Europe and the world. Schmidt began by asking about the current labour situation in Britain. He said that the Trade Unions had brought down Ted Heath and Jim Callaghan and how Mrs Thatcher handled them would be decisive, not only for the Conservative Government, but also for Britain. He, like all Britain’s friends, wanted her to succeed. She had made a very good start and he admired her for it: so, he knew, did his friend Giscard. Britain’s decline must be arrested. If it went on, we should have been overtaken by the Italians in GNP per head in two, or at most three, years. It would take at least ten years for the country to be turned round and Mrs Thatcher should frankly tell the people that that was the dimension of the problem . . . He, as a lifelong admirer of Britain and one who firmly believed, still, in Britain’s innate good sense, its resources of wisdom, its knowledge and experience of the world, would do all he could to help. But basically the remedy lay in Britain’s hands. “The Chancellor then turned to the problems of Britain in Europe. He quite understood our position on the budget: the situation needed remedy. But we should at all costs avoid giving the impression that we were engaged in a second negotiation. Britain’s performance in the Community to date, since we had joined seven years ago, had disappointed all her friends, including those closest to us, the Dutch. He and, he thought, all our partners, had looked forward to Britain’s entry to give a new impulse and sense of direction to the Community and a new political dimension. But what had happened? We had given little or no impulse to Europe’s affairs. We had no vision of what we wanted the Community to be. Instead, we had spent six years or more haggling like Italians for a little bit here and a little bit there. This was no way for a country like Britain to act. What if Britain’s contribution did amount to £1 billion? No one could convince him that this was a make or break sum and that Britain would be sunk if she did not get it. Compared with our real problems, it was insignificant. And compared with the real problems facing Europe and the world, it was a distraction. Where was our sense of pride? “Wherever one looked in the Community, it was not Britain who had used her wisdom and experience to point in a new direction or come up with answers to European or world problems. We seemed to have lost confidence

148 The Tiger Unleashed: May 1979–May 1980 in ourselves and to have turned inward upon ourselves. Take EMS. Here was an imaginative policy to try and bring stability into at least part of the world’s currency market, and to relaunch Europe. But, with her vast financial experience, what had Britain done? Half joined and half stayed out, but really played little or no active part in a venture which was the most forward looking project for Europe for decades. Britain, by putting herself on the sidelines of the Community, had made her partners indifferent to whether she stayed in or out. Now, with a second renegotiation on the budget, even a new Conservative administration, on which so many hopes had been placed, was in danger of following the old negative paths. “What mattered, said Schmidt, was the psychological approach. Get that right, and the rest would follow. Mrs Thatcher had made a good start and everybody had been impressed. We should join the EMS. Right away. We were strong enough to do so. If other fiddling little currencies could manage, sterling certainly could. If we came in eagerly, with a manifest desire to make it work, it would work, because all our partners would join together in ensuring that it did work. But it was a dreadful thing to observe Britain uncommitted, unsure of itself, depriving itself of the possibility of shaping events. But events would happen and would shape themselves without us. All we needed was a psychological heave out of our present introspection. “We ought to be taking the lead in reforming the CAP, not in order to make a few more pennies for ourselves, although that would happen too, but in order to stop the Community going on the rocks. We should be absolutely firm on the 1% VAT ceiling. If we were, he would be too. And if the British and Germans stayed together, they could get reform . . . The CAP and the way it distorted the Community budget and the member countries’ economies had to be reformed . . . The essential thing was that Britain should be seen to be involved in a confident and creative way with the future of the Community.” Schmidt went on to talk about the importance of meetings of EEC Heads of Government. “Over the years, he had formed a very close relationship with Giscard, a relationship of total trust. This meant that when they met, they told each other everything that was in their minds. They did not always agree. They could not always support each other—their national interests were sometimes too diverse. That did not matter . . . Even when they disagreed or could not support each other, the essential thing was the reliability and predictability of the reactions in given circumstances, and this meant total frankness between them . . . Schmidt implied that he hoped in the course of time to develop with Mrs Thatcher the same relations of confidence which he at present has with Giscard. He told me, as if to illustrate his point, that when he was in London in May, Mr Callaghan had invited him to go to the Labour Party Conference. He had declined saying ‘Jim, I am your good friend, but now that you are in opposition, I cannot go to your Party Conference’. Schmidt said that when he had told Mrs Thatcher this, the PM had at once replied that, of course, she would not go to the CDU Party Conference either. Schmidt was delighted and felt that this was the start of the sort of relationship he wanted.

The Tiger Unleashed: May 1979–May 1980 149 “Schmidt was critical, but it was the criticism of a genuine friend. I have left out much detail. The talk was anything but a monologue, but this letter is already long and I am sure you would prefer to know what Chancellor Schmidt said, rather than how cleverly your Ambassador replied.”38 Oliver Wright returned to this theme in a telegram sent in preparation for one of the regular Anglo-German summits to be held at the end of October. The Germans had told the Embassy that Schmidt would want to discuss the EMS with the PM. “Schmidt has always seen, and still sees, the EMS primarily as a political act of will”, Wright wrote, “though one with beneficial economic consequences. And he sees it as a joint political act with his friend Giscard: to relaunch a European Community in the doldrums and to establish a distinct European identity in the financial field . . . The essential point . . . as seen from Bonn, is that in conceiving and bringing the EMS to full term, Schmidt has committed an act of political will, has been joined in that act of will by Giscard and, together, they have been joined by the Six and the Commission. We are on the sidelines, as events of three weekends ago, when we were not even invited to the realignment meeting, demonstrated. “It is clear . . . that Schmidt is looking for a similar act of faith and will from the Prime Minister. It is true that German officials at all levels do not expect us to join and will be relaxed if we do not. That message we are getting loud and clear. But it is not the message from Schmidt himself. Schmidt will no doubt be too polite to speak in the same terms to the PM as he spoke to me: the relationship is not yet of long enough standing and, in any case, Ambassadors exist, inter alia, to act as shock absorbers. But he is now . . . to put it vulgarly, waiting for us to put our money where our mouth has been since May. For, once again, the European train has moved on without us, as it did at the foundation of the Community. Or, rather, with us clinging to the outside of this particular carriage. “In brief, it seems from here as if a decision to join the full EMS system is a prerequisite to our coming good on our frequently professed, and as frequently welcomed, desire to play a full role in determining the future of Europe. We cannot do so from the sidelines. It is certainly a prerequisite for the PM’s establishing a stable Europe on the basis of a Bonn-Paris-London tripod instead of, as at present, a Bonn-Paris axis. It is also certainly a prerequisite for the PM’s establishing with Schmidt the sort of relationship of confidence that he has with his friend Giscard. Although I could not cross my heart and say that a decision to join the full EMS system would make it easier to get what we want on the budget, or that there is any such conjunction in Schmidt’s mind, it is at least clear that it would transform the atmosphere.”39 In Whitehall, opinion on the EMS was summed up in a minute from Hunt to the PM in mid-October. Permanent Secretaries had met to discuss a Treasury paper and it was clearly their view that, while no one there favoured sterling joining the ERM at its prevailing rate, it was thought that British industry attached more importance to the stability the ERM promised than to a lower exchange rate. There was also some unease that “once again, we might

150 The Tiger Unleashed: May 1979–May 1980 be failing to catch the European train”. The Chancellor was reported as being keen to keep his options open: “So long as strict adherence to monetary targets is an important part of Government policy, the risk of conflict with an EMS fixed rate remains. However, this need not mean that the UK must remain indefinitely in a state of isolation from the exchange rate arrangements in the system if, for example, there were a period of greater natural exchange rate stability and as it becomes clearer that the Government is succeeding in its monetary objectives”. The Governor of the Bank of England was said to be “probably in favour of joining before very long,” but did not think the UK could do so until exchange controls had been dismantled. The Foreign Office official view was that the economic arguments were sufficiently evenly balanced for the decision to be taken on political grounds. Britain’s Permanent Representative in Brussels, Sir Donald Maitland, had reported that Britain’s EEC partners would almost certainly be looking for a more definite statement from the Government before, or at, the Dublin European Council at the end of November. “Clearly”, Hunt concluded, “the more positive this can be (even if short of being a firm commitment about when) the more helpful this will be in the context of our fight over our contribution to the budget.”40 The meeting of Ministers heralded by Hunt’s brief was held on 17 October 1979. Howe opened, saying that he was opposed to full membership of the EMS for the present. He did not believe that a decision to join would make any significant difference to the UK’s bargaining position in relation to the Community budget. On the other hand, the UK’s continued non-participation in full EMS membership did tend to isolate British Ministers in their discussions in Europe; and he felt that full membership should remain an objective for the medium term. The Governor of the Bank of England said that he supported Howe’s position, though he would like to feel that the UK was moving in the direction of full EMS membership. The Secretary of State for Trade (John Nott) said that, while he acknowledged the political case in favour of joining, the economic arguments against early membership were strong. In any case, the dismantling of exchange controls must come first. The Secretary of State for Industry (Sir Keith Joseph) said that he too was opposed. Lord Carrington argued that, if the Government could be sure that sterling would be under pressure in a downward direction, there would be advantage in the UK joining. In that situation, there would be no conflict with the policy of holding the money supply, and the UK would benefit from the network of support under the EMS arrangements. However, he agreed that it would not be right to join for the time being. The Prime Minister summed up that she agreed that the time was not yet right to join the ERM. She was particularly concerned about the potential conflict between the Government’s monetary targets and the EMS intervention requirements. Adherence to the monetary targets was absolutely crucial if

The Tiger Unleashed: May 1979–May 1980 151 inflation was to be brought down, and the Government’s monetary objectives must remain paramount. She herself was not optimistic that sufficient stability in the exchange rate would be achieved to make joining possible even over the next year. She did not intend to mention EMS in her Luxembourg lecture the following day.41 Nor did she intend to offer any kind of commitment to the UK’s joining EMS as a full member at the Dublin Council. After the meeting, the PM instructed that the Chancellor’s paper should not be circulated, as had been planned, to the Cabinet’s Overseas and Defence Committee. She did not want any discussion of the issue in that committee.42 On 22 October, Roy Jenkins called on the Prime Minister, who was in fighting form. She was, she said, assuming that Britain’s partners would accept the justice of Britain’s budgetary claim, which was a clear obligation arising from commitments made in 1970. HMG intended to conduct the negotiations according to the Queensberry Rules. However, if others declined to abide by the rules, Britain would not do so either. Jenkins urged her to avoid illegality. Nor would it be right to stake everything on the Dublin meeting. She should not become the prisoner of her public position and should avoid a situation in which a reasonable result, which would be a success for her, might either be unacceptable to her or be presented by others as a failure. The record does not suggest that the Prime Minister was exactly receptive. She was not prepared to be fobbed off with a compromise solution. She rejected Jenkins’s argument that if any member’s contribution was in balance its Government would lose interest in the way policies were developed. There was no danger of that in her case, she said. Even if Britain’s contribution was in balance, she would not be prepared to see the total size of the Budget grow. Nor would her interest in securing CAP reform diminish. The CAP had been catastrophic for Britain. Indeed, there were few Community policies which had been advantageous for the UK. Community policy on fish, on industrial matters, on energy and on trade had all been unhelpful. As far as agriculture was concerned, the combination of high intervention prices and co-responsibility levies was absurd. Its only effect was to keep the Brussels bureaucracy in business. Jenkins advised the PM that it was essential for her to retain the support of Chancellor Schmidt. Without him, the UK would be completely isolated. She would have to rely on Schmidt to push Giscard into being reasonable. Equally, if she had Schmidt’s support, it should be possible to secure the backing of the Italian, Dutch, Belgian and Luxembourg Governments. The Danes and the Irish would be difficult. Thatcher repeated that she was seeking an equitable adjustment. This meant something very close to broad balance: £600 million, when the net contribution was £1,000 million, would not be enough. She was not saying that she was not prepared to contribute to the Budget, but she was not prepared to contribute on the present scale. If Britain’s GNP were to rise, then she would be prepared to see Britain’s contribution rise. She was, of course, continuing to look at the course of action open to her in the event that the outcome at

152 The Tiger Unleashed: May 1979–May 1980 Dublin was unsatisfactory. She was considering everything that she could do within the law: she was prepared to go within a hair’s breadth of what the law would permit. Jenkins undertook to produce a Commission paper which would not propose a single solution, but would set out a number of approaches, including one which would give Britain everything she asked and another which would produce two thirds of the PM’s requirement. Thatcher said that two thirds was not enough, to which Jenkins retorted that, through the eyes of other EEC members, Britain was getting stronger because of her energy resources and they found it difficult to accept the UK’s claims to be poverty stricken.43 Jenkins confided to his diary that he had found the interview, over nearly two hours, “wild and whirling” and that the PM had not made a great deal of sense, “jumping all over the place, so that I came to the conclusion that her reputation for a well-ordered mind is ill-founded”. On the other hand, he thought that “she remains quite a nice person, without pomposity”. Thatcher had made a series of “particularly denunciatory remarks about Giscard, but a great deal about other people too. ‘They are all a rotten lot’, she kept saying. ‘Schmidt and the Americans and we are the only people who would do any standing up and fighting if necessary’.” Jenkins emerged from the meeting “slightly reeling after this long tirade” and “with no feeling that she had any clear strategy for Dublin, except for determination, which is a certain quality I suppose”.44 Just over a week later, Thatcher and Schmidt met, and the Prime Minister set out her stall in, by now familiar, robust terms, concluding that “she believed passionately that Britain should be in Europe. The reasons for her conviction were primarily international political reasons. But she could not stress enough the seriousness of the crisis which would arise if a solution to our Budget problem could not be found.” Schmidt said that it was his personal conviction that the problem had to be solved and he had said so to Giscard. But this could not be done if those concerned staked out maximum positions now. It was essential to create an atmosphere in which it would be possible for people to move. It was not so much a question of what was fair and unfair but of adopting the right psychological approach. It would, nonetheless, be extremely difficult to find a solution acceptable to everybody. For a start, because of their complexity, the mechanics of the Community Budget were not understood by the Heads of Government. Second, other countries would have to contribute more, or receive less, in order to relieve the UK, and none of them would want to do that. They (the French in particular) would argue that the existing arrangements were functioning precisely as they had been negotiated and there was no need to change them. Third, a figure of £1,000 million was an enormous sum. The most the British Government could hope for from Dublin was a clear-cut declaration of intent. The European Council should give Finance Ministers a clear directive to work out a detailed solution, and this (though difficult to achieve) would allow the PM to report to Parliament that Britain had been given satisfactory undertakings. Britain must recognise that, if a solution to the Budget problem was to be found, the

The Tiger Unleashed: May 1979–May 1980 153 other Governments would need to be able to show that they had got something out of whatever changes were agreed: they had their publics and Parliaments to think about as well. It was inevitable that the other members would want to draw in other problems such as fish and energy. It was, in particular, important to give the French the feeling that the UK was ready to seek a fair deal on fish as well as on finance. In response to another tirade from the PM, Schmidt said that he wanted to be frank. It was essential that the PM should distinguish herself in the eyes of her European colleagues from her two predecessors, and must not appear as a third edition of the last two Labour administrations. Events in the Community were moving towards a clash between the UK and France. This must be avoided in view of the world situation. If ever the Community broke up, the Soviet Union would pick its members off piecemeal. When the Commission’s proposals were on the table, Britain, France and Germany should concert together to establish what each other’s vital interests were in an attempt to arrive at a solution. Schmidt thought it essential to do this before the Dublin meeting. Thatcher said that her approach to the Community, and that of her Government, was entirely different from that of her Labour predecessors. She recognised that the present atmosphere, which she disliked, would be associated by other members of the Community with previous Labour Governments. But she had to find an equitable solution. In the ensuing plenary meeting with other Ministers, Schmidt returned to his theme. He agreed that Britain had a case. But the PM should be under no illusions about what would happen if the future of the Community came into doubt: the other eight members would remain together. However, a split between Britain and the rest of the Community would be a terrible weakening of the West’s position in the 1980s. It was necessary to look at the worst option: the tone of the British Press was detrimental to the prospects of success in Dublin. The French were saying it reflected official briefing.45 The British Government, Schmidt said, should not think that they were doing the right thing and others were not. This was not true. Britain had joined a club with fixed rules. She had discovered that the rules were unbearably unjust. But in order to change them, the consent of the other members would be necessary. They would have to be persuaded to subscribe to an undertaking in Dublin. If Britain’s attitude were to be one of “take it or leave it”, the other members might well say “leave it”. This was a real and serious danger. In the latter case, Thatcher replied, the other members would be mirroring the attitude of her electorate. She herself had always been strongly pro-European, and did not wish to be faced with the prospect of having to tell the anti-Europeans that they had been right. Schmidt said that the other members of the Community had long since ceased to believe the previous British Government. They had got fed up with hearing from No 10 that the situation was intolerable. He agreed that Britain had a legitimate grievance. He agreed that a solution must be found. But the

154 The Tiger Unleashed: May 1979–May 1980 presentation of that solution to the other member countries would be a matter of the greatest importance. The Prime Minister said that, in the end, the problem came down to finding the money. She was afraid that those who were getting it at present would want to go on getting it. She would look closely at the legal position in regard to withholding contributions. Schmidt said that he hoped the PM would also look closely at the various mechanisms that might be used to assist in resolving the issue.46 Sir Donald Maitland, leaving Brussels after four years as UK Permanent Representative to the EEC, appeared to share those sentiments. “When I arrived in Brussels in 1975”, he wrote in his Valedictory Despatch, “I found a mood of sober optimism. Everyone . . . regarded the emphatic result of the British referendum a few months earlier as a clear statement of the UK’s commitment to work wholeheartedly within the Community to solve its problems . . . Now, as I leave Brussels four years and 30,796 telegrams later, the optimism has evaporated. The Community stands on the verge of a major internal crisis . . . Anyone called on to carry a disproportionately heavy burden will go on trying to ease it. The Six should therefore have known that the UK would not tolerate for long arrangements that were clearly detrimental to its national interests. Whatever the judgement of history, the fact is today that it is for the most part we who press for change, and on many occasions we start the negotiation at a corresponding disadvantage . . . Circumstances seem certain to combine very soon to create a crisis within the Community . . . But, as any rebalancing of interests will reduce the benefits some of our partners now derive from the Community, the going will be rough.” Maitland went on to comment on the allegation that the UK was less adept at looking after its national interests than were Britain’s partners. He took a rather different view. So many of the interests of the Benelux countries could be identified with those of the Community that it was relatively easy for them to give the impression of being communautaire. But they could be persistent and obstinate when one of their important national interests was at stake. The Danes and the Irish fiercely resisted suggestions of CAP reform. As regards the French and Germans, the close personal relationship between Schmidt and Giscard was not reflected in Brussels, even at the level of the Council of Ministers. Indeed, more often than not, the French and Germans found themselves on opposite sides of the argument. “One is left to conclude”, Maitland observed, “that the hard-headed opinions of the individual ministries in Bonn still prevail as far as routine Community business is concerned. The French neither get away with murder, nor are they outstandingly skilful. They pursue their objectives in the Community with rare single-mindedness, even ruthlessness, and they can count on the support of a patriotic Press. They pay little regard to the wishes of their partners, and even less to their feelings . . . Although they dislike being isolated as much as every other member of the Community, the French are prepared to accept this for long periods. For reasons I have never had satisfactorily explained, the other Member States

The Tiger Unleashed: May 1979–May 1980 155 seem in some way to be mesmerised by the French. They vituperate in the corridors about the more offensive aspects of French behaviour; but they will not speak out in the Council chamber unless the British give a lead. “It is also argued that the French have a special talent for dressing up their national interests in Community clothes and that this in some way immunises them from criticism. No one here is so easily deceived. By now, the original Five know their French partner very well and have developed a special tolerance and scepticism. It is not open to us to imitate the conduct of our partners, least of all the French, and it would be foolish of us to try. For one thing, as I have said, we are the advocates of reform and, with the exception of the Italians, our partners are the defenders of the status quo; so our posture is fundamentally different. For another, we cannot in the English language talk with a straight face about our European vocation or our fidelity to our European destiny. Yet there are two ways in which we can learn from the French. We could borrow some of the ruthlessness and dedication with which they concentrate their diplomatic effort on their major objectives . . . Like the French, we could also more often leave it to others to defend our interests, thereby conserving ammunition for the big battles . . . I have sometimes wished that our instructions were less insistent . . . There are cases where it might well be asked: compared with what we have at stake elsewhere in the Community, does this particular consideration matter?” 47 Just before the European Council was an odd moment to change Permanent Representatives but Foreign Office rules at the time were inflexible: members of HM Diplomatic Service retired no later – not even a day later – than their 60th birthday. Maitland, of whom Jenkins’s opinion had “gone steadily up during the past two years”, was replaced by Michael Butler, about whom Jenkins was initially rather doubtful, commenting: “he does rather bang away at issues without great sensitivity or feeling . . . but he is a highly intelligent man”.48 But Butler, who was one of the most senior FCO officials dealing with EEC matters, had got on with Callaghan, a difficult boss, and his combination of expertise, ingenuity, robustness and persistence were soon to establish him in Thatcher’s confidence and esteem. Nonetheless, as John Fretwell, Butler’s deputy on EEC issues in the Foreign Office, observed: “As time went on [following the 1975 renegotiation] we had to try and cash in the chips that we had won in the renegotiation to secure a better deal on the budget and would have advanced this as a major issue for 1980. But in 1979 there came an election and a certain Margaret Thatcher became Prime Minister.” Butler and Fretwell went to Chequers to brief her. “What we didn’t realise”, Fretwell recalled later, “was that we were not moving into action an unwilling force; we were unleashing a tiger. The tiger duly landed at the Dublin Summit in November 1979 at which the clash occurred, and the fundamental confrontation with Giscard and Schmidt from which relations never really recovered.”49 President Giscard was due to come to London for a bilateral summit in midNovember. Britain’s Ambassador in Paris, Sir Reginald Hibbert, found himself

156 The Tiger Unleashed: May 1979–May 1980 more intimately involved in the preparations than he can ever have bargained for. Visiting London in early November, the advance team from the Elysée noted that, in the Downing Street Cabinet Room, where the two leaders were to meet, the Prime Minister would be seated in a chair with arms while the President would be in a chair without arms. The President, they said, would not accept to sit on a chair that was not of equal status to that of the Prime Minister. If this was ludicrous, the reaction in London was pompously prickly: the furniture in the Cabinet Room was all of a piece and “it would frankly be rather difficult to introduce some quite different chair for the President”. Her Majesty’s Ambassador in Paris was instructed to have an informal word with Jacques Wahl, the Secretary General at the Elysée, “to get this little matter sorted out”. Reg Hibbert, ex-army officer and a bit of a stickler, was not cut out by life to act as an emollient. So, when Wahl suggested that the obvious answer was to stand the Prime Minister’s armchair in a corner and for her to sit in the same sort of chair as the President, Hibbert’s hackles rose. There would, he told Wahl, “be an even greater feeling of surprise on our side, and spread over a far wider number of people, if the President were to find it difficult to accept an arrangement which had been accepted over very many years by Heads of State and Government from all parts of the world”. The luckless Wahl thought that the decisive consideration might be whether other French Presidents, or President Giscard himself, had previously accepted the Downing Street seating arrangements. Hibbert was able to point to the 1976 precedent of Giscard himself. “Dieu soit loué”, said Wahl, thereby concluding the skirmish to the satisfaction of both sides.50 The Prime Minister’s hackles were also up, for more substantive reasons. The new Cabinet Secretary was Sir Robert Armstrong, well known to the Prime Minister from his time as Principal Private Secretary to Prime Minister Edward Heath. Armstrong had played a skilful and significant role in the private discussions with the French that had unblocked Britain’s accession negotiations. His first foray into advising Mrs Thatcher on European matters gave him an early taste of what to expect. On 9 November 1979, Armstrong submitted to Thatcher a briefing paper for a planned restricted meeting of Ministers a few days later. A few extracts, and the Prime Minister’s reaction, give the flavour. To Armstrong’s suggestion that it was not realistic to expect that “we can secure a refund which will wholly cover our net contribution”, Thatcher responded: “Why?”, though her question was at variance with her earlier view that the UK should remain a small net contributor. To the suggestion that “if we could achieve a lasting reduction of three quarters, it would be widely recognised as a major achievement. It is within this area that Ministers may wish to consider what, having regard to the other elements, could be a politically acceptable result”, the PM replied “No”, though in the end, nearly five years later, she accepted a reduction of ‘only’ two thirds Asked whether it would be acceptable if the UK net contribution lay somewhere between that of France and Germany, the Prime Minister replied, not unreasonably: “No. Less than France.”

The Tiger Unleashed: May 1979–May 1980 157 To Armstrong’s question whether, if Heads of Government agreed that the UK net contribution needed to be reduced by a specific percentage and if they settled the question of duration, the methods by which this could be achieved could be left to Finance Ministers or the next European Council, the PM again said: “No”, though in the end, following two unsuccessful and rancorous European Councils that is almost exactly what transpired.51 Armstrong, dubbed by the Official Historian of the Cabinet Secretaries as “the ultimate courtier”, tried again a few days later.52 Armstrong’s theme was that a successful outcome to the budget negotiation would depend, in the end, on Schmidt and Giscard. The first Community crisis that had hit both men after taking office was the Labour Government’s renegotiation. There had been some fairly plain speaking by both leaders but, in the end, they had enabled Wilson and Callaghan to succeed. Armstrong went on to analyse the political constraints on both men, especially the fact that, in the last analysis, it would matter less to Giscard than to Schmidt if Britain left the Community. Armstrong advised the PM that the indications were that the French and Germans were thinking in terms of removing the constraints on the 1975 Financial Mechanism, which could produce a reduction of the UK net contribution by £380 million to around £700 million. There was no hope of agreement leading to the UK paying a lower net contribution than the French. If that was right, then the maximum reduction the UK could hope to achieve would be about £750 million, down to about £300 million. This suggested that a solution would in practice have to lie within that range. Armstrong acknowledged that the disadvantage of the approach he was suggesting was that it gave nothing on the receipts side of the balance sheet and would be temporary, leaving the possibility of another battle in four years’ time. But Armstrong thought that the Prime Minister could exploit the desire of Britain’s partners and of the Commission to avoid an unsuccessful summit in Dublin. “It is arguable”, he wrote, “that, on the sort of approach I have outlined, you would be making the most of the goodwill you enjoy in the Community and cutting with, rather than against, the grain; and that, because you were cutting with the grain, you would cut deeper.” In other words, what Armstrong was suggesting was that Mrs Thatcher would catch more flies with honey than with vinegar. If, however, it proved necessary to provoke a crisis in Dublin to achieve as much as the UK needed to achieve, “I do not think we need shrink from that . . . provided that we can keep the situation under control and, in particular, that we do not put our membership of the Community at risk.”53 As the Dublin European Council approached, such differences as there were in Cabinet were more about tone and tactics than about the substance of British demands. The Cabinet minutes of 1 November 1979, following Thatcher’s meeting with Schmidt, show the PM warning of a major battle ahead and of a more nuanced reaction from Cabinet colleagues: “It was suggested we had a particularly difficult hand to play: we had to strike a balance between a desirable demonstration of the strength of domestic public opinion in support of the Government’s position and inviting a very adverse reaction from that public

158 The Tiger Unleashed: May 1979–May 1980 opinion if, at the European Council in Dublin, we achieved something less than our full negotiating objectives. It had been necessary and right to take a strong position, in order that other Member States were aware of the political importance of the issue. The underlying truth was that our membership of the EEC was at stake in the Government’s insistence on a result that was reasonable and fair though, if it ever came to the point, the advantages, as well as the disadvantages, of membership would need to be very carefully weighed.”54 Following a meeting of Cabinet’s Overseas and Defence Committee (OD) to discuss strategy and tactics, John Nott wrote to the Prime Minister about the agreement reached in that meeting that, if the UK failed to secure an adequate reduction in the net contribution, the UK would, in Carrington’s words “be unable to subscribe to the taking of any major decisions in the Community”. Nott noted that Howe had been yet more hawkish, proposing that the Government might also seek to act directly on the contribution itself (i.e. withhold it in whole or part), though Nott recalled that this had met with a cool response from colleagues due to its legal implications. Nott continued: “Your response to the Press in Dublin could be vital for the whole future relationship with the Community – and to public opinion here at home. I am concerned that your personal prestige and that of the Government as a whole could be at risk if we do not have an adequate and convincing answer to the question: ‘Where do we go from here?’ . . . I find it hard to believe that Gaullist-type obstruction, spread across the whole field of Community business, as proposed by Peter Carrington, is in the interests of the Community—or of ourselves. It will lead to increasing bitterness . . . We will be seen as no different from our predecessors. I believe we must direct our fire. Is it not better to point to the real absurdity of the EEC, and bring the whole issue forward for urgent resolution (VAT/Levies/CAP) in an early second summit in February/March 1980? At least it will appear like ‘constructive’ obstruction, rather than pure negative bloody mindedness.”55 The caution of Cabinet on the whole issue was again demonstrated when the Prime Minister reported on 22 November 1979 on her talks a few days earlier with the French President. The Prime Minister described the atmosphere as being good but both her description of the discussion, and the record, give a different picture. She had “left him in no doubt” that a partial solution at the Dublin European Council would not do. Giscard, she said, had sought to argue that the UK should abide by the rules in spite of French behaviour over sheep meat (where the French were in breach of an ECJ ruling outlawing their discrimination against British lamb). Giscard, according to the record, had argued that Britain’s gross contribution to the EEC Budget exceeded the share she should be paying in terms of her share of Community GNP by 700 million units of account (roughly the same number in dollars). Half of that sum arose, Giscard contended, because Britain’s imports from outside the Community were proportionately higher than those of other members. In other words, if the proportion was the same,

The Tiger Unleashed: May 1979–May 1980 159 the excess would be 350 mua. “France” said the President, “understood that Britain needed time to adjust her trade pattern. But the French Government saw no moral need to compensate Britain for the fact that British consumers preferred Japanese cars to their European equivalents.” Nor was there any sign that Giscard was moved by Carrington, whose argument in favour of the British case was the very one, Schmidt had told Wright, that Britain’s partners were tired of hearing. “Speaking”, said Carrington, “as someone who had been a committed European all his political life: the present Government wished to be good members of the Community. But the Prime Minister could not ignore the head of steam building up on this question. If she returned from Dublin with something derisory, she would not find it easy to prevent the undoing of everything that had so far been achieved. The latent little Englandism in the country could not be defended, but it was a fact”56 The reaction in Cabinet was in no sense a challenge to the Prime Minister’s policy and tactics, but the longer term value of the relationship with the French and of regular consultations was stressed. Whatever the differences over current issues, some Cabinet members argued, it was important to build up the Anglo-French relationship, at official as well as at Ministerial level. The closeness of Franco-German relations had been achieved in this way.57 Shortly before Cabinet, the Chancellor of the Exchequer had called on the Prime Minister. According to an internal No 10 record, “the Chancellor said that he had pursued his enquiries on the possibilities of reducing or interrupting our contribution rather further than the FCO would have liked; but he felt that all avenues had to be explored . . . The PM said that there appeared to be plenty of mechanisms for reducing our contribution, given the will. But she wanted to be clearer on precisely what the mechanisms were and she would like to see more figures.” When the conversation turned to the handling of a House of Commons debate on the EEC Budget, the PM asked why Nicholas Ridley (Minister of State at the FCO) was not winding up the debate. Howe explained that Ridley had not had anything to do with EEC budget matters. The PM “then said that she could not understand why Mr Ridley was not working in economic issues. He was the only FCO Minister who understood economics. She intended to take this up with Lord Carrington.”58 Whether or not the Prime Minister did so, Ridley was not given any EEC responsibility. Carrington liked him but thought he had been appointed by Thatcher to the FCO as her spy in a potentially unfriendly camp.59 Howe himself made no mention in his memoirs of his role as Chancellor in the discussions on withholding Britain’s contribution to the EEC. So, whether he was the hardliner on the issue only for tactical reasons vis-à-vis Thatcher, or the EEC, or both is not clear. The Prime Minister was more than prepared to make the threat, and officials took it seriously enough to explore in detail the different ways in which it might be done, but the evidence suggests that, at this period, she saw it more as a lever than a cudgel.

160 The Tiger Unleashed: May 1979–May 1980 In the days preceding the Dublin European Council, Jenkins called on the Prime Minister. She explained that she was not prepared to change her own demands. She was looking for a refund lying somewhere between 1552 and 1814 mua. She wanted all restrictions removed from the 1975 Financial Mechanism and she wanted a solution that would last as long as the problem. She did not want to have to go through the same argument again in three or four years. Jenkins said that there was no chance of securing in Dublin a settlement on the figures Thatcher had indicated. Thatcher replied that she considered she had a good chance of getting a settlement on the basis she wanted before she had finished with the problem. In any case, she could not settle for less. Failure to produce an equitable solution would lead to intensified demands in the UK for Britain’s departure from the Community. Nonetheless, she had no intention of leaving the Community and intended to make this plain in Dublin. She was not seeking a renegotiation on 1975 lines. Jenkins, who seems to have grown to share her dislike of the French President, advised Thatcher that Giscard was likely “to deploy a series of casuistical arguments against the British claim”. Jenkins added that he had never seen Giscard as unimpressive as he had been during their most recent discussion. He also tried to persuade the Prime Minister that a statement by her at Dublin that Britain contemplated early membership of the EMS would have an excellent effect. He did not have in mind bargaining, but rather the need to create the impression that the new British Government was more communautaire than its predecessor. Thatcher said that in the end she would like to join the ERM but that the position of sterling made it difficult to do so at the present time. She was impatient with the wish of other members of the Community to have more evidence that the Government was Community minded. The Government had helped rescue the Europeans after the Tokyo summit by offering to produce 5 million tonnes of oil more than its own national depletion policy would have indicated. The UK was providing major agricultural and industrial markets for her European partners. The effect of the CAP had been to raise prices in the UK and to force Britain to take agricultural products she did not need. In asking for more, the other members of the Community were seeking to elevate expediency into a principle. Britain’s budget contribution cost every British taxpayer 2p on their income tax. It was more than the entire aid budget. It made no sense at all. Jenkins warned the PM of the danger of building up a head of steam in the UK on the budgetary question that could not be controlled. She, for her part, rejoined that it was uncontrollable already. Jenkins said that there would have to be bargaining at some stage and the PM had taken up a very rigid position. Even Schmidt was inclined to think she was being unreasonable. Thatcher said that if members of the Community began to say that they would prefer Britain to leave then they would have lost the argument by admitting that they were capable of finding the money for which Britain was asking. The present situation was wrong and inequitable. She intended to stick to her demands.

The Tiger Unleashed: May 1979–May 1980 161 She had no intention of leaving the Community. Jenkins said, rather wearily, that the Dublin Council promised to be an interesting one.60 Jenkins himself was clearly growing accustomed to the Thatcher style. He “could not quite make out whether she was prepared to compromise or not. I don’t think she wants a break and she reiterated her point that there is no question of her leaving the Community, no question of an empty chair, no question of illegality.”.61 If the head of steam over the budget already existed, the Prime Minister’s Press Secretary, Bernard Ingham was doing little to contain it, telling the Sunday lobby the weekend before the Dublin summit that, post-Dublin “we could, I suppose, be awkward to the Nth degree, as the French had been”. At the end of his briefing, Ingham told the Press that, earlier in the week, he had been asked whether he was anti-Common Market. He had replied: “The truth is that the Government wants to play a full part in Europe and is committed to it. I personally voted to go in, admittedly more for political, than economic, reasons. But I am sure, like millions of others, I did not go in to be fleeced.” In a minute to one of Thatcher’s Private Secretaries, Ingham said that some reporting of this remark in the Sunday newspapers had been “without principle”, in particular that the word ‘fleeced’ had been attributed to the Prime Minister.62 On the eve of the European Council, Armstrong advised the PM that the gap between her position and that of other Member Governments was “enormous”. He reminded her that OD had agreed that, if Britain did not get its way, the Government should demand that the European Council reconvene within a month. If there was a breakdown at Dublin, and no second meeting planned, we should, Armstrong advised, have to think it terms of some degree of immediate obstruction, though Armstrong also noted that the Chancellor, the Trade Secretary and the Minister of Agriculture all had doubts about a wide-ranging campaign of obstruction.63 At the Cabinet’s last meeting before the Dublin summit, caution and resolution were evident in equal measure. The Prime Minister noted that the UK’s budgetary problem would be the main issue at the meeting. In her view, Britain’s Community partners had not yet accepted the seriousness of the Government’s intentions. There could be no justification for the UK subsidising other, and mostly richer, EEC countries. If no agreement was reached, the argument would have to continue. There was no wish to disrupt the Community and no intention of leaving it but if, after reflection, Britain’s partners were not willing to correct the basic inequity, the inevitable impact on the future development of the Community would be their fault, not hers. She did not wish to reveal what action the Government might take if the negotiations were to fail. Some Cabinet members agreed that it was vital in domestic political terms to stand firm on the budget. Others argued that the Government would not get its way at Dublin: the Community moved slowly on such matters and significant progress had been made since the Strasbourg summit when other

162 The Tiger Unleashed: May 1979–May 1980 Member States had not been ready to accept that Britain even had a case: “we should just have to keep plugging away.” The Prime Minister concluded that Cabinet agreed that, unless she was offered something very close to what the Government had asked for, she should not settle in Dublin. Britain had a strong case based on the moral commitment which the Community had made in 1970 that, if an unacceptable situation of this kind occurred, the very survival of the Community would demand that the institutions should find equitable solutions. There could be no doubt that the Community would face a crisis if the problem were not speedily resolved.64 The handling of this issue, it is clear from the record thus far, shows a radical change of approach since the change of Government: a change almost entirely dictated by the Prime Minister. The advice of officials was now couched in terms which, they knew, would be acceptably forthright to the Prime Minister. It is inconceivable that Carrington would have come up with a comprehensive plan of non-cooperation had the PM not been adamant. He may also have calculated that, by taking her to the brink, there was a better prospect that she would neither rail against him nor, in the event, choose to take Britain over the cliff. Christopher Soames, Lord President of the Council, had been Britain’s senior Commissioner in Brussels for five years. He had, as Britain’s Ambassador in Paris, played a significant role in negotiating with the French on British accession to the EEC. In a minute to Thatcher on 28 November 1979, Soames hoped that she would, in Dublin, begin and end her opening statement with firm conviction in the future value of the Community, not only for its members but for the western world at large. “You will”, he wrote, “obviously be as firm as firm can be” in setting out the need for broad balance in Britain’s budgetary contribution. Knowing Thatcher’s tendency to go on at length, Soames added: “This need not take long.” Soames hoped that the PM would put a greater accent, and therefore steer the argument, on to what would be a reasonable contribution by the UK rather than on how much the UK needed to get back, suggesting that, while it would not be unreasonable for the UK to pay net £100 million or so, it certainly could not be reasonable that the UK should pay as much or more than Germany and many times more than France. He advised Thatcher not to expect to get anything like as far as she needed at Dublin. The Community had never been renowned for taking unpleasant decisions without long wrangling. He hoped that the Presidency or another Head of Government would propose a further meeting if it came to it. If necessary, the Prime Minister herself should do so. Soames accepted that the Government might ultimately need to withhold payments to the EEC. The punishment should, however, fit the crime and the Government would do well to shame her partners even more if, in one or two other areas of Community life “we gave an earnest of our belief in the need for the cohesion of the Community and its influence”.65 In his memoirs, Lord Carrington writes, with characteristic understatement, that Thatcher’s colleagues in the European Council did not look forward to

The Tiger Unleashed: May 1979–May 1980 163 their next round of argument with her. But he had little doubt that firmness and intransigence were key factors in ultimately securing a settlement.66 Ian Gilmour’s recollection was less benign. Mrs Thatcher’s strength—and weakness –as a controversialist was, he recorded in his memoirs, that she could rarely see that her adversaries often had an arguable case. At Dublin, according to Gilmour, Thatcher “lived down to all Peter Carrington’s worst fears. After giving a shrill exposition of the British case—I am not asking for anybody else’s money, I just want my money back—at the first afternoon session of the Council, she again harangued her colleagues for almost the whole of a working dinner which took some four hours. Schmidt feigned sleep, Giscard sat back contentedly watching her weaken her own position, and the others became increasingly unconvinced of the validity of the British case.” Mrs Thatcher was, again according to Gilmour’s published account, treating the European Heads of Government as if they were members of her own Cabinet, except that in some respects their position was even less enviable: “While we almost never had more than one Cabinet meeting a week, they had three (far longer) sessions in three days . . . Mrs Thatcher never realised that, after the very negative conduct of the Labour Government and then her own flouting of the customary conventions of tolerable behaviour, most of our partners were beginning to question whether they wanted us to stay in the Community.”67 On substance, Thatcher was prepared to accept, as a starting point, a paper put forward by the European Commission based on three ideas: shifting the weight of EEC expenditure from agriculture towards structural and investment projects; specific additional expenditure on projects in the UK; and reform of the 1975 Financial Mechanism. However, the reformed mechanism did not deliver enough. After hours of discussion, Britain had been offered a refund of £350 million, leaving her with a net contribution of £650 million, which Thatcher would not accept. She was also determined that the solution should last for as long as the problem lasted. The atmosphere of the meeting had soured, not least because, as Sir Michael Butler, the new UK Permanent Representative, put it, the PM “declared her determination ‘to get her money back’, a phrase which caused some genuine, and much spurious, outrage in other Community capitals. She was accused of not understanding that the Community’s own resources belonged to the Community and was told that, Britain having signed the Treaty, she had no right to demand a rebate.”68 It was Jenkins who came up with the proposal of a postponement and a resumed discussion as the only way of avoiding a breakdown. He called on Thatcher “in Dublin Castle where she was installed (perhaps incarcerated is a better word)” on the final morning of the Council. He found Palliser and Armstrong with her “sitting in inspissated gloom”. According to Jenkins “she wasted half the time in a harangue, which embarrassed her two knights and bored me (the worst aspect was the time it wasted) but her purpose was to say

164 The Tiger Unleashed: May 1979–May 1980 that she would accept a postponement . . . But Giscard and Schmidt were unwilling to accept a postponement until Mrs Thatcher had said that she would approach the next meeting in a spirit of compromise. This, for some time, she declined to do, just banging away at the old points. Eventually, Peter Carrington . . . had a word with her, and in her next intervention she said— the words coming out of her with almost physical difficulty, but given her character having meaning nonetheless—‘Yes, I would approach such an early European Council in a spirit of genuine compromise”.69 At her Press Conference at the conclusion of the Dublin meeting, Thatcher was in fighting form. “We are not”, she said, “asking for a penny piece of Community money for Britain. What we are asking is for a very large amount of our own money back . . . We wanted £1,000 million of our own money back. We could have settled . . . if we had been prepared to take away £350 million because that is what was offered provided one was prepared to say that that was the end of the story.” Despite her stout defence of her position, the Prime Minister also stood by the commitment she had made in the Council itself: “Although not having very much room for manoeuvre, indeed very little room for manoeuvre, we are going to try to have another Council to see if we can find a genuine compromise . . . And who am I to turn down offers of genuine help from genuine friends? It would have been a very nasty thing to do not to have said: ‘All right, one last chance’ . . . We want to have one last chance. After that, I will have to consider all kinds of things and that [withholding] would be one possibility but we must look very carefully at both the legal and practical implications.”70 In reporting to Cabinet on 6 December 1979, the Prime Minister said that Ministers would have to consider in due course what steps the UK might take if a reasonable settlement could not be secured at the next meeting. These might include withholding part of the UK’s budgetary contribution and systematic obstruction within the Community. Meanwhile, they should continue to deal with Community business on its merits. Where progress could be made without detriment to British interests, Ministers were free to negotiate accordingly. Discussion on the more controversial issues should be spun out, and nothing of importance given away in advance of the next meeting of the European Council. It was important, the Prime Minister added, not to lose sight of the wider political issues that would accompany a weakening of the Community caused by failure to agree: particularly in present world conditions, it was only the Soviet Union that would benefit from that.”71 Before the Christmas recess, the Government took stock of its tactical position. Bernard Ingham, Thatcher’s spokesman, advised that the expectations of the Press had been raised and that what he called his “ebullient briefing” would not be enough to hold the line with journalists who, after the New Year, would expect to see very clear evidence of action if the Government were to avoid suspicions that they were going soft.72

The Tiger Unleashed: May 1979–May 1980 165 Carrington, as Chairman of OD(E), the Cabinet sub-committee responsible for EEC questions, told his Ministerial colleagues to expect a period of intense diplomatic activity. At home, Government Departments would be embarking on intensive and rigorous studies, many of them inter-departmental, covering, not only an immediate increase in UK receipts, but also a shift in the longterm pattern of Community expenditure. The Government’s policies on specific issues such as fish, sheepmeat and energy, and the agricultural price negotiations would have to be dealt with in parallel. There would, Carrington concluded, be a need for close day to day Ministerial liaison on the work in Whitehall and the negotiations with Britain’s partners. This might involve touchy political questions. The Prime Minister had agreed that Ian Gilmour should assume responsibility for this and take personal charge of the Government’s negotiating strategy. Gilmour would also visit EEC capitals.73 At a meeting of the key Ministers concerned (notably Howe, Carrington and Gilmour) on 21 December 1979, there was agreement that, in addition to the improvements in the Financial Mechanism which had been on offer at Dublin, Britain should now press hard to secure a receipts mechanism which would operate automatically to raise the level of the UK’s receipts per head to the Community average. This was needed to avoid an annual argument and because it was felt that restructuring the Community Budget would not produce early or sufficient relief for the UK. Gilmour was about to embark on a tour of EEC capitals, starting with the more helpful Dutch and Germans and leaving the French and Danes (the most unhelpful) until last. Gilmour secured agreement that he would rest on the PM’s statement after the Dublin meeting that the Government were looking for a genuine compromise in which they had limited room for manoeuvre. This in turn implied that the UK was willing to accept some net contribution, so it was no longer helpful to refer to “broad balance”. It was also agreed that the Government would need to consider what threats were necessary. But, as far as threats were concerned, the last pre-Christmas word lay with the French Press, which usually reflected briefing from the French Government. An article in Le Monde said that the French Government were now facing the question of whether it would be necessary to rebuild Europe without Great Britain. If Mrs Thatcher’s blocking tactics continued, then there would be no alternative to contemplating such new relations between Britain and her partners. The weekly, Le Nouvel Observateur, headlined its article on the same subject “Should the English be driven out of the Common Market?”, using, as the Paris Embassy helpfully pointed out, the verb bouter, which apparently evoked in the minds of Frenchmen the rout of the English by Joan of Arc.74 The new year of 1980 began with a letter from the Foreign Office to No 10. The Foreign Secretary had noticed, it said, that Ministers had been using a variety of titles for the European Community. Strictly speaking, there were three legally separate European Communities but the Council of Ministers had endorsed the use of the term ‘the European Community’ for most purposes and

166 The Tiger Unleashed: May 1979–May 1980 this was the term that had been adopted within the UK Government. “For general use, therefore, ‘the European Community’ is the most appropriate term. From a political point of view in Europe, it is better than ‘the European Economic Community’ or the ‘Common Market’, which sound to our partners restrictive and limiting in spirit, if not in fact.” The Prime Minister accepted the advice in characteristic terms: “No objection—but I still like the term ‘Common Market’!”75 The European Council was due to meet again at the end of March 1980, and Gilmour began his round of Community capitals. In London, there remained concern that the strength of the Government’s case was not getting across to public opinion in other Community countries and all British Ministers were therefore urged, in a memorandum from Angus Maude, the Paymaster General, to undertake media interviews with the continental media. “What needs to be got across”, Maude urged, “is not simply the merit of the British case on the Budget, but a warning of the strength of anti-Community resentment which is building up in this country—largely as a result of the Budget injustice . . . We need to point out on every possible opportunity that we are being presented here with an increasingly serious political problem which we cannot indefinitely ignore. Nothing could be worse for the Community as a whole than that this should become a major issue at the next Election, with the Labour Party taking a firmly anti-European stance. Unless the Eight are prepared to meet us effectively on our Budget problem, this is only too likely to happen.”76 The Prime Minister too was concerned that the Government were getting a bad Press at home because they were perceived to have conceded too much. At a meeting with Carrington on 20 February 1980, Thatcher discussed the possibility of withholding in the second half of the year, following a period in which the Government would obstruct Community decision-making. This included blocking a settlement on agricultural prices. Carrington, basing himself on the advice of the Law Officers, pointed out that the Government could not withhold unless it had legislated first. Such an act of legislating would, he was advised, involve a breach of the Treaty of Rome. This, in his view, might well set Britain irrevocably on a path which would lead to the country’s departure from the Community. The PM disputed whether it would be necessary to legislate before withholding. Moreover, she did not think that the other members of the Community would think it in their interests to drive Britain out. Carrington advised that it would be necessary to look very carefully at the consequences of leaving. He regarded the political and economic consequences as being of great gravity. The PM said that she too did not wish to leave the Community. But Departments were not being tough enough or imaginative enough in arguing the British case. The French had struck at the roots of the Treaty of Rome in defending their illegal discrimination against British sheepmeat. The Government should be prepared to pursue British interests with similar vigour. This included considering the imposition of a levy on the imports of French and

The Tiger Unleashed: May 1979–May 1980 167 German cars; the sale of oil to Europe at spot prices or subject to a special tax; and the reopening of the offset agreement governing the British troop presence in Germany. The meeting ended with a procedural agreement only: the Cabinet Office would prepare a paper on tactics.77 Despite this fighting talk, Thatcher was able to report to Cabinet a week later that, contrary to Press reports, she had had a successful discussion with Schmidt on 25 February. His main concern, she said, had been with East-West relations, but he was also anxious for an early settlement of the Budget issue. Schmidt had envisaged a summit at which other outstanding issues, particularly fisheries and sheepmeat, would also be settled. He was also very keen that the UK should join the ERM and she had asked the Treasury for a further study. Schmidt had also asked the UK to take the initiative in calling for reform of the CAP, an initiative that would hardly be welcomed by the French Government. Carrington observed that the French were trying to exploit remarks about withholding made by the PM during an interview on BBC Panorama. It was evident from a recent TV interview given by the French President that he was seeking to make an explicit link between the UK budget problem and the settlement of CAP prices, fisheries and sheepmeat. It was clear that the French and Germans were working together. French tactics were irritating but the Government should not over-react.78 Over-reaction was perhaps more in evidence when a small team of officials held talks with their opposite numbers in Paris in mid-March 1980. In the previous week, Michael Butler, the UK Permanent Representative in Brussels, had restated in COREPER the UK’s position, including the need for a solution to the Budget problem that would last as long as the problem itself persisted. According to French officials, this statement had set the UK on a collision course. There would be a crisis if Britain continued. France would not mind being isolated on an issue of principle. It would be a return to the time of the Soames Affair, when General de Gaulle had felt that Britain was not prepared to accept the Community rules but should be offered something different.79 That was how President Giscard saw it. The present British request was, on the face of it, a financial one but was in fact an attack on the system of own resources, on the CAP and on Community preference. Any French Government must carry the agricultural interest and this would be impossible if Community principles were attacked.80 Following that inauspicious meeting, Armstrong offered his advice to the Prime Minister. “I have been trying”, he wrote, “to take stock of the negotiating prospects and possibilities. This note tries to sum them up. I am afraid you will think it wet, and I have been on the point of not putting it in on that account. But I think I should. It is not addressed to the question what would be the best outcome from our point of view, but to the question what we are in reality likely to be able to negotiate.” Reflecting on the gap thus far between the position of the UK and that of her partners, Armstrong concluded that the best the UK could hope for would

168 The Tiger Unleashed: May 1979–May 1980 be a cut of two thirds in the net contribution (leaving it at £375 million). But this would be at the outer edge of what Britain’s partners would be likely to concede. More attainable would be a deal leaving the UK with a net contribution of about £465 million: the very lowest limit the UK could conceivably accept. Armstrong also pointed out that duration of the rebate was important but that there would be an inevitable trade-off between duration and the figure. Whatever the formula, the UK would want it to apply at least until 1984 and preferably until 1985. As to what would happen in the event of a breakdown, Armstrong had learned that the Leader of the Opposition, Jim Callaghan, had recently asked the Germans what their reaction would be to the UK withholding all or part of its contribution. He had been told that that would precipitate a deep and serious crisis. Armstrong’s own judgement was that withholding was more likely to harden attitudes against the UK rather than lead to an agreement. That in turn suggested to him that the Government would be in real danger of finding itself on a slippery slope that led irrevocably to withdrawal or virtual exclusion.81 Just ten days before the next EEC summit was due, Carrington reported to Cabinet that the expected size of the UK net contribution had risen compared with the estimates given at the Dublin meeting. The figure for the relief the UK might expect to get was inching up but the problem of duration and dynamism remained. The UK had therefore proposed a formula that in each subsequent year after 1980, British receipts per head from the Community budget should bear the same relationship to average Community receipts per head as in 1980. It would not be easy to get this accepted. Carrington recommended that the Government should be ready to make a limited concession on agricultural prices if this would help seal a deal. Similarly, on sheepmeat, the Government should be ready to accept limited intervention (which the UK objected to on grounds of cost) and to agree to a Community financed sheep premium to satisfy the French, so long as the permanent regime gave the UK a net resource benefit. Equally, if it would help to secure a settlement, the PM might make a purely personal statement about UK energy policies, as a gesture of reassurance involving no substantive concessions. Carrington concluded that only those present at the Council would be able to decide precisely what the situation required and he sought from Cabinet the necessary discretion for the Prime Minister and himself. Cabinet was ready to give this authority, though Ministers were divided over the issue of withholding, some arguing that it would be contrary to Community law and to the UK’s Treaty obligations. Actually to withhold (as opposed to threaten it) would be a weapon of last resort, and no decision to withhold should be taken without the fullest Cabinet consideration of its implications. The Prime Minister accepted this, but concluded that “given the course of events so far, and the insistence of other countries in linking to the problem other issues which would not be ripe for settlement soon, it seemed very unlikely that the problem would be settled” at the Council.82

The Tiger Unleashed: May 1979–May 1980 169 In the event, a crisis in the Italian Government, led to the summit (which the Italians, as Presidency, were to chair) being postponed until later in April. This postponement allowed more time for bilateral discussion but separate conversations between the Prime Minister and Giscard and Schmidt, while civil, made no substantive advance. At Cabinet on 24 April, Carrington reported that no real progress had been made at either the FAC or ECOFIN. The French Foreign Minister had made a number of unhelpful interventions and had circulated a tendentious draft about Community principles that the French Government wished to see endorsed. These predictable tactics had not endeared the French to their partners. Walker reported that, at a long session of the Agriculture Council, which had ended in the early hours of that morning, the French Agriculture Minister had tried (without success) to put pressure on his colleagues to reach agreement on agricultural prices in advance of the European Council. He had made much play with a statement by President Giscard that there would be little prospect of progress on the UK’s budgetary problem if the Agriculture Ministers failed to agree. In the end, the Council had agreed to a document for the European Council recording the different positions, though the French were now disputing it. The Prime Minister concluded that it seemed likely that the European Council would be difficult. No real progress had been made on an acceptable level for the UK’s net contribution in 1980; nor on an adequate duration or the possibility of adjusting amounts in future years so as to prevent the problem recurring. But, as compared with the situation before the Dublin meeting, the Government had more cards in its hands through its ability to block progress on agricultural prices, sheepmeat and the 1980 Community budget. She would use these weapons in negotiation.83 The European Council on 27/28 April did indeed end in acrimonious failure. Jenkins thought the offer that had been put on the table by the Eight, at the initiative of Schmidt, had been a good one and he had sought to persuade Thatcher to accept it. He evidently believed that Carrington shared his view, but maybe Carrington already knew what Jenkins soon discovered, when Thatcher told him “good-temperedly but firmly, ‘Don’t try persuading me; you know I find persuasion very counterproductive’.”84 On her return to London, the Prime Minister gave Cabinet her account of what had transpired. The background to negotiation on the budget (which was not discussed until the second day) had, she reported, been unfavourable. A meeting of the Agriculture Council, in parallel with the Summit, had reached agreement among the other eight Governments (i.e. not including the British) on proposals to increase agricultural prices by an average of 5%, with increases of 4% on milk and sugar. These proposals would increase agricultural spending by 1,000 mua and would thus raise still further the proportion of the Community Budget devoted to agriculture. The other Member States had also been ready to agree on a common organisation of

170 The Tiger Unleashed: May 1979–May 1980 the market for sheepmeat that involved intervention and the use of export rebates which would have disrupted the New Zealand markets and produced differential prices in favour of French producers. It had been against that background that there had been a protracted negotiation on the budget. The UK had eventually been offered a limitation of her net contribution to about £325 million, but only for 1980. In a subsequent proposal, the UK net contribution in 1981 would have been limited to about £550 million. She had felt that this latter figure was too high and that she could not settle for an arrangement that would cover only one further year. An alternative proposal which would have given the UK a refund of 1,000 mua for the first three years and 800 mua for the following two years was not acceptable because it did not provide adequate relief. Carrington said that the European Council had been a missed opportunity (whether because of the Prime Minister or others he wisely did not stipulate, but his unhappiness would have been plain enough). Schmidt had told him that in proposing a reduction in the UK net contribution to £325 million he had offered double the authority he had had from his Cabinet and that, if his offer had been accepted by the UK, he might have been faced with the resignation of his Finance Minister. Others, according to Carrington, were feeling sour and upset. He did not think that the prospect of resuming negotiations on the same basis were very bright. He would, however, be putting suggestions to the PM as to how to proceed.85 Carrington’s promised advice was that the UK’s leverage on agricultural prices might be a wasting asset: the longer the UK blockage continued the greater the pressures on Britain’s partners to look for means of implementing the agricultural package without the UK. So the UK needed to be proactive. Carrington set out a number of budgetary objectives involving variants of amount and duration. In the event of success, the UK would have to accept the Agriculture Council package and agree to limited seasonal intervention for sheepmeat. A discussion between the PM and Carrington had been arranged but Thatcher minuted: “I am so horrified with the approach that I think it would be better if we didn’t have the meeting. I feel as if the FCO is going to cancel out all my own efforts.”86 The meeting did, however, take place and the account sent to the FCO by Thatcher’s Foreign Affairs Private Secretary, Michael Alexander, suggests that some calm had been restored. It had been agreed that: Carrington’s attempt to reach an agreement should continue; that, if possible, an agreement should be reached before the June meeting of the European Council; that an improvement in the overall package offered at Luxembourg would need to be obtained. The Prime Minister’s view was that the figure of 538 mua proposed in Luxembourg for the UK net contribution for 1980 was acceptable; that it provided a suitable base line for the contribution in subsequent years; but that any agreement would have to be for a period of at least three years, subject to review at the end of that time.

The Tiger Unleashed: May 1979–May 1980 171 It was also agreed that the UK would not seek to reopen the terms of the Agriculture package agreed by the other Member States, though the UK reserve on it should be maintained, that Walker should make it plain that the UK was ready to invoke the Luxembourg Compromise to prevent its implementation despite Britain, and that “very serious consequences” would follow any attempt to frustrate the invocation of the Luxembourg Compromise.87 In Paris, French Press reaction to the failure at Luxembourg had been predictable with headlines such as “Cyclone Maggie Ravages Europe”; “Mrs No”; “Margaret Thatcher makes the European Summit Fail”. In the absence of British assent to the agricultural package, the French Government were coming under pressure from farmers to introduce national support measures, in the belief that, though these would be illegal under Community law, the European Commission might well turn a blind eye.88 In Bonn, the mood was more restrained but equally determined. At the Chancellery, the British Ambassador was informed that the offer made by Schmidt in Luxembourg was now formally withdrawn. Schmidt had in fact withdrawn it at the Council when it had not been accepted, but the German Cabinet had now instructed him to withdraw it formally. Schmidt’s offer had, Oliver Wright was told, led to a very heated exchange between the Chancellor and the German Finance Minister. Indeed, the official to whom Wright spoke said that he had never before heard such language in the German Cabinet. In addition, Wright was told that the Chancellor was determined that this matter should not go to the European Council again for negotiation and solution. Neither Schmidt nor Giscard was prepared to subject themselves to another negotiation of the Luxembourg and Dublin varieties. In the German view, an opportunity had been missed. Schmidt had made a very generous offer, but it had been refused.89 Commenting to London on this exchange, Wright said that Schmidt had engaged his personal prestige and had failed. However, it was clear that the Germans needed an agricultural price settlement just as much as the French did, so a trade-off with Bonn could be in the making. It would, of course, have to be put together outside the European Council because Schmidt would face accusations of paying twice over—once for the British, and again for French farmers.90 When Schmidt and Thatcher met in early May 1980 in the margin of Marshal Tito’s funeral in Belgrade, the Chancellor was still not in a mood for further compromise. He saw little prospect of resolving the budget problem. As it was, he had been on the brink of losing his Finance Minister. He would not repeat the offer he had made in Luxembourg. The Prime Minister could not rely on getting a solution from him. The Prime Minister would have to be willing to compromise. The PM said that she was not yet ready to do so. However, when Schmidt asked whether he was to assume that the PM also wished to reject the agricultural price package, Thatcher replied that she might have to accept a 5% increase in agricultural prices. She might even have to accept, in the end, a 4% increase in milk and sugar prices. But all such price rises were ridiculous. Schmidt agreed. But sometimes ridiculous things had to be done because one’s friends required one to do so.91

172 The Tiger Unleashed: May 1979–May 1980 On 21 May, Carrington wrote to Thatcher to urge the need for progress. The irritation of Schmidt and Giscard had poisoned the atmosphere and impeded progress at a lower level. At the same time, their own proclaimed refusal to negotiate further at the next European Council in Venice made the prospects of a solution there dubious, to put it mildly. Finance Ministers of the Eight were causing trouble within their own Governments because of their realisation of the extent of the concessions extracted by the British at Luxembourg. This had bred a strong feeling that any further concessions on duration would have to be balanced by smaller refunds to the UK in 1980 and, above all, that any further concessions to the UK could only be made in the context of a decisive negotiating meeting, so that the UK could not refuse them and then carry on negotiating from there.92 Carrington subsequently painted the same picture for Cabinet, where it was agreed that he should use the FAC to try to reach a settlement before the Venice European Council.93 Carrington and Gilmour represented the UK at a mammoth, eighteen-hour meeting of the FAC, ending in the early hours of 30 May. It had, Carrington reported by telegram to the PM, been “tedious and laborious”. The main negotiation had been between the British and the Germans, with the French being dragged along unwillingly behind the Germans. “As you will see”, Carrington wrote, “we have now got a three-year solution with figures for 1980 which are higher than we would have hoped and, for 1981, within our target area and better than was on offer at Luxembourg. For 1982, it has, as expected, not been possible to get a precise figure but the formula is, I believe, a reasonable one . . . The mixture of a lump sum repayment and a risk sharing formula sets clear limitations on our net contribution. “I am convinced that this is the limit of what we can negotiate and I do not believe we can wring any more worthwhile concessions out of our partners . . . They are at the limit of their scope for manoeuvre . . . I have not accepted the present outcome but have said that I must now discuss the whole situation with you and colleagues.”94 Carrington’s account was followed by a Cabinet Office memorandum which was faxed to Chequers, where the PM was holding a seminar on the Middle East. The memo gave details of the formulae which Franklin encapsulated in a brief for Thatcher for Cabinet two days later: “There are really two questions: are the (slightly complicated) proposals a significant improvement on what was on offer in Luxembourg? Do they bring us back to a tolerable financial position within the Community? Positive factors: Three-year arrangement, although third year not quantified; Better figures for 1981 and overall relief for 1980 and 1981 higher than on offer at Luxembourg; Mandate for restructuring the Budget within the 1% ceiling; Negative factors: A higher level of net contribution for 1980. Could be as high as 713 mua compared with 538 mua offered in Luxembourg;

The Tiger Unleashed: May 1979–May 1980 173 Not a fixed ceiling but a risk sharing arrangement restricting the rise in our net contribution.”95 This cool assessment belied the tempest of outrage which had greeted Carrington and Gilmour on their arrival at Chequers after an exhausting all-night session. In describing the reception accorded by the PM to the two men as “extremely frosty”, Jenkins, too, was accurate as to substance but not temperature.96 Ian Gilmour’s account, which is borne out by his Private Secretary, Michael Richardson, describes how the Prime Minister came to the door of Chequers to greet him and Carrington. “Had we been bailiffs arriving to take possession of the furniture, or even Ted Heath paying a social call in company with Jacques Delors, we would probably have been more cordially received”, Gilmour recalled. “The Prime Minister was like a firework whose fuse had already been lit; we could almost hear the sizzling.” There was then a series of “competitive resignations”. When Thatcher threatened to resign, Carrington replied: “No; we will.” At that point, according to Gilmour, they would have been very happy to do so. There was, in all, what Gilmour reckoned to have been between two and a half and three hours of “an interminable barrage of irrelevance” from the Prime Minister, during which time no food or drink was offered until Carrington asked for it. One of the officials present was Rachel Lomax from the Treasury. She was there, so Gilmour assumed “to ensure that the wet Foreign Office was seen off by the dry Thatcherites”. If so, it was a miscalculation, since Lomax was obviously clearer on the facts than was the Prime Minister: “‘No, Prime Minister’”, she would say sweetly if a little wearily, ‘you have not got that quite right. The point is . . .’, and then she would go on to deliver a comprehensive rebuttal. Or, ‘No, Prime Minister’, she would say patiently, ‘I think you must be looking at the wrong page. If you look at page 297, you will see . . . ’ It was beautifully done.” Gilmour’s conclusion from this episode was that Thatcher’s objection “was to the fact of the agreement, not to its terms. This was not because we had succeeded where she had failed. It was because, to her, the grievance was more valuable than its removal.”97 By the time Cabinet met on 2 June 1980, the Prime Minister was effectively caught between an outcome which the Press had been persuaded, by astute briefing by Carrington and Gilmour, was a triumph and the prospect of a Government crisis if she still rejected the deal and was faced with the resignation of Carrington, in which case triumph would swiftly have turned to disaster. Her own threat to resign had been a piece of theatre. Carrington being the man he was, could the PM assume that his threat too was purely demonstrative? Carrington told Cabinet that he and Gilmour were satisfied that what was now on offer was the maximum the UK could secure short of provoking a major crisis. Howe “spoke firmly in support of the deal”.98 So, with only one reservation, did all the other members of the Cabinet, arguing that refusal to accept what was on offer “would lead us into a new and dangerous situation whose

174 The Tiger Unleashed: May 1979–May 1980 consequences could not be foreseen but were likely to have profound implications at least for our membership of the Community and perhaps for the future of the Community itself”. The PM summed up that the proposals “though giving the UK less than would have been ideally desirable, brought about a marked improvement in the UK’s budgetary position, without damaging concessions elsewhere, and thus should be accepted. This decision should be conveyed immediately to the Italian Presidency and announced to Parliament that afternoon.” 99 Roy Jenkins’s verdict on the episode was that all the effort on the part of Colombo [the Italian Foreign Minister], Carrington, Gilmour and others, and all the strain on his own relations with his Commission colleagues, was made necessary only by a what he saw as Mrs Thatcher’s stubbornness. The new settlement, Jenkins concluded, “was only cosmetically different from that which Mrs Thatcher had turned down at Luxembourg”.100 The achievement of an outcome satisfactory to the UK was not, of course, the end of a saga that was to endure for a further four years. Britain undoubtedly had a strong case on grounds of equity. Her partners masked natural self-interest by invoking Community rules as if they were holy writ rather than what they were: a system which had been deliberately agreed in advance of the UK accession negotiations to maximise the advantage of the Six at the expense of the UK. The initial negative reaction of her partners was calculated to rouse Thatcher: their reluctance was quickly matched by her intransigence. Her style could have been more emollient, even while she remained firm on substance. But that was not in her nature. Her predecessors in office, Wilson and Callaghan, had settled for an interim agreement in 1975 of whose inadequacy they were warned by officials, and which had delivered nothing. She was undoubtedly right to insist on a solution that lasted as long as the problem, and her eventual success at Fontainebleau in 1984 enshrined that principle in an impregnable form which has endured to this day. This issue was already alive in the public domain when Thatcher came to power, but the scant attention it had received in the Conservative election manifesto suggests that it was not then a big public issue. That it became so was because what Fretwell called the “tiger unleashed” chose to rampage through the public media as well as the more private corridors of negotiation. By her confrontational public statements and by briefing the Press that Britain would, if necessary, provoke an existential crisis in the Community by withholding, Mrs Thatcher treated partners as opponents. She removed all prospect of an informal triumvirate with the leaders of France and Germany. At the same time, she began to turn the Conservative Party from the Party of Europe into the Party that fought for British interests against the rest of Europe.

Notes 1 PREM 19/41, TNA. 2 PREM 19/58, TNA.

The Tiger Unleashed: May 1979–May 1980 175 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

42 43 44 45 46 47 48

PREM 19/53, TNA. Ibid. PREM 19/41, TNA. PREM 19/53, TNA. PREM 19/58, TNA. CC (79) 1st Conclusions, 10 May 1979, CAB 128/66, TNA. PREM 19/58, TNA. PREM 19/58, TNA. Ibid. Ibid. CC (79) 2nd Conclusions, 17 May 1979, CAB 128/66, TNA. PREM 19/50, TNA. Jenkins, European Diary, pp. 449–50. PREM 19/55, TNA. PREM 19/233, TNA. Charles Moore, Margaret Thatcher: The Authorized Biography, Volume One: Not for Turning (London: Penguin Books, 2013), p. 444. Jenkins, European Diary, pp. 465–66. i.e. ‘the grocer’s daughter’; see Robin Renwick, A Journey with Margaret Thatcher: Foreign Policy under the Iron Lady (London: Biteback Publishing, 2013), pp. 94–5. PREM 19/53, 57, TNA. PREM 19/57, TNA. PREM 19/53, TNA. Ibid. PREM 19/53, TNA. It is not clear why, but she subsequently sent him copies (in Italian) of Morris West’s books: The Devil’s Advocate and The Shoes of the Fisherman. PREM 19/233, TNA. PREM 19/51, TNA. PREM 19/51, TNA. Ibid. Margaret Thatcher, The Downing Street Years (London: Harper Collins, 1993), p. 64. Jenkins, European Diary, p. 466. CC (79) 8th Conclusions, 5 July 1979, CAB 128/66, TNA. PREM 19/54, TNA. PREM 19/54, TNA. CC (79) 15th Conclusions, 13 September 1979, CAB 128/66, TNA. PREM 19/54, TNA. PREM 19/762, TNA. PREM 19/59, TNA. PREM 19/743, TNA. The Churchill Memorial lecture, delivered on 18 October 1979, in which the PM said: “I cannot play Sister Bountiful to the Community while my own electorate are being asked to forego improvements in the fields of health, education, welfare and the rest” (Moore, Margaret Thatcher, Vol. 1, p. 487). PREM 19/743, TNA. PREM 19/54, TNA. Jenkins, European Diary, pp. 511–12. Neither Thatcher nor Carrington denied this. PREM 19/55, TNA. PREM 19/55, TNA. Jenkins, European Diary, p. 520. Lord Carrington also complained privately that, when he and Butler were on an RAF HS 125 to Brussels on the evening before a

176 The Tiger Unleashed: May 1979–May 1980

49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

Monday meeting of the Council, Butler invariably slid into the seat next to him to bend his ear about the next day’s business before the plane had left the ground or a drink been poured. Interview with Sir John Fretwell for British Diplomatic Oral History Programme, Churchill College ‘God be praised’: PREM 19/469, TNA. PREM 19/133, TNA. Beesley, Official History of the Cabinet Secretaries, Chapter 5. PREM 19/52 and 133, TNA. CC (79) 19th Conclusions, 1 November 1979, CAB 128/66, TNA. PREM 19/55, TNA. PREM 19/55 and 743, TNA. CC (79) 22nd Conclusions, 22 November 1979, CAB 128/66, TNA. PREM 19/55, TNA. Author information. PREM 19/52 and 55, TNA. Jenkins, European Diary, p. 527. PREM 19/52, TNA. PREM 19/55, TNA. CC (79) 23rd Conclusions, 28 November 1979, CAB 128/66, TNA. PREM 19/52, TNA. Peter Carrington, Reflect on Things Past: The Memoirs of Lord Carrington (London: William Collins &Sons Co. Ltd, 1988), p. 319. Ian Gilmour, Dancing with Dogma: Britain under Thatcherism (London: Simon & Schuster Ltd, 1992), p. 288 Sir Michael Butler, Europe: More than a Continent (London: Heinemann, 1986), p. 96 Jenkins, European Diary, p. 531. PREM 19/52, TNA. CC (79) 24th Conclusions, 6 December 1979, CAB 128 /66, TNA. PREM 19/222, TNA. Ibid. PREM 19/222, TNA. PREM 19/230, TNA. PREM 19/223, TNA. PREM 19/223, TNA. CC (80) 8th Conclusions, 28 February 1980, CAB 128/67, TNA. See Wall, Official History, Vol. II, pp. 319–31. PREM 19/219, TNA. PREM 19/224, TNA. CC (80) 12th Conclusions, 20 March 1980, CAB 128/67, TNA. CC (80) 17th Conclusions, 24 April 1980, CAB 128/67, TNA. Jenkins, European Diary, p. 593. CC (80) 18th Conclusions, 1 May 1980, CAB 128/67, TNA. PREM 19/226, TNA. PREM 19/217, TNA. PREM 19/219, TNA. PREM 19/219, TNA. PREM 19/226, TNA. Ibid. PREM 19/217, TNA. CC (80) 20th Conclusions, 22 May 1980, CAB 128/67, TNA. PREM 19/226, TNA. Ibid.

The Tiger Unleashed: May 1979–May 1980 177 96 97 98 99 100

Jenkins, European Diary, p. 607. Gilmour, Dancing with Dogma, p. [insert p. no] Geoffrey Howe, Conflict of Loyalty (London: Macmillan, 1994), pp. 183–84. CC (80) 21st Conclusions, 2 June 1980, CAB 128/67, TNA. Jenkins, European Diary, p. 606.

6

Uneasy Truce: 1980–1981

The Venice European Council in June 1980 was, thanks to the settlement negotiated by Carrington and Gilmour, spared yet another row over the Budget. And an effort was made by the three principal protagonists to repair broken fences. When Thatcher and Schmidt met in the margins of the meeting, they agreed to work together to restructure Community spending, both leaders believing that there should be no question of breaching the 1% VAT ceiling. Thatcher, for her part, reminded Schmidt that, at the Luxembourg European Council, she had pointed out that it would not be fair to ask Germany to pay substantially more to the Community budget than she did already. Schmidt did not respond to this point, a fact that came to have greater significance over the ensuing months.1 The new-found tranquillity found its echo in the Prime Minister’s report to Cabinet on her return from Venice. The main outcome had been a communiqué on the Middle East, the text of which, in her view, represented a wellbalanced statement since it insisted that no final settlement would be possible without, on the one hand, recognition of Israel’s right to exist and, on the other hand, the right of the Palestinian people to determine their own future. Callaghan, in the House of Commons, had criticised the use of the term ‘selfdetermination’ but, in the Prime Minister’s view, it did not in fact necessarily imply the creation of a Palestinian state.2 Despite her conversation with Schmidt, the Prime Minister was in no hurry to begin bilateral discussions with either the Germans or the French until the Government had a clearer idea of their own strategy. As a contribution to her thinking, Carrington sent her a planning paper which he had commissioned and which, he believed, Mrs Thatcher would find useful as a basis for further thought. In this pious hope, Carrington was somewhat far off the mark. The Prime Minister found the paper “very flimsy and vague. It is a think piece with the thought left out. This is all procedure and no content.” She might, she threatened, have to set separate work in hand. Her judgement was harsh. The paper was strong on analysis and its recommendations were sound and reasonable. They simply did not accord with Thatcher’s view of the world.

Uneasy Truce: 1980–1981 179 The FCO thought that relationships between the four main Western allies, and particularly the transatlantic relationship, were more complex, scratchy and troublesome than usual. This reflected the relative decline of American power; the poor quality of American leadership; the strains arising from the energy crisis and world recession; the growing assertion by Germany of her political interests; the continued ostentatious independence of France; the deepening and increasingly exclusive relationship between France and Germany; and the problems of the EEC itself, to which the recent budget agreement would bring only temporary respite. Together, the FCO argued, these factors had brought about an unprecedented decline in US-German relations. In the United States, there were suspicions that the Germans were set on a dangerous course of their own. Germany, as a divided and central European power would, the FCO believed, be more wholehearted in its pursuit of its national interests as the inhibitions of the post-war period receded. France meanwhile would be spiky and self-centred. Twenty years of investment in the Franco-German relationship, and the close rapport between Schmidt and Giscard, would continue to feed the two countries’ feeling that they and their policies were European in a way which left comparatively little space for the UK. After further analysis came the nub of the Foreign Office argument: “The bilateral Franco-German relationship has always left plenty of scope for practical cooperation with ourselves. But past British Governments have not felt the same overriding need for a close relationship with France and Germany that they have felt for each other . . . We have lost heart too readily, especially when confronted by particularly egregious examples of French irresponsibility or intransigence. We therefore need to develop our bilateral and trilateral relationship with the French and Germans more systematically and over a long time.” This would involve more, and more intimate, political exchanges; the development of defence relationships; work on cooperative, industrial and other projects and cooperation on European Community issues. The paper’s concluding recommendation was that the restructuring of the EEC’s policies was a necessary preliminary to the UK being able to play a full role in Europe in a way that satisfied Britain’s domestic opinion. For this, the Government would need to clarify its ideas about precisely what reforms the UK needed. Work was in hand. The French, in particular, would expect the UK to fight its corner as ruthlessly as they would themselves. But much would also depend on the UK’s ability to convince the French and Germans that her demands were reasonable and not incompatible with their interests and those of the Community as a whole.3 To this last proposition Thatcher wrote a pronounced “No” in the margins. In doing so, she illustrated a profound difference between her approach and that of the Foreign Office. Her view of the European Community was that it was valuable because it strengthened democracy in Europe and provided a vehicle for useful cooperation. But the notion of a future political union was not one she shared and the notion of compromise on what she saw as British interests was wholly alien.

180 Uneasy Truce: 1980–1981 The Prime Minister had stipulated that her comments on the FCO paper were not to be relayed elsewhere in Whitehall, but Robert Armstrong’s minute to her of 14 August reads as if he, at least, had been made aware of her views. In Armstrong’s opinion, the FCO’s “no radical change” view needed to be tested, and the FCO’s advice was too broadly aimed to be much help as a guide to policy making. He nonetheless agreed that the key issue was what to do about the development of the Franco-German axis. The UK, he advised, should try to achieve a position in which the French and German Governments consulted and did business with the UK as freely and comprehensively as they did between themselves. A very firm Ministerial lead would be needed if a serious attempt to achieve that was to be made. Lack of enthusiasm at official level would have to be overcome. Some in Whitehall believed that the UK could never hope to match Franco-German intimacy. Many felt that the UK was in some ways superior (victor in WWII; special partner of the US; member of the Commonwealth); inferior in others (wealth, industrial discipline); and in others just different in terms of recent history: maritime rather than continental; Protestant-dominated, rather than Catholic; English speaking; electorally ambivalent about the value of European unity. Things could be changed, Armstrong argued, if the British Government were able to convince the Germans and French that it was in future prepared to make the relationship with the two of them a cornerstone of UK foreign policy. Of course, the Anglo-French relationship was a long-lived love-hate relationship, with the French having a talent for the petty snub. But there was also awareness of inescapable mutual need and of mutual self-respect. Armstrong thought that the FCO would be nervous about pursuing links with France and Germany at the expense of the Community as a whole and its “lesser members”. But, in his view, if the UK succeeded in setting up an inner directorate of three, that in practice was how the Community would be run. The FCO would also, Armstrong claimed, be jumpy about the effect of such a policy shift on Anglo-American relations, as would the Treasury and the Ministry of Defence. But if a European trilateral directorate was established, it would be with that directorate that the Americans would conduct the major business of the alliance, and they would be content to do so. In any event, the special relationship between the UK and the US was a diminishing asset as the WWII generation retired from public life. The younger generation would see no difference in kind between the relationship of the US with the UK and the relationship with other European allies. On this last point, Thatcher wrote “Disagree”, her only written observation. Armstrong had undoubtedly attributed to the FCO various views which, he knew, would arouse the PM’s anti-FCO sentiments the better to get her to accept his central thesis, which was essentially no different from that set out in the FCO paper. Subsequent developments were to show that the thinking that he expressed had some impact on the Prime Minister, but the impact was also to prove limited in both scope and duration, not least because of the

Uneasy Truce: 1980–1981 181 importance to Thatcher of the transatlantic relationship and her success in establishing a close link with President Reagan.4 It is likely that Reg Hibbert, Britain’s Ambassador in Paris, had seen the FCO paper. In any event, when he called on the Secretary General of the Elysée on 8 September, Hibbert invited Wahl to comment on the suggestions that had been made in recent months that Europe was going to be led by a Franco-German combination, and to say where he thought Britain was supposed to fit into this. Wahl’s response was that Giscard and Schmidt regarded themselves as having offered Britain participation in a triumvirate but as having received no response from the British side. Hibbert questioned whether the offer had ever been clearly made. Wahl replied that he thought he could say that the French and German Governments saw themselves as getting together to do an important job and the door was certainly open for Britain to join if she wished. He indicated that by “joining” he meant arriving at an understanding with France and Germany about the conduct of European and world matters in the larger sense. Once that was done, he claimed, solutions for Community problems and help for Britain would be arranged more easily.5 Mrs Thatcher had been sufficiently influenced by the advice of the FCO and Armstrong that, on the eve of the Anglo-French summit, in an interview with the French weekly TV current affairs programme, ‘L’Evènement’, she said: “It is quite true that there have been one or two problems, but they are small compared with our common interest. I think we are fortunate too in that we both have close relationships with Germany. These are the three larger nations of Europe and, as Europe becomes enlarged, and I believe it will, it is very important that all of the free democracies hold together in a free, democratic Europe. I think more and more there will be a tendency for closer relationships between Germany, France and Great Britain.”6 On the eve of the Summit, which was within six months of the next French Presidential election, Hibbert gave an optimistic assessment of Giscard’s prospects. The President, with a powerful asset in Raymond Barre, his Prime Minister, was riding fairly high. The union of the Left, combining Socialist and Communist Parties, was in a state of confusion. So were the Gaullists whose vote would, in the first round, be split between two candidates, Jacques Chirac, the Party leader, and Michel Debré, the former Foreign Minister and Prime Minister, who would attract the votes of Gaullists who disliked Chirac.7 The Summit itself was notable less for its content than for the speech Mrs Thatcher made in Bordeaux on 19 September 1980. Giscard had absented himself, on the grounds of avoiding electoral controversy, and Thatcher’s fellow speaker was Barre. The occasion was a meeting of the Franco-British Council which had been set up, and financed by, the two Governments at the time of UK accession. The speech was the most pro-European of Thatcher’s time in office. The Prime Minster was, she said, the first British Prime Minister to speak in that capacity in Bordeaux. No other city in France—except the tragic cities in Artois and Picardy where a generation of British youth had died in the defence

182 Uneasy Truce: 1980–1981 of a common cause—so vividly symbolised the thousand-year-old links between France and Britain. French influences, she continued, had so penetrated English life that they now formed an indissoluble part of British culture. There had been past rivalries, but now it was common interests that needed to be emphasised. In a world of super-powers and super-weapons, where resources were under pressure and democratic systems were threatened, it was no longer possible for even the greatest European nation to stand wholly on its own. That was why France and Britain, and the other present and future members of the European Community, had resolved, in the words of the Treaty of Rome, to pool their resources to preserve and strengthen liberty, and to ensure the economic and social progress of their countries by common action. Speaking within a few miles of the birthplace of Jean Monnet, she could say that the European Community was perhaps the most original practical political concept to be brought forth by the European genius since the American and French revolutions. Reforms were needed, not least of the CAP, but new initiatives were needed as well. Policies were needed outside agriculture. Europe needed a sound economic base if it was to resume its rightful place as the master of its own destiny and an arbiter of world affairs. The full development of that strength would require the nations of Europe to develop wise, coherent and mutually beneficial policies. This in turn would require understanding and forbearance. In this, the role of France and Britain in the European enterprise was vital: “Our differences must not—and I am determined that they will not—be allowed to obscure the longer term benefits and the external dangers. As my name implies, I am more interested in construction than demolition. I want to build a solid and weatherproof structure well able to resist the storms which lie ahead. The outside world is under no illusions about what has been achieved already. Europe’s importance is growing. We are the largest trading bloc in the world. We have agreements with countries in every continent . . . We are playing a leading role in the conduct of relations between East and West; in the search for a solution in the Middle East; and in the negotiations between the developed and developing countries. Within the Community, we sometimes lament that Europe has no foreign policy. Those outside find that lament difficult to understand.” Mrs Thatcher then touched on a theme that was to find an echo in a speech she made in Bruges eight years later: “So far, I have spoken of Europe and the Community as if the terms were interchangeable. They are not. There are nine countries in the Community. But thirty-three European countries will be attending the Conference on Security and Cooperation in Madrid. These countries, too, have shared in the European experience for centuries past . . . The tragic division of Europe will not be short lived. Of course its effects can be mitigated. We can and should promote trade, political, cultural and human contacts between the two halves of what should be one continent.” The Prime Minister went on to advocate closer collaboration between France and Britain in defence and civil industry, before concluding: “The tasks Europe faces today are as great as any that have confronted our continent

Uneasy Truce: 1980–1981 183 in its long history. We politicians do what we can to solve them, and to mould the forces of history along the lines we believe will most benefit the people we represent. In the past, we have mainly worked within our nations, seeking to guide and to win the support of our peoples . . . That support remains the basis of all political achievement. But, today we know that national institutions are no longer sufficient on their own; and we have set ourselves to construct other institutions which will bring our nations together for our mutual benefit.”8 Raymond Barre’s response was notably ungracious. On the theme of ‘Britain is an island and France belongs to the continent’, Barre re-ran most of the arguments that had been advanced by de Gaulle in the 1960s, but with added emphasis on Franco-German reconciliation and leadership and vaunting France as the champion of “the Community accomplishment”, with the strong implication that that accomplishment was under attack from the UK. Le Monde journalist André Fontaine, who was present for both speeches, wrote in his newspaper that Mrs Thatcher’s speech had shown her capable of lyricism and humour. whilst Barre’s, which had the effect of a cold shower, had reminded him of Begin’s reply to Sadat in Jerusalem.9 Elsewhere, Le Monde contrasted Mrs Thatcher’s ‘campaign of cordiality’ with Giscard’s ‘reserved courtesy’. While other headlines were more enthusiastic, French worries about the warm relationship between London and Washington were also raised. Le Figaro’s front page carried a cartoon of Giscard reading from an English grammar: “the pen of my détente . . . “, which was taken up by Mrs Thatcher, carrying a picture of Uncle Sam,” . . . is lighter than the weight of my uncle”.10 The theme of the cartoon was taken up more seriously in a conversation between Armstrong and the Secretary General of the Elysée, Jacques Wahl, in which the latter said that Giscard felt that his offer of a close relationship with Britain had not been taken up. The French Government felt that the British Government was inclined to be too starkly pro-American and anti-Soviet, and to follow the sometimes inconsistent and inconstant vagaries of American policy making too closely. Even when the British consulted France and Germany, it sometimes seemed as if the object was not to define a European position but to bring pressure or influence to bear. The French and Germans, by contrast, saw a need, imposed by history and geography, for Europe to define its own position.11 Despite the continued unease in the relationship, the Prime Minister reported to Cabinet that there had been a clear intention on both sides to improve relations. The aim appeared to have been achieved: since the meeting, progress had been made on a number of Community issues previously blocked by the French, notably on the CFP and sheep meat.12 Armstrong followed up by proposing to the Prime Minister that, with a lead from the top, the willingness of the French to work more closely with the UK could be advanced. Armstrong’s specific suggestions were, however, largely procedural and there is no evidence of the Prime Minister showing interest in them. Indeed, a manuscript No 10 note on the file records: “There is no chance of finding the top copies of the attached [minute from Armstrong]. PM

184 Uneasy Truce: 1980–1981 is prepared to accept that she may have thrown them on the fire at Chequers.”13 An indication of Mrs Thatcher’s view at the time was given in an interview with German television on 12 November. The interviewer reminded her that, 40 years ago that week, German bombers had raided Coventry. As a teenager at the time, were these early experiences still in the back of her mind when she went to Germany now, as Prime Minister? No, they were not, she replied. The lesson she drew was that to keep the peace, you had to stay strong. The UK was totally dedicated to keeping the peace in Europe and she thought it inconceivable that the nations of western Europe would ever quarrel with one another again in such a way that it led to war. The UK’s future was inextricably bound up with the Common Market. The greater part of Britain’s trade was now oriented towards Europe. Most of Britain’s political cooperation was bound up with Europe. Withdrawal would “just be so damaging to jobs and employment here”. Asked about recent public opinion polls, which seemed to indicate that the majority of the British people supported leaving the European Community, Thatcher replied that those polls reflected the unresolved problems associated with Britain’s hitherto unfair Budget deal. Since then, the Budget question had been sorted out and most of the problems between the UK and France had also been sorted. As the problems were sorted, so public opinion would turn. Asked about the possibility of Britain joining the ERM, the PM replied: “At the moment, I don’t think it would be quite right. We are a petro currency . . . We never quite know whether it is going to go up or come down. There is another factor. We have not yet got the money supply under as strict control as we would wish . . . Until we have done that, we really shall not be able to think of joining.” Asked for her view on the newly elected US President, Ronald Reagan, Mrs Thatcher replied: “He is very determined, he is very straightforward, he is very sensible . . . He is very confident and I think he will be prepared to give the lead.”14 Both Giscard and Schmidt appeared to share the Prime Minister’s view. “Second thoughts here about Reagan”, wrote Oliver Wright from Bonn, “are an improvement on the first thoughts. Schmidt wants if at all possible to avoid a repetition of what happened at the start of the Carter Administration, when new policies were promulgated in all directions without prior consultation with America’s allies.”15 This view was confirmed when Schmidt visited Washington in late November. He telephoned Thatcher on his return from Washington, where he had met the President-elect. As a result, he was looking forward with confidence to cooperation with the new Government. Thatcher replied: “Very much so. I think it will be much better. I think it will be much firmer and I think it will be much more widely discussed. I have known Governor Reagan for quite some time and I don’t think he got a fair deal from the Press in this country . . . and not from the Press in Europe. And I’m really quite optimistic, because I think they’ll take a hold of things and I think it will be the end of uncertainty. And

Uneasy Truce: 1980–1981 185 the fact is that no Government wants war. Every Government wants peace and the question is how do you best go about getting it. And he will be firm. I don’t think he’ll change his views. He’ll make a very cool, calculated assessment of the Russian position, but he’ll be the first to negotiate genuinely on reductions in armaments, as we all are. So, I am really quite optimistic.”16 French views were conveyed directly to the Prime Minister in a telephone call from the President. The prospect of a strong America taking a more responsible attitude in international affairs was one that was welcomed by France, Giscard said. The West had suffered from the uncertainties and fluctuations in American attitudes. The previous Administration had not been unreliable, but could hardly be said to have been very stable. On the other hand, there would be a temptation for some to react against the exercise of leadership by the US. What was needed was a strong partner, rather than a leader. Europe should be prepared to express its own point of view and, on occasion, to take initiatives and decisions. The Europeans should be dedicated to improving cooperation and developing their influence. He hoped that Britain’s reaction would be similar, since it was desirable to have a joint attitude to these problems, and that the PM would agree that this was a time in which European ties should be developed. This should not be on the basis if antagonism towards the US, but in the realisation that stronger European cooperation was good for the equilibrium of the relationship. The Prime Minister, who must have understood all too clearly the nature of the exam question that the President was putting to her, gave a characteristic response. She agreed: it would be necessary to prove to the US that the Europeans were playing a very full part in the defence of Europe and consequently of the free world. The worst thing would be to allow differences to develop between Europe and the US. Giscard agreed, though he thought there was little risk of that, except perhaps on the Middle East. Reagan had taken a very pro-Israeli stance and might find the process of readjustment embarrassing. The PM commented wryly on the temptations to which those fighting US Presidential elections were exposed. It was a mark of the warmer relationship between London and Paris that “the conversation ended, as it had begun, with a discussion of domestic political issues”—which, alas, the No 10 secretaries were too discreet to record.17 When Thatcher met Schmidt in Bonn in mid-November 1980, the German Chancellor commented that it had been clear from what Giscard had told him that the President and Prime Minster were now getting along much better both at the personal and Governmental level. Thatcher agreed with the assessment. The improvement had only been possible because of the lead that had been given from the top on both sides. Both she and the President had been determined that things should take a turn for the better. Her bilateral meeting with Giscard in September had been a very good one and, apart from issues over New Zealand butter imports, all the UK’s problems with the French had either been solved or were on their way to being solved. This was why she did not want to make difficulties for President Giscard before the French Presidential elections.18

186 Uneasy Truce: 1980–1981 When Thatcher called on the German President, Karl Carstens, the issue uppermost in both their minds was the situation in Poland, where the political protests of the trade union movement had led to a dangerous stand-off with the Communist Government. The one positive element in the situation, Carstens thought, was that the Communist Party, the free trade unions and the Catholic Church all wanted to avoid an intervention by the Soviet Union. Hence the compromise which had been worked out between the Government and trade unions. But the battle was not over since the Communist Party would try to regain the ground it had lost. The PM doubted whether the Polish Government could do much to reverse the situation. The changes in Poland had come from outside Government, unlike those in Czechoslovakia in 1968, and they were more profound and long lasting for that reason.19 But the Polish scene continued to darken. It was a major subject of discussion at the European Council at the beginning of December (where, for the first time, Thatcher, as she told Cabinet, “had pointed out the contrast between the free movement of goods within the Community and the lack of progress towards freer competition in services, where the UK had an advantage)”.20 Carrington told the same Cabinet meeting that the Polish situation remained uncertain and disquieting. The risk of a showdown between the Solidarity movement and the Polish Government was considerable, even though the Government were giving ground. Military moves by the Soviet Union had enhanced their capacity to intervene and the Polish Government might use their own army or, if that failed, invoke Soviet military help. If the Russians intervened militarily without being invited in, détente would clearly be at an end; the CSCE would collapse and the arms race would resume. In that race, the US would no doubt in the end have the advantage, but at great cost to all. There would be economic sanctions, but Cabinet agreed that ineffective sanctions would be disastrous. Britain would wish to support sanctions but should not become more exposed than her partners.21 At the turn of the year, Britain’s Ambassador in Paris reflected on AngloFrench relations in his Annual Review, then an obligation on all Britain’s Ambassadors. France had, he wrote, been a difficult neighbour in 1980. She had also been obsessed with the coming Presidential election, though the latter did not entirely explain the former. The “Bordeaux spirit” had not reached most of the French Government. Since the Anglo-French summit in Paris, and the colloquy in Bordeaux, in September, it had been common on both sides of the Channel to register with relief that Franco-British relation were more normal, and to identify a Bordeaux spirit that had mellowed mutual sentiments. But Hibbert detected no sign that this spirit had influenced the Elysée or the Matignon. It was sometimes invoked at the Quai d’Orsay, but usually as a means of urging Britain to keep up to some mark or other. Hibbert thought the odds were still on a victory for Giscard in the Presidential election but, if he was re-elected, he would start his second term a little diminished. His image had been tarnished by a series of scandals touching him and his Government and evoking some ill-tempered and authoritarian reflexes.

Uneasy Truce: 1980–1981 187 The policies to which Giscard was committed were decreasingly suited to France’s environment and no nearer to creating a centre majority than they had been at the start of Giscard’s Presidency seven years previously.22 Anglo-French détente was short-lived. At the first Cabinet meeting of 1981, a general hardening of French attitudes on European Community issues was noted from their opposition to the European Parliament over the Budget, to refusing agreement to a revised CFP (despite encouraging bilateral exchanges beforehand), to the announcement of massive, and arguably illegal, new aids to French farmers, which could add to the milk surplus and thus to the costs of the CAP. The French had also made clear that they would press for substantial increases in common support prices in the 1981 price fixing negotiations. The domestic requirements of President Giscard’s electoral campaign could lead to a growing divergence of view between the UK and France in the months ahead. The implications of an emerging confrontation might need to be considered in a Cabinet Committee. The Polish crisis was to loom large throughout the year. Cabinet heard from Gilmour that more strikes had taken place in Poland and the political situation remained very tense. Solidarity were demanding a five-day week. The tone of Soviet comment had once again sharpened. 23 In late January 1981, Sir Michael Palliser, Permanent Under Secretary at the FCO, visited Paris for talks with his French opposite number, Bruno de Leusse, the Secretary General at the Quai d’Orsay. Palliser, who had acted as interpreter at a number of Anglo-French summits and been number two to Christopher Soames in the Paris Embassy, spoke bilingual French. So that was the language of the discussion when, during the course of the talks, the French Foreign Minister, Jean François-Poncet, asked to see him. De Leusse outlined to the Minister the subjects which he and Palliser had been discussing (Africa, East-West relations, the Middle East etc.). The Foreign Minister commented tartly that the two men seemed to have been discussing everything except the one subject which might really affect Franco-British relations, namely Europe and the matters at issue between the two countries in the EEC. The Minister was, he said, in favour of the two Governments concerting views as effectively as possible. But the British should be under no illusion that this would effectively bring France and Britain closer together unless there was also greater agreement between them on matters such as the CAP and fisheries. The Budget agreement reached in May 1980, and the way in which it had been achieved, had been deeply resented in France; and the French Government was considered by French opinion to have conceded too much. They were still under vigorous criticism for this. It was, François-Poncet continued, now essential that there should be an early satisfactory settlement on fish in the run up to the agricultural price fixing. Reason and good sense must be shown in the CAP debate. It would be wholly unacceptable for prices to be held down unreasonably low while, at the same time, British farmers got a better price deal than anyone else because of Britain’s refusal to do anything about the level of her MCAs.

188 Uneasy Truce: 1980–1981 There was, Palliser recorded, a lot more in the same vein, including repetition of much of what the Minister had said already to Lord Carrington. He was clearly under instructions to convey a message to all and sundry and Palliser had been that day’s recipient. “I heard him out”, Palliser recorded, “but then replied that . . . whatever view might be taken in France of last year’s budgetary settlement, the fact was that British opinion at all levels had been outraged by what was seen as the inequity to Britain built into the budgetary system; and the fact that, on current policy, the CAP looked like absorbing between 70% and 80% of the total budget. Had there not been last year’s settlement, British indignation with the Community would have become unmanageable. Now, critical though the British were of the Community and its working, there was a good chance that they could be brought to realise the value of the Community to all its members.” Palliser asked the French Minister whether the French Government would prefer to get an agricultural price settlement before or after the Presidential election. François-Poncet replied without hesitation that it would be politically unacceptable for the settlement to be deferred until after the election. Otherwise, French opinion would assume that the Government was trimming and was prepared to make excessive compromises once the election was out of the way. The message, Palliser concluded, was very clear: agreement on the two or three key subjects within the Community was what really mattered so far as Anglo-French relations were concerned.24 If the CAP and the CFP were two of the tokens by which Anglo-French relations were to be judged, the omens did not look good. In mid-February 1981, Carrington warned the Prime Minister that the French had hardened their position on fishing access to British waters and might well have decided that they could not meet UK demands – which involved restriction on some fishing rights to which the French were entitled – at any rate until after the Presidential election. Nor was there a solution to the issue of New Zealand butter imports. The French were, Carrington believed, almost certainly planning to use this as a lever to secure UK agreement on agricultural prices. Meanwhile, the Germans were upset because the UK was blocking an EEC agreement with Canada on which their deep-sea fleet depended. The support that the UK had enjoyed from other Member States, so the Germans claimed, was starting to erode. The prospect, therefore, was of another bruising battle with the French. They would not want to concede on fish in the run-up to their elections. But, if nothing was agreed before then, Britain would be accused by her partners – however implausibly—of reneging on the 30 May budget settlement. This would be the worst possible curtain raiser to the budget restructuring negotiations. On top of all that, Britain would hold the EEC Presidency for the six months from 1 July 1981. Carrington proposed that he and the Agriculture Minister, Peter Walker, should discuss with the Chancellor of the Exchequer and the Prime Minister whether there was a way of avoiding all this happening, with its inevitable

Uneasy Truce: 1980–1981 189 effects on anti-European feeling in the UK. The suggestion would be to take a sounding of the Elysée at official level: “If we are to make an effort to be helpful over agricultural prices, we believe it reasonable to ask you to settle speedily on fisheries and NZ butter.” This, Carrington argued, would be a clear hint that the British Government might be willing to do a deal, but it would also be an implied threat. Care would have to be taken not to make any concessions without seeing the colour of French money. The French reaction might be to say ‘no deal’, or to put up impossible demands. If so, “we should have no option but to slog it out. We would, however, have put ourselves in a better position with the Germans and our other partners, by letting them know that we had at least made the offer.”25 When the four senior politicians met on 17 February 1981, Carrington argued that the effort to reach an understanding with the French should at least be made. If none of the outstanding issues was settled before June, they would spill over into the British Presidency. Anti-European feeling in the UK would be intensified. In response to Carrington’s argument that there was no prospect of settling the agricultural price fixing at a figure of less than a 10% price hike, Howe argued that, at a time when the Government was trying to get workers to accept wage increases in single figures, such a large increase for farmers would not be understood. But Walker argued that on no past occasion had the final figure been lower than the Commission’s proposal. They were proposing 8% or 9%, so all the precedents suggested that the final figure would be at least 10%. If the Government were driven to accept that figure as the result of a prolonged argument, it would be seen as a British defeat. Any price increase above 5% would have to be accompanied by a revaluation of the green pound so the possibility of revaluing the green pound would enable the Government to accept a price fixing at a higher level than would otherwise have been the case. The Prime Minister accepted the arguments. They were all agreed that the rises in agricultural prices would not be less than 8%. A figure of, say, 8%, accompanied by a revaluation of the green pound, would be tolerable. In speaking to the French, officials should mention no figures. The objective would be to establish, without commitment, whether the French were interested in looking at the problems of the CFP, New Zealand butter and the price fixing together and to see what kind of assurance might be obtained on fish and NZ butter.26 There was no similar sign of flexibility when the senior British Commissioner in Brussels, Christopher Tugendhat, called on the Prime Minister on 19 February. Tugendhat had kept his budget responsibilities in the new Commission which had taken office in January, now presided over by the former Luxembourg Prime Minister, Gaston Thorn. Tugendhat was a man of moderation and persuasion, qualities unlikely to appeal to the Prime Minister but calculated to arouse her not inconsiderable talent for bullying. She launched straight in. She would not be prepared to entertain any arguments about the British refund. If there was any question of

190 Uneasy Truce: 1980–1981 the refund being squeezed out she would simply withhold an appropriate sum. As regards the 1% VAT ceiling, she would stand firm with the Germans. The present arrangements were producing a situation which was as unacceptable to the Germans as to the UK. Tugendhat pointed out that it would be very difficult for the Commission if they had to try to find a solution to the British budgetary problem while opposing any increase in Own Resources. It would be untenable for him, as Budget Commissioner, to close off that option. Thatcher said that the option was closed. Tugendhat said that he accepted that that was her position. He was not asking her to resile from it. But he thought it would be wise not to take too strong a position against any increase in Own Resources. If HMG were too openly hostile, it would make it difficult to look at other ideas for resolving the problem. The PM repeated that she was not prepared to shift her position on the 1% ceiling. Nor was she prepared to give the appearance that her position had moved.27 Tugendhat will have added to Thatcher’s irritation by his subsequent speech in the UK (which he had mentioned to neither Thatcher nor Howe) advocating British membership of the ERM. Cabinet was told that the speech had contributed to weakening the pound on the exchange markets.28 Whether or not it was a consequence of the meeting which Michael Franklin (a skilful operator) held with his French opposite number following the Ministerial meeting of 17 February 1981, agreement was reached on New Zealand butter at the Agriculture Council a week later, enabling the Prime Minister to write to Giscard in emollient terms on the eve of her departure to Washington to meet the new President. Thatcher had earlier written to Giscard on the subject of fisheries and now confirmed that the British Government would do all it could to bring about an agreement at the 9 March Council meeting. “I am glad”, Thatcher continued, “that a compromise has been reached on access for NZ butter. I attach great importance to making decisive progress in the next few weeks on the other main outstanding issues of Community business: agricultural prices and fisheries. My representative, Mr Michael Franklin, has explained these views to the Secretary-General of the SGCI [the French EU coordinating body], M Pierre Achard. I am not suggesting that these issues be linked. Each must be resolved on its own merit. But I do see real advantage to us all, and to the Community as a whole, if these matters can be resolved speedily and without undue public dispute. Such a dispute would benefit neither of us in the long term.”29 In a telephone conversation with Schmidt at about the same time, and on the eve of her own visit to Washington, Thatcher said that, in talking to the new US Government, there was no question in her mind of being either proAmerican or anti-EEC or that a relationship with one in some way excluded a relationship with the other. Everyone had to stick together, both within the European Community and with the US. That was the only hope. Schmidt said that he had nothing to add to what the PM had said, or to criticise. He did, however, say that the difficulties over fish between the UK

Uneasy Truce: 1980–1981 191 and the FRG were causing very sour emotions in Germany. He personally did not understand why, for the sake of 1500 tonnes of cod, the British Government were preventing the Canadian agreement going through.30 Thatcher’s visit to the United States was a huge success and, in writing later to thank the British Ambassador, Nicko Henderson, she wrote, in her own hand: “There will never be a happier party than the one you gave at the Embassy—all due to you both. I have great confidence in the President. I believe he will do things he wants to do—and he won’t give up.”31 With President Giscard’s formal entry into the Presidential race in France in mid-March, the politics of agriculture and fish became even more sensitive. At the start of the campaign, opinion polls showed Giscard as likely to benefit from between 26% and 29% of first round voting intentions—ahead of the other candidates but at less than the 33% he had scored in the first round in 1974. Chirac, meanwhile, had seen his predicted first round support increase from 11% to 16%. On the left, the Socialist leader, Mitterrand, was well ahead of the Communist leader, Georges Marchais, with 25% of first round preferences for Mitterrand and 16% for Marchais. At a meeting with Mrs Thatcher on 20 March 1981, the former French Prime Minister, Jacques Chaban-Delmas, told her that Mitterrand did not have more than a one in five chance of securing a victory.32 The British Government still hoped to settle both fisheries and agriculture before the French election. But with New Zealand butter access secured, they stopped short of demanding a CFP agreement as the price of a CAP settlement. While it became increasingly clear that the French would make no concessions on fish before the election, the aggravation surrounding the issue was focussed more on Anglo-German than on Anglo-French relations. In a candid telegram from Bonn in mid-March, Wright warned that, as described to him by German officials, Schmidt had expected better from the British Government in return for the help he had given over the budget. The economic and employment significance to Germany of the UK blockage of the EEC-Canada fishing agreement was small. But the political fallout was disproportionate. The German deep water fleet was down to the bone and Schmidt was facing extraordinary pressure from northern interests in his own Party, and from the major trade union leaders, to do something. The minimum he could do, Wright advised, would be to put German bitterness on full record at the European Council on 25 March. Wright set this Anglo-German dispute against a background in which the Germans felt that their interests were being disregarded by their partners in a variety of fields. The Germans believed that the UK had fallen into a French trap. Wright concluded: “Schmidt and the SPD are already in quite serious trouble in the north generally, and in Hamburg and Bremen in particular. The fisheries complication is something of a last straw. What is seen here as unreasonable UK obstruction is tipping the balance for a harassed and irritable Chancellor as a critical moment.”33

192 Uneasy Truce: 1980–1981 The Prime Minister was not deaf to Schmidt’s concerns. But she too had political difficulties. Following a meeting of the Oversea and Defence committee, she reported to Cabinet that, if agreement on a revised CFP could not be resolved before the derogations in the UK Accession Treaty expired in December 1982, there was a risk that boats from other Member States could thereafter fish up to UK beaches. Attempts to reach agreement bilaterally with the French had twice foundered at the last minute, apparently on instructions from President Giscard. OD had accordingly agreed that she should probe the position in the margins of the following week’s European Council in Maastricht, with a view to using the forthcoming sequence of Agriculture and Fish Councils to best effect. Meanwhile, despite the difficulties it would cause for Schmidt, the UK could not lift its reserve on the proposed fisheries agreement between the EEC and Canada unless the Fish Council could agree marketing measures that would protect the UK fishing industry against imports of Canadian and other fish. In agreeing to this course, Cabinet noted that there was a real risk of the Government being defeated in the House of Commons on an eventual CFP package. The best defence against the risk, was to ensure, as Peter Walker had done thus far, that the Government carried the industry with them on whatever was finally agreed.34 When the PM reported on the European Council to Cabinet a week later, she said that it had emerged that Schmidt had not fully appreciated the degree to which the French had been responsible for the breakdown in negotiations on a revised CFP in December 1980. But any hope of discussion of fish taking place in a less acrimonious atmosphere had been lost when President Giscard had raised the temperature by criticising the UK’s refusal to lift its reserve on the Canadian agreement. He had been followed in like vein by Schmidt. Her suggestion of bringing forward the next Fisheries Council to 27 March 1981 had at least been accepted.35 As reported from Bonn, public indignation, stirred up by Schmidt’s spokesman, was running high. In addition, Schmidt’s officials were professing to believe that Thatcher had broken a promise to resolve the fish issue that she had allegedly given in a recent telephone conversation. Thatcher’s Private Secretary was at least able to assure his German opposite number that nothing in the No 10 transcripts supported the allegation, an assurance that the German appeared to accept.36 The Prime Minister’s suggestion of bringing forward the Fish Council to 27 March paid off. No agreement was reached but, according to Peter Walker, “the French were now firmly identified in the eyes both of his Ministerial colleagues and the Press as the guilty party. The contradiction between the negotiating posture of the French Fisheries Minister and Giscard’s public claim to want a solution had been apparent to all.” That the French Minister was acting under orders became clear when he told Walker that the French would not be able to get a settlement past their fishing industry until after the election and that, therefore, no deal could be

Uneasy Truce: 1980–1981 193 done before then. While the Germans were again critical of the British, the German Minister told Walker that the Federal Government now regarded the episode as over and were anxious to work with the British in future.37 If such was the case, the message had clearly not been heard or heeded by the German Chancellor. Reporting to the Bundestag on the Maastricht European Council, Schmidt told German Parliamentarians that he shared the bitterness of German fishermen. Britain had tried to use third country agreements as a lever to influence the German position on fisheries. He was deeply disappointed at the British position: gentlemen’s agreements had until then always been kept in the Community. For her part, the FRG had taken on enormous financial burdens for Europe: the German taxpayer had paid for relief of the net payment position of other countries. Schmidt, however, did not have the argument all his own way. For the CDU/CSU, Helmut Kohl warned sharply against a return of nationalistic attitudes towards Europe. The Government would find the Opposition on its side when it came to pressing forward with European integration. But he did not understand the Chancellor’s invective against the UK. “I often think”, he said, “that perhaps the conditions for negotiations with Britain could develop better if in London, Brussels or The Hague the impression did not arise during your excursions into Alsace that you inclined towards a quasi-German-French directorate.” A claim to leadership by Bonn and Paris would, Kohl said, at the end of the day work out to the disadvantage of the FRG. The settlement of the British budget problem had been necessary, but the fishery problem too must be solved. It was absurd that the German fishing industry, which was perfectly healthy, should be allowed to die off because of political ineptitude.38 When, on the same day, Walker reported to Cabinet on the Agriculture and Fisheries Councils, it was noted that the German Minister of Agriculture had done very little to support the UK in securing restrictions on the growth of agricultural expenditure. The price settlement (which had otherwise been satisfactory to the UK) had not contributed to restructuring the Community Budget and the Government would need to continue its efforts in that direction.39 In agreeing to an effective increase in agricultural prices of 8.9%, the British Government had been as helpful as it could to the French. There was little acknowledgement of this in the French Press, which expressed itself highly satisfied with the outcome, which it ascribed to the success of President Giscard and the Franco-German axis in overcoming the resistance expected from Britain. The price agreement was seen as a victory for France. Le Quotidien paid tribute to Germany for enabling France to win against the UK, thereby showing that the leadership of Europe was in double harness: Giscard and Schmidt, according to the paper, had reached agreement on the main elements of the settlement by telephone during the course of the meeting. “Reporting of the agricultural price fixing”, the British Embassy reported, “receives a flavour even more unpalatable to British tastes than other news items with a European theme. President Giscard’s interview published in Dernières Nouvelles d’Alsace of 3 April casts doubt on Britain’s willingness to

194 Uneasy Truce: 1980–1981 accept EEC rules. This is not a new theme . . . The timing of this interview, and the failure to give the British Government due credit for its part in the successful outcome of the Agriculture Council indicate that, for the time being at least, it suits Giscard to give the impression of having got Britain down and keeping her there”. As the Embassy pointed out in a separate report, the first round of the French Presidential election was only three weeks away. Giscard had stabilised his position in the opinion polls at around 28% but had not regained ground. Mitterrand had put up a credible performance. Reg Hibbert, the Ambassador, thought the result would be very close. Statistically, an accidental victory for Mitterrand was possible. Politically, a narrow one by Giscard was more likely: “It is reasonable to expect that Giscard will be returned for a second term and, in order to add flavour to this despatch, I am prepared to make that prediction.40 Election or not, the British Government, with Hibbert’s energetic support, were not disposed to leave Giscard’s remarks unanswered. In a debate in the House of Commons on 8 April 1981 Gilmour, in a scripted section of his opening speech, told the House: “Clearly, there is a need for confidence and cooperation between Member States over the coming year . . . things are often said during elections that should not be taken too seriously . . . politicians are not on oath during election campaigns. The allegation that Britain is not prepared to obey the rules of the Community is unfounded. Anyone who makes such a suggestion should specify which rules we have broken and which rules we are not prepared to observe. I hope that anyone trying to do so will at the same time list the rules that his country has broken in the past and list the rules that his country is breaking at the moment. The idea that it would have been better for the Community to remain a Community of six seems to me parochial and out of touch with history. President Pompidou surely showed the vision of a far-sighted and realistic statesman in agreeing with other founding members to enlarge the Community . . . It is perhaps worth noting that President Giscard d’Estaing, to name only the most eminent, was a prominent member of President Pompidou’s Cabinet. President Pompidou was able to see that a Community of nine or ten could work as harmoniously as one of six. After all, in the life of the enlarged Community, there has been no empty chair.”41 Just in case the message of British irritation had not got through, the Prime Minister addressed the same issue in a speech the same evening to the Diplomatic and Commonwealth Writers Association. “There has”, she said, “been . . . too much questioning of each other’s motives. Too much questioning of each other’s good faith . . . People in other member countries are no more entitled to query our commitment to the Community than we are to query theirs. The same rules and principles apply to them as apply to us. Our commitment is just as firm as theirs. But it’s no more blind or uncritical than theirs. We are no less determined than they to ensure that when Community policies are negotiated, our interests, like theirs, are properly served. On a number of issues—the structure of the Budget and the future development of agricultural policy in particular—the Community is at a crossroads. We need a joint effort to solve these fundamental

Uneasy Truce: 1980–1981 195 problems. It is now clear, for instance, that Britain and Germany were the only net contributors to the Community’s budget last year. The other seven countries were all, in greater or less degree, net beneficiaries. The same pattern is likely this year. It cannot be a healthy basis for long-term development. “I want to tackle these issues in a way which will result in a strengthened Community, with a budget system fair to all the partners. I want a Community in which each and every Member State will accept its responsibilities towards the others secure in the knowledge that its own interests will be respected. To work for a better balance of policies, a fairer share of the burdens and benefits, is not to undermine the Community. It is to rise to the challenge of membership.”42 In Bonn, a new British Ambassador, Sir Jock Taylor, had paid his first call on Schmidt. The meeting lasted over an hour, albeit interrupted by a number of phone calls. Taylor found Schmidt deeply gloomy and worried, especially about the Community, but also about the economic situation. He spoke about the unhappy climate between the British and German Governments. He had, Taylor found, been personally friendly but had clearly wanted to put over the seriousness of his disappointment over the FRG’s relations with the UK. Schmidt acknowledged that, beyond EEC business, bilateral relations between Britain and Germany were in good shape. He had, he said, been brought up as a friend of Britain and still liked Britain greatly. But when Taylor emphasised the commitment of the British Government to the Community and its development, Schmidt again became doubtful. He foresaw difficulties over the arrangements for the British budget contribution to the Community for the following year, adding that Germany was not a rubber band that could be indefinitely stretched. Taylor’s overall conclusion from the meeting was that Schmidt was still feeling miffed over fish and that this was reinforcing his latent doubts about British attitudes to Europe more generally. But, Taylor believed, “I do not think he has given us up”.43 Just a day later, in Bonn, Schmidt told John Nott, the visiting Defence Secretary, that Anglo-German bilateral relations were excellent but that their relations within the Community were appalling. Schmidt saw the forthcoming Anglo-German summit at Chequers as an opportunity to improve relations.44 The Summit was to take place just after the second round of the French Presidential election. In the first round, on 26 April 1981, Marchais and his Communist Party suffered a severe setback. Mitterrand’s position was strengthened. Chirac did well, imposing himself as the undisputed leader of the Gaullist movement. Giscard found himself with a fight on his hands. “There is still no reason why Giscard should lose the second round”, Reg Hibbert advised. But he added a caution: “It is a little early to be sure that he will master himself and the situation sufficiently to succeed in not losing it.”45 A week out from the second round of the French elections (the last date at which opinion poll results could be published under French law), Mitterrand had moved ahead, at 51.5%. There was, therefore, no public way of judging how successful the President was in his effort to rally the majority. The result

196 Uneasy Truce: 1980–1981 was clearly going to be close, but Hibbert thought the “omens for next Sunday to be still marginally in his favour”.46 Hibbert was of the same mind two days before the poll. It was not possible, he told London, to give more than a hunch about the result. The fear of disorderly change was balanced in France by the realisation that change might after all be possible without the Communist Party being able to exploit it ruinously. There were many in the French political establishment who were convinced that Mitterrand now had the edge. Giscard had “tumbled a long way” as the campaign had proceeded. Despite all that, Hibbert still expected Giscard to win, “because I doubt whether there is really readiness in France to face a time of troubles”.47 On the morning after the French election, the Prime Minister telephoned her Foreign Secretary, Peter Carrington. MT: PC: MT: PC: MT:

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“Peter, have you heard the French news?48 Yes, I have just been trying to get hold of the people in the FCO. It does raise all sorts of really quite far reaching consequences. Enormous, the first one being tomorrow [Schmidt’s visit to London]. The first one being tomorrow and presumably the apocalypse. What I mean is that Schmidt will be doubly apocalyptic. Yes, he will, but thank goodness he is coming. We might be able to cheer him up a bit . . . He has to keep close to us. Do you know if Mitterrand speaks English? If he doesn’t, Helmut can’t communicate with him.49 I don’t know whether he does. But it is more difficult than that because he is a friend of Brandt and therefore, as far as Helmut is concerned, he is dead. You know, all the nationalisation of the banks, insurance, ten of the biggest companies in France and all this sort of thing. It really does open up a fairly terrible prospect for Europe . . . But everybody really thought that Giscard was going to win. Well, I did . . . The only person who didn’t was Ian Gilmour. I now owe Ian £5 . . . 50 There is one thing, one thing only: the French people don’t like anyone governing for too long. That I think is probably what turned it, but I still thought ‘they won’t vote Socialist’. But I don’t think it is going to make our Community things more easy. He has got to prove himself more anti-British than Giscard. That’s right. As somebody said: he is just a stupid Giscard. I would not say that. No, I think that is probably quite right, but that is what they say. It is much too soon to say but it does create international and other problems for us . . . Well, I think there is an opportunity with the guy tomorrow [Schmidt] because, you know, there are few friends and we could be that. But, you see, Helmut will almost certainly have been on the phone to Valéry. I can’t. I would have thought that he would have got an assessment from Valéry.

Uneasy Truce: 1980–1981 197 PC:

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Yes, it will be interesting to hear but I asked Reg [Hibbert] last week to give me an assessment of what he would do if he [Mitterrand] won . . . It was rather a grumpy telegram from him saying ‘I have told you what I can already but, if you insist, I will tell you again’. I think it might be called a psychological election rather than a political one. I think they don’t like either of them and reluctantly they voted for Mitterrand as they were bored with the other one. I think it presents opportunities as well as difficulties. Yes, I think it does. I must say that I hope that the Berlin election will go the other way, that is to say towards the CDU. I think if it goes to the CDU, I don’t think there is a problem. I think that the problem is if it goes to the CDU without a clear majority. Then you get the Genscher trouble . . . Yes. Well, we are going to have a more interesting time [with Schmidt] than we thought. I can’t think what we would have talked about otherwise. No, we had all the briefs and they are all the same old stuff. Yes. I can hardly bear to read them . . . ”51

Mrs Thatcher’s reference to elections in Berlin was to those due there on 10 May 1981. Taylor had already given his view: few people in Germany believed that the governing coalition could survive beyond 1984, but few were predicting its imminent demise. The Berlin elections would be the next important political indicator. In a city where the SPD had ruled since the restoration of civilian Government after the war, the opinion polls were predicting that they would lose heavily.52 German views of the change of President in France were, in the event, far from apocalyptic. The German Government, like the British, had been taken by surprise by Mitterrand’s victory. But German experience of other changes of Government within the Community, so one of Schmidt’s top aides told the British Ambassador, was that the incoming Government’s desire for sweeping change had to be reconciled with the need to keep the Community apple cart firmly on the road. In the German view, Mitterrand and his team—Mauroy, Rocard, Cheysson etc.53—were good, Europe-minded people, but their experience of Government, where it existed, was 25 years old. On the whole, the Germans did not foresee difficulties over France’s attitude towards East-West relations, or in her basic commitment to the Community. The most serious difficulties, in German minds, looked like being in the field of economic policy, where Mitterrand’s Keynesian policy approach and apparent readiness to tolerate inflation were out of harmony with that of France’s partners in the European Community and the Economic Summit. This would complicate the harmonisation of economic policies within the Community, and could also have adverse consequences for the EMS. In the German view, Socialist Governments (of which the SPD evidently was not one), generally came to terms with

198 Uneasy Truce: 1980–1981 economic realities fairly quickly but, even so, a lot of damage could be done before they did. On the other hand, the Germans assumed that Mitterrand would want to engineer his total independence from the Communists. According to Taylor’s interlocutor, both Schmidt and Genscher were placing great emphasis on the fact that the unique importance of the FrancoGerman relationship rested on reasons of state that could not be affected by changes of personality. Schmidt had met Mitterrand four times and, as a result, claimed to know him reasonably well. On the face of it, however, Mitterrand did not seem the kind of person who would be likely to develop a close personal relationship with the Chancellor: he was, from all accounts, lacking in human warmth.54 Schmidt too, on return from visits to Washington and Paris, was relatively optimistic, telling Thatcher on the telephone that he had “come away from Washington with a very good feeling. He thought that the new American Administration would in future take European interests and necessities more into account.” As regards Mitterrand, Schmidt seemed confident that there would be a considerable degree of continuity in French policy. He had the impression that Mitterrand would be as difficult on agricultural policy as his predecessor. Beyond that, the new French Government had not got very far in elaborating detailed European policies. However, it was clear that Mitterrand intended to stay within the EMS and to defend the Franc. Schmidt foresaw no change in French policy towards the Alliance or the independent nuclear deterrent. Mitterrand had been “very, very clear” about the Soviet Union. There would be a stronger emphasis on friendly relations with Israel. However, Mitterrand was well aware of the need to improve his personal relations with the Arabs. Schmidt had, he told Thatcher, informed Mitterrand that the British Government, as much as the FRG, were looking forward to cooperating with him. The PM said that she hoped this message had been warmly received “because it was warmly meant”.55 For his part, Mitterrand, according to Hibbert, had “recently given little hint of his views about Britain. In last week’s television debate he did not rise to questions about British membership of the Community, and he is in favour of enlargement. There is no sign that he has thought very much about relations with the UK . . . Britain does not seem to have attracted a great deal of attention from him. But when he visited the UK in October 1977 as a guest of the Labour Party, he made a good and amiable impression on the Labour Ministers in power at the time.”56 Carrington told Cabinet, as the dust settled, that, under Mitterrand, France’s policy on East-West relations might even become more robust than under Giscard. The new French Government was likely to adopt a more sympathetic stance towards the developing world. This might, however, include not being prepared, as Giscard’s Administration had been, to join with the United States and Britain in vetoing any UN Security Council resolution on sanctions

Uneasy Truce: 1980–1981 199 against South Africa. Carrington did, however, think that Mitterrand’s election would cause problems for Schmidt, where the leftward drift of the SPD might increase and, with it, the shakiness of the German governing coalition.57 A fortnight later, Carrington held his first meeting with Claude Cheysson, the new French Foreign Minister and, so he wrote to the Prime Minister, found it encouraging. Cheysson had told Carrington that he did not consider the FrancoGerman relationship to be exclusive. There was no Paris-Bonn axis. He wanted to break with the antagonism that had often characterised Anglo-French relations. France and Britain had the same points of view on many questions: they were both nuclear powers and Permanent Members of the Security Council. Both had a global point of view. “This conversation”, Carrington concluded, “has reinforced my conviction that the change in Paris provides an opportunity to try to achieve a definite improvement in Anglo-French relations.”58 In the June elections to the French National Assembly, Mitterrand’s Socialist Party secured a landslide victory, giving them a substantial overall majority, comparable in Hibbert’s mind to the victory of the Labour Party of Clement Attlee in the immediate post-war election in the UK. Mitterrand could be expected to put in train a socialist programme, as Attlee had done. It would be at the point where the French Government came face to face with economic reality that the new catch-all Parti Socialiste would come under greatest strain.59 Hibbert did not buy into “the idea which seems to have gained some currency in both Britain and France (put about by sympathisers of the former regime) that Mitterrand’s Government will be an easier partner for the UK than Giscard’s was. I am not confident that this is the case.” In Hibbert’s view, France would continue to be a difficult partner, but difficult in a different way. Giscard’s France had been efficient, well-ordered and growing in strength, but it had carried national self-assertion to excess. Mitterrand’s France was not likely to have the same deliberate “edge” against Britain, but it would probably be a less orderly France, creating economic problems for itself and others, and less able to afford to be helpful even when it might be inclined to be so. Mitterrand had matured his own political attitude very much in solitude in the wilderness, and he was not going to be easily distracted from what he saw as the right policies for France. He was not a strident man. His style was deceptively quiet, but underneath lay a kernel of idealism, or at any rate romanticism, a powerful will and a remarkable tenacity of purpose. The Socialist Party had been built up by him and he was in every sense a self-made President. It was possible, Hibbert thought, that Mitterrand would develop a line which called on France’s partners to take their inspiration from him and his France, to give priority to the third world and to join the fight against unemployment, and for the extension of social justice and the defence of human rights. The corollary of this could be that those partners who found it difficult to follow down this road would be told that, if they could not move towards France, France would find it difficult to move towards them.60 Hibbert’s forecast was borne out by Mitterrand’s debut at the European Council in Luxembourg at the end of June 1981. The German Press was not

200 Uneasy Truce: 1980–1981 impressed, most newspapers observing that Mitterrand’s desire to give priority to the fight against unemployment, as opposed to inflation, ran counter to the previous European consensus. Die Welt noted that, on this score, Schmidt seemed to have more in common with Thatcher than with Mitterrand. Süddeutsche Zeitung commented that Mitterrand’s views scarcely left room for the economic stabilisation policies pursued by Schmidt and Giscard—and that, the paper feared, could have negative effects on the EMS.61 In the margins of the European Council, Thatcher and Mitterrand held their first meeting. In relating the meeting to Cabinet, the Prime Minister noted that the economic measures already taken by the new French Government would increase the deficit in France but still leave it as a lower proportion of GNP than in the UK. At the European Council, Mitterrand had secured no support for his economic policies except from the Danish Prime Minister. Her own meeting with Mitterrand had been friendly and useful, though she believed that, in his own way, Mitterrand would prove capable of being no easier to deal with than his predecessor: he could be stubborn. She had told him that the best way to get relations between Britain and the new French Administration off to a good start would be to settle the outstanding differences over sheep meat and fisheries.62 The most interesting aspect of this first meeting was the discussion of the Middle East. Mitterrand told Thatcher that he was more reserved than most of the Ten on the right way to criticise Israel. Naturally, he condemned Mr Begin’s actions, but it was becoming fashionable in Western Europe always to say that the Arabs were right. He approved of the Camp David agreements. He was thus taking a somewhat different line from the Venice Declaration. Thatcher said she believed the Venice Declaration had been a fair and equitable document. She had always argued that Israel could not demand peace and secure frontiers for herself while ignoring similar legitimate demands from the Palestinians. Mr Begin was a most difficult man to deal with because of his lack of reason or sense of fairness. She did not conceal that she hoped Peres would win the elections in Israel since he knew the Palestinian mind better and might be more willing to reach a permanent settlement. Mitterrand said that he had always thought he would have liked to meet an Old Testament prophet, but when he saw Mr Begin he realised how difficult they must have been to deal with. He fully supported Israel’s right to exist. But he had consistently said that he could not understand why Israeli leaders did not recognise the Palestinians’ right to a homeland where they could construct a state. To the Arabs, he had preached recognition of Israel’s right to exist. He thought the position had been evolving in Israel until Begin came to power.63 1 July 1981 saw the start of the British Presidency of the Council of Ministers, the second such Presidency since UK accession. In Germany, Die Zeit feared that attitudes to the EEC in Britain, as revealed by a recent Community-wide poll, were not a good omen. The paper saw UK objectives as being, not only to secure a rectification of her budget problems, but also advantages for her airlines and insurance companies. British egoism was plain

Uneasy Truce: 1980–1981 201 but it was clearly in Bonn’s interest to enable the UK to score as many successes as possible since Britain’s EEC membership was an important pillar of British co-responsibility for West Berlin and for NATO cohesion.64 The search for a lasting settlement of Britain’s budget problem was indeed high on the Government’s list of priorities. In early August, the Chancellor, Sir Geoffrey Howe, minuted to Thatcher that the 30 May 1980 settlement, negotiated by Carrington and Gilmour, had not introduced a fixed ceiling on the UK contribution. It had left the UK with a net contribution which was not completely predictable and which rose from year to year. Future rises could well be substantial if the agreement were simply rolled forward. Thus, while the agreement had been a significant step forward, it had left the UK more disadvantaged in relation to her GNP per head than any other member of the Community. Howe reminded Thatcher that, with the agreement of Cabinet colleagues, he had committed the Government publicly, in a speech in The Hague, to the argument that the Community should adopt a principle which was applied without controversy within nation states, namely that resources should flow from more to less prosperous regions, and not vice versa. These arguments were making some headway, but the issue remained a potentially very damaging one politically which would play into the hands of those in Britain who advocated withdrawal from the Community. Howe was convinced that the Government’s objective must be a process that would lead to the elimination of the UK’s net contribution at the earliest possible date. He had no illusions about the difficulties but the Government could not afford to set its sights any lower. Contrary to her earlier position (that the UK should remain a modest net contributor to the Budget), the Prime Minister agreed with her Chancellor, commenting in her own hand on his minute: “I agree with the Chancellor. We must fundamentally restructure the budget on the lines of his Hague speech and not play with the like of extending the 30 May formula as a permanent solution.”65 When Thatcher and Mitterrand met in Downing Street in September, the French President pointed out that the positions of the French and British Governments were, of course, different. The British Government wished to establish the principle of the juste retour, i.e. that member countries should be entitled to draw advantages from the Community in exactly the same proportion as the effort they contributed. In relation to the CAP, Britain contributed more than it got back. France was hostile to the principle of juste retour. To implement that principle would be to render the European Community a nullity. It implied that the Community should be regarded as a confederation within a free trade area. The British, of course, disliked indulging in broad political generalisations of the kind he had just made. But it was important to remember the distance that separated Britain and France on this concept. Britain wanted the juste retour to be a permanent feature of the Community. He could not accept this. The Prime Minister replied that she would never describe her policy as being to seek a juste retour, i.e. a situation in which member countries were getting out

202 Uneasy Truce: 1980–1981 precisely what they had put in. Her policy was to seek a situation where, when the balance sheet was drawn up, the total budgetary result should be seen to be a flow of resources from the richer members to the poorer members. Countries like Ireland, Greece and Italy must be seen to benefit from membership. But those countries which were, in per capita terms, among the richest, should not, as at present, be the beneficiaries. One had to achieve a final budgetary outcome where the better off were paying and the less well-off were receiving: a principle of equity. This was not happening at present. Germany was the biggest contributor, the UK was the second largest and France was contributing very little. Unless an equitable system could be achieved, conflicts would undoubtedly ensue. She wished to stress the importance that she attached to the Community. It had locked together countries who in the past had fought each other. Such hostilities must never happen again. The Community was playing a vital role in bringing much of Europe closer together. Mitterrand said that he had been glad to hear the PM’s words. Her remarks about juste retour had been a very useful corrective. He agreed that there had to be a better balance as between the various member countries. If the FRG felt that it was doing too much, and the UK felt that is was hard-done by, this must be examined. France was, of course, a larger producer of agricultural products than either the UK or the FRG. On the other hand, she did less well where industrial products were concerned. France prospered in those areas where the character of her workforce and the quality of her natural resources favoured her. On the other hand, she did not have the UK’s commercial genius. The PM said that, if things went on as they were, the Community would run up against a budgetary crisis. The CAP would produce ever greater surpluses and would take up ever more of the Community’s budgetary resources. At the same time, the FRG and the UK would stand firm on the 1% VAT ceiling. Mitterrand agreed that it was difficult to solve the problems of the Budget without tackling the CAP. Of course, famers had to be provided with a decent living. Of course, these problems could not be solved here and now. She and he were both politicians who knew what could and could not be done . . . Although on some questions his point of view and hers differed, her overall approach was just what he would have hoped for. He was ready for an allembracing discussion as soon as possible.66 Mrs Thatcher, so she told that week’s Cabinet, thought that the visit of Mitterrand and six of his Ministers had been a considerable success. Mitterrand had expressed his willingness to concentrate on trying to resolve the big problems facing the Community: budget restructuring, the CAP and the CFP. Mitterrand had praised the UK’s overseas aid performance, particularly in the share of aid to the poorest countries. He had shown interest in bilateral collaboration in the fields of technology and scientific research in which the UK was ahead of France. The two Ministers of Transport had set up a joint working party to look at eight schemes for a Channel link. A working party had been set up to consider Concorde and the French appeared keen to encourage contacts between RollsRoyce and the French aero engine manufacturers, SNECMA.67

Uneasy Truce: 1980–1981 203 The British Presidency was to mark the start of the second UK campaign to achieve a lasting settlement of the size of the UK financial contribution to the European Community budget, a campaign that was not to conclude for almost another three years. But, at the start of the campaign, in September 1981, the UK was in the chair of the Council of Ministers and had to proceed with correct caution. It was under Lord Carrington’s chairmanship that the Community Foreign Ministers held their first discussion of what was known as the May mandate, i.e. the mandate arising out of the partial settlement of the budget issue, which required the Community to reach agreement on the future budget arrangements, reform of the CAP and the development of new Community policies. Most Member States agreed with the UK in wanting all three sections of a first report from the Commission discussed in parallel. The French, with Danish and Irish support, argued that the budget should only be discussed after conclusions had been reached on the other two sections. With German support, Carrington was able to conclude from the chair that, while the size of any compensation could only be settled at the end, it was clear that the three main aspects of the report must be carried forward together. This difficult start, Carrington told Cabinet, made it all the more essential that the UK and Germany should stand firm and work closely together. Both countries were net payers and both were determined to see no breach in the 1% VAT ceiling.68 It was in part against this political background that the Government again considered the case for joining the ERM. In a discussion on 16 September, Howe promised Thatcher an early paper on the subject. But he did not want to rush into a decision. He still thought the economic arguments were marginally against joining, but he recognised the political arguments in favour. But joining could also prove unpopular domestically and would provide the trade unions with another stick with which to beat the Government. The PM said that she too did not want to be rushed into a decision: she would want to be convinced that there were positive arguments in favour of joining, rather than that there were no longer sufficiently strong arguments against for continuing to stay out. Howe’s paper, when it came a few days later, repeated his view that the case for joining was probably stronger than it had been a year previously, not least because of the deceleration of inflation and, more importantly, the much lower level of the exchange rate. The key point, however, was that ERM membership would not of itself provide an additional buttress to the Government’s anti-inflationary policies, the success of which would depend on policy action. Indeed, it might be harder to take necessary economic actions in what would be seen politically as a more European context. For the present, Howe pronounced himself as not yet convinced that the political benefits of joining, or the likely benefit to UK business from greater exchange rate stability and the possible strengthening of counter-inflation policy, outweighed the risks and disadvantages. Nigel Lawson, Financial Secretary to the Treasury until his move to the Department of Energy on

204 Uneasy Truce: 1980–1981 14 September 1981, was, Howe said, close to taking the opposite view. But Chief Secretary to the Treasury Leon Brittan—and his journalist brother, Sam—remained against a decision to enter.69 Mrs Thatcher’s economics adviser, Alan Walters, expressed his view in more forthright terms. Within the EMS, he argued in a minute for the PM, rates and adjustments of parities were determined by the most enormous argy-bargy. They were not subject to any of the normal rules that had applied, albeit in a haphazard way, under the Bretton Woods system. It was, he thought, not difficult to imagine a bargain being struck for turkeys (whose import the UK had banned on spurious health (but actually protectionist) grounds) against sterling. If the EMS showed signs of being a genuine central bank, depoliticised and running the European money supply with sensible rules for stability etc., then, Walters said, he would take a very different view. But the EMS is its existing form was riven with political bargaining and was simply an extension of the acrimonious debate that was pursued in Brussels. If the Government wanted to fix exchange rates, they could do so with almost as much efficacy as being in the EMS. If they did not, and joined the EMS and wanted to move the parity, there would be the most acrimonious debate and all sorts of bargaining from Britain’s partners. The Government would do best to let the exchange rate float more or less freely and concentrate on “putting our own house in order”.70 Less than ten days later, Walters was even more forthright, concluding his detailed reasoning: “If the EMS were a step on the road to a true central bank for Europe, which would have one currency and a unified fiscal monetary system, then one would have a very different view of the desirability of joining the EMS. I have assumed that this is not the case. I do not believe we shall ever achieve monetary and fiscal union in Europe. I do not think there is any chance of the emergence of a proper central bank, depoliticised and independent of Governments, running European monetary policy. “I remain convinced that the disadvantages of joining the EMS far outweigh the small advantages of joining. With its present constitution, heavily politicised, I doubt whether it will ever be a propitious time for us to join. At present, however, in view of the likely disparate policies to be followed by the Germans, on the one hand, and the French and Italians on the other, it seems a particularly bad time to envisage joining a club that seems likely to pull itself apart.”71 The Treasury meanwhile, building on Howe’s speech in The Hague, had come up with a new budget compensation scheme. It started, so Armstrong advised the PM, from the basis that the UK should make no net contribution to the EEC budget (though OD had recently gone even further from the Government’s earlier stance by deciding that, as the Chancellor had implied in his Hague speech, Britain should actually become a net beneficiary from the budget). The new scheme was designed to encompass benefits for Britain and Germany without penalising the poorer Member States. As compared with the UK’s previous approach, which implied adjusting the net contributions and benefits of all Member States according to the criteria of relative prosperity and population size) the new Treasury scheme applied only to net contributors. It

Uneasy Truce: 1980–1981 205 put less prosperous net contributors, i.e. the UK, at zero; limited the net contribution of more prosperous net contributors, i.e. Germany, and exempted the other less prosperous Member States from contributing to the UK’s refund. The advantages of the scheme, according to Armstrong, were that it should be attractive to Germany; should be more acceptable to Ireland and Italy since it left their net benefit untouched; and, by dropping the idea of a generalised Budget adjustment, might make it easier for countries such as the Benelux to accept, even though they would be the main net payers. The disadvantages of the scheme were that it clearly put the UK net contribution at zero (unless UK GDP were to rise above the Community average) and would therefore revive the argument that Britain wanted a juste retour. The smaller prosperous countries would still object to a limit on the German net contribution and it might be that the UK were offering the Germans more than their minimum political requirement. On balance, Armstrong thought the scheme worth trying out on the Germans. And there was always the Commission’s scheme as a potentially more negotiable scheme to fall back on.72 However, in briefing Mrs Thatcher for the November meeting of the European Council, officials reported that no progress had been made on budgetary matters. Even on the most optimistic assumptions of CAP reform, the UK would remain a substantial net contributor in the absence of a budget corrective mechanism. There had been no support for Howe’s approach. The Benelux Governments contended that any eventual compensation must be ad hoc, temporary and degressive. The Commission scheme, which would compensate the UK for a proportion of the difference between its share of Community GDP and the share of CAP receipts, had been supported only by Italy and Belgium. The Germans had, as expected, argued that their own net contribution should be limited and had invited the Commission to make proposals. It was clear that the Germans were not going to buy into the British approach but had not decided on an approach of their own. The Commission continued to believe that their own scheme provided the only basis on which agreement would prove possible.73 The uncertainty of the British approach was clear when Thatcher, Carrington and Howe met on 2 November 1981. Carrington said that, if Howe’s scheme was to be presented to the Germans, he hoped that any accompanying tables would not show Britain as having a zero contribution. To do so would leave the Government open to the accusation that they were seeking a juste retour. Moreover, if the Germans were going to have to pay, as they would under Howe’s scheme, they would certainly expect the UK to pay something. German support was necessary if the UK was going to get anywhere with other Community members. Howe disagreed. OD had established the British objective as being a zero contribution. It would be wrong to circulate anything that suggested that the UK was prepared to be a net contributor. The Prime Minister was clearly sceptical of Howe’s approach. She sympathised with his objectives, but the German contribution seemed very high.

206 Uneasy Truce: 1980–1981 Illustrative tables would have to be given to the Germans, but she was unhappy about handing over a table showing a zero contribution for the UK. It would be easier if the figures suggested a contribution of, say 70 million ecus. Carrington made clear that it was not realistic to envisage a settlement at the November European Council. But some progress had to be seen to be made, at least on the method of Budget reform. A decision would have to be taken as to whether to stick with Howe’s scheme, which would be excellent if achievable, or to fall back on the Commission’s scheme. The PM agreed. She wanted to know what it was realistic to expect to achieve and what tactics were most likely to succeed. She was very concerned at the lack of progress. It would be essential to have something to show as a result of the UK Presidency. It was difficult to see how a satisfactory outcome could be achieved which did not include a corrective based on Member States’ ability to pay. Howe said that a conversation with the French Finance Minister, Jacques Delors, had led him to the conclusion that Delors was the French Minister most likely to be helpful to the British cause. Delors was looking for a solution before Summer 1982. He was thinking of an arrangement that would last some years and would be degressive. Mitterrand, according to Delors, was anxious to keep in touch with the PM in the run-up to the European Council.74 In reality, the scope for progress was extremely limited. An informal meeting of EEC Finance Ministers in early November 1981 under Howe’s chairmanship made no progress. “As was predictable’, Carrington wrote to Thatcher on 6 November, “the prospect is not an encouraging one. The traditional reluctance to concede a shift from opening negotiating positions until the last possible moment is in full operation. Other Governments are nervous about the very large financial transfer needed if we (and the Germans) are to get satisfaction. And there have been a number of recent changes in Government (France, Greece, Ireland) or Government crises (Belgium, Netherlands) which have caused delay. As the country holding the Presidency, and as the Member State with the biggest interest in change, our task is to bring about some movement and flexibility . . . But to have any chance of success, I need to know more clearly what our own objectives for the European Council are . . . The French, in particular, are shaping up clearly to insist on some of their main agricultural objectives in return for a settlement on the budget. We shall need to consider very carefully how much we can afford to concede in such a trade-off . . . The prospects of achieving the kind of overall reform of the Community’s financial arrangements which we have so far advocated look pretty bleak . . . We need to face the possibility that the November European Council will not be a full success . . . We need to avoid an all-or-nothing approach which would result in failure.”75 At Cabinet on 12 November, there was general agreement with Carrington’s bleak assessment, not least from the Prime Minister. Other Cabinet members bemoaned the handicap that the Presidency imposed on the Government in defending British interests. Howe informed Cabinet that the terms of the May

Uneasy Truce: 1980–1981 207 1980 settlement were such that the UK net contribution to the Community budget for 1981 would not be £400 million, as expected, but only about £55 million. This was not helpful to the British negotiating position.76 The following day, at a meeting in Downing Street, Thatcher told the Commission President that it seemed clear that the Community would have to go to the brink again before agreement was reached.77 A successful Anglo-German summit in Bonn (despite the increasingly shaky state of the German governing coalition) did nothing to lift the gloom. Thatcher told Cabinet on 19 November 1981 that it would be necessary to damp down public and Press expectations of the London European Council accordingly.78 A few days later, Thatcher wrote the customary letter sent by the Chair of the European Council in advance of such meetings. The Community, she wrote, would suffer severe criticism if the Heads of Government failed to achieve their publicly declared objective of taking decisions before the end of 1981. She looked for cooperation in maximising areas of agreement. On the budget issue, in particular, Thatcher noted that there did at least seem to be general agreement that the long term solution must lie in the adaptation of Community policies but that, in the meantime, some special corrective mechanism would be needed. It was common ground that it would be in no one’s interest to have to come back to the issue year after year. What was still disputed was the amount, duration and method of the necessary adjustment, as well as its application and whether it should be general or limited to the UK. She hoped that the European Council would be able to enlarge the area of agreement and register it clearly in operational guidelines for detailed work to be carried out expeditiously thereafter.79 If Thatcher’s letter was an expression of correct ambition on the part of the Presidency host, it was not one of realistic expectation. On the eve of the meeting, Armstrong and Franklin were told in a meeting at the Elysée that Mitterrand was prepared to do something for the UK, but it could not involve a new system that called into question Community rules, including the CAP. Mitterrand would be willing to discuss figures, but only on the basis of another temporary arrangement for the UK which should be degressive in character, giving the UK more time to adapt, and it should last only to 1984 (a date linked in French minds to enlargement of the Community to Spain and Portugal). Guidelines that could be interpreted differently after the European Council would not be acceptable. As to figures, the present French Government had criticised the 30 May agreement as being too favourable to the UK. Mitterrand was not prepared to pay more than under that agreement. As far as Germany’s budgetary requirements were concerned, the French felt that they had already responded by showing a readiness to move on the CAP. In the French view, the budgetary problem for German only arose as a consequence of British budgetary demands.80 In Cabinet, on the morning the European Council opened, the Prime Minister rated the prospects for reaching agreement on the Mandate as “not good,” and said that they were made no easier by the fact that the Danish

208 Uneasy Truce: 1980–1981 Government was facing a General Election and neither the Belgian nor Dutch leader was in a strong position.81 She was not wrong. The summit made no measurable progress and although, or perhaps because, it was held under her chairmanship, it rates no mention in her autobiography. The French Press characterised it as a failure albeit, as Le Figaro put it, it was a case of “Europe: ‘échec à l’amiable”, i.e. the atmosphere had been non-confrontational. Procedural agreement was reached: as usual when the Heads failed to agree, their Foreign Ministers were again instructed to meet urgently to consider the four issues which created the greatest difficulty: milk; guidelines on agricultural expenditure; Mediterranean agriculture and the budget problem. The Ministers were to meet before Christmas, or in January at the latest.82 A meeting a few days later between the Prime Minister, Carrington and Howe agreed that Carrington, as Chair, should summon such a special session of Community Foreign Ministers, but he was given no clear mandate as to what to aim for. The temptation simply to play the issue into the next Presidency, when Britain would no longer be constrained, was strong. In a personal letter to Thatcher, Carrington gave vent to his “very serious worry about the way in which things were left . . . It is quite clear that our colleagues in the Ten, Schmidt in particular, are expecting us . . . to make a serious effort to reach agreement on recommendations which will carry the work forward. What they want is one more heave . . . to give Heads of Government a firm basis on which to reach agreement. With the possible exception of the French, all our partners see the Foreign Ministers’ job as getting agreement on some useful guidelines . . . I feel very strongly that it is politically essential for us, both as Britain and as the country holding the Presidency, to go into the meeting and to be seen to run it with the intention of getting results. I do not see how I can reasonably be expected to summon my colleagues and to chair a special meeting of Foreign Ministers at which we ourselves are not prepared to make any effort at all to reach agreement.”83 Carrington followed up by presenting a series of options, ranging from getting an agreement (which would involve unacceptable compromise of UK interests), through to either offering nothing at all, and taking the full blame, or simply pushing the meeting into the Belgian Presidency beginning in January. His preferred option was to organise a meeting before Christmas with the aim of getting agreed guidelines. Howe agreed, writing to the Prime Minister: “I do not rate very highly our chances of securing an agreed set of guidelines . . . I do believe, however, that the effort itself would be to our advantage. At the next and more difficult stage of negotiation nobody would be able to say that we had not made a determined effort . . . By making these efforts we would do something to break up the unity of the front against us on the type and scale of Budget solution which we want.”84 At Cabinet on 3 December 1981, the Prime Minister explained why the European Council had been unable to agree on the issues covered by the

Uneasy Truce: 1980–1981 209 Mandate: when the Mandate had been agreed it had seemed likely that, by this time, the Community would have been under pressure to agree to a fundamental restructuring of the budget because the Community’s existing resources within the 1% VAT ceiling would have been exhausted. Because of the rise in world agricultural prices, this had not happened, although the need for budget restructuring on grounds of equality remained. It seemed unlikely that progress could be made on the budget issue until the Community was approaching a crisis and needed agreement on agricultural prices. It would be desirable to try to avoid horse trading on a package but this might not be possible. The budget arrangements for the UK for 1982 had still to be agreed. It would be undesirable to have the dispute running into 1983. Carrington commented that a crisis over the budget issue might be unavoidable, but it would inevitably lead to further damage to the public conception of the Community in Britain and everything possible should be done to prevent it.85 Carrington got his way. Foreign Ministers met on 14/15 December and Carrington was able to report to Thatcher that, while the four problems had not been resolved, he had been able to move the discussion forward in a helpful way. The two key issues were milk (where the Commission were proposing to focus Community support on small producers, which was unacceptable to the UK since it would disadvantage its larger farms) and the Budget. On the latter, in what Carrington described as the most thorough discussion thus far, there had been a fairly solid line-up against Britain on the first day, and in favour of offering only a three-year degressive and ad hoc arrangement. But Carrington had pursued the discussion over dinner, and devoted all of the morning of the second day to it, including an hour with no advisers present. Carrington had made it absolutely clear that a solution based on concepts like degressivity was not acceptable, and he thought, by the end, that there was a better understanding of the British case. At the end, Carrington had been able to draw the conclusion that the President of the Commission should make revised proposals, taking account of the discussion, for consideration at a further special meeting in mid-January 1982.86 Shortly before the start of the UK Presidency, it had been agreed that the President of the European Council should, in future, make an “end-of-term” address to the European Parliament. Mrs Thatcher had, somewhat reluctantly, agreed to be the first Head of Government to undertake the task. But she was not at all satisfied by the draft speech presented to her by officials. “There is no structure to the speech”, she commented in her own hand on the draft, “it is a dull, orderly, turgid narrative. I think we should say at the outset that we discussed the mandate—giving the background. The crucial point about it is whether the Community can adapt the partnership to changing circumstances. Change is constant (Disraeli—an excellent quote).87 Also, in reaching our conclusions, we must have some regard to their effect on other economies because the need is for greater cooperation, not less . . . The demands made on EEC resources are in danger of exceeding those resources. There is lots more to say. World recession and the economy—again great emphasis on the need

210 Uneasy Truce: 1980–1981 to cooperate in finding answers to youth unemployment . . . External Affairs: these too must be set in a framework and not be a catalogue of sentences from indifferent communiqués. I see we have tried to finish up with two more interesting paragraphs. I suggest we go deeper, reaffirming our belief in the Community as an area of stability in a troubled world and as a demonstration of the advantages of freedom and democracy.”88 The speech, as the Prime Minister delivered it in Strasbourg on 16 December 1981, was a political speech in the best sense: devoid of jargon, thought-provoking, very much her own speech. The Prime Minister began by talking about the Mandate, not as a dry set of tedious negotiations, but as a challenge: “Beyond the prosaic words of the Mandate lies the essential belief that, if it is to endure, a venture as bold and imaginative as the European Community must adapt to changing circumstances and to the hopes of generations yet to come. To the Community, as well as to its members, the dictum of that distinguished political thinker Edmund Burke applies. He said in the 18th century: ‘A State without the means of change is without the means of its conservation.’ “Speaking for myself, I believe that the Community can and will rise to the occasion. For, however diverse our national histories, we all know that our future lies in working together. Of course, the modern tendency of politicians is to want more spending on their own particular interests in their own country. Indeed, it is sometimes hard to believe that Parliamentary democracy started with the intent to curb the power of the Executive to impose greater taxation on ordinary citizens . . . “The responsibility of the Presidency, against the background which I have described, was truly heavy and we have made strenuous efforts to advance the discussions . . . I had very much hoped to be able to report to you today that the European Council had been able to reach full agreement on all these matters. Unfortunately, I cannot do so. “Much progress was made. But on four main areas, we were unable to reach any measure of agreement. These are: first, the problems arising from the Community’s milk regime; second, the way to deal with Mediterranean agriculture; and third, how to relate the share of agricultural expenditure to the development of the Community budget as a whole; and fourth, how to ensure that no Member State is put into an unacceptable situation as a result of the total effect of the Community budget . . . “Our Community works against the backcloth of world economic problems . . . at a time of continuing world recession. Accustomed to growth over many years, we have entered a period when we do not expect to see it resume at such a rate for some time to come. This, and advancing technologies and changing patterns of world trade, have left our countries with levels of unemployment we thought never to see again. Every country is especially concerned about unemployment among youth and we all recognised the need for better training. We shall return to this aspect at future Councils . . .

Uneasy Truce: 1980–1981 211 “Perhaps one of the most interesting parts of the discussion centred on the effect of high public deficits . . . High public deficits turn out not to be reflationary but de-flationary. At times of national difficulty, the tendency to protectionism is strong. But, apart from limited areas where a period of adjustment is necessary, we recognise that it is not in the best interests of our people. Protectionism in some products can so easily lead to retaliation in others . . . “The Community is, and must continue to be, a force for stability in the world—a world that is sadly torn and distracted by conflict. Coordination of foreign policies through political cooperation is a key element in that role . . . The growing strength and cohesion of Europe in these matters is reflected in the way Heads of Government approached issues, and the range of issues they discussed. We were not simply discussing language for resounding communiqués. We were constructing European policy, policy which increasingly involves taking initiatives, rather than merely responding to events . . . “Madam President [Simone Veil], the protection and furtherance of liberty and democracy was the purpose which inspired the foundation of the Community. That purpose is as urgent today as when the Community began. With regard to the accession of Spain and Portugal, the European Council reaffirmed our strong political commitment . . . We all have a common interest in strengthening these newly restored democracies and in supporting them in their solidarity with the aims of Western Europe. The representation of the people is an essential principle of democracy . . . this is one reason why I am here today . . . The common aim of all these deliberations is to help create a Community which functions more effectively, which protects the democracy and freedom which Europe cherishes and which takes all available opportunities to extend that democracy. For, Madam President, this area of stability and democracy in Europe is a priceless asset in a troubled world. We often count our problems, and we should sometimes count our blessings. And I say this, in particular, in a week when the events in Poland are much on our minds. The problems of Poland are for the Poles to solve. And we hope they will do so by a process of compromise and negotiation. We must not take our liberties for granted . . . we must work if we are to preserve them . . . The successful future development of the Community as an instrument for furthering the cause of democracy and freedom depends on making speedy progress in our deliberations. For, Madam President, freedom must mean more than freedom to differ. It must mean freedom to act together to conserve our common beliefs—so that our children may enjoy that peace with liberty which is the greatest gift to mankind.”89 The dark clouds over Poland were swiftly to break into a storm with the imposition in the country of martial law. The West’s reaction to the suppression of democracy in Poland was to pose a challenge to the European Community and to Mrs Thatcher’s uniquely close relationship with the President of the United States.

212 Uneasy Truce: 1980–1981

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

PREM 19/220, TNA. CC (80) 24th Conclusions, 19 June 1980, CAB 128/68, TNA. PREM 19/756, TNA. PREM 19/756, TNA. PREM 19/239, TNA. PREM 19/239, TNA. Ibid. PREM 19/239, TNA. On 15 July 1980, Begin had responded uncompromisingly to Sadat’s suggestions for the revival of stalled talks on Palestinian autonomy. PREM 19/239, TNA. Ibid. CC (80) 34th Conclusions, 2 October 1980, CAB 128/68, TNA. PREM 19/756, TNA. PREM 19/471, TNA. Ibid. PREM 19/471, TNA. PREM 19/760, TNA. PREM 19/471, TNA. Ibid. The Polish crisis is documented in detail in Documents on British Policy Overseas (DBPO), Series III, Volume X, the Polish Crisis and Relations with Eastern Europe, 1979-82 (London: Routledge, 2017). For the situation in November 1980 see Nos. 31 and 36. See DBPO, ibid., Nos. 38-9. CC (80) 43rd Conclusions, 4 December 1980, CAB 128/68, TNA. PREM 19/760, TNA. CC (81) 1st and 2nd Conclusions, 8 and 15 January 1981, CAB 128/68, TNA; see DBPO, ibid, pp. 116 and 118. PREM 19/455, TNA. PREM 19/466, TNA. PREM 19/455, TNA. PREM 19/1032, TNA. CC (81) 8th Conclusions, 24 February 1981, CAB 128/70, TNA. PREM 19/455, TNA. PREM 19/762, TNA. PREM 19/601, TNA. PREM 19/468, TNA. PREM 19/466, TNA. CC (81) 12th Conclusions, 19 March 1981, CAB 128/70, TNA. CC (81) 13th Conclusions, 26 March 1981, CAB 128/70, TNA. PREM 19/466, TNA. PREM 19/466, TNA. PREM 19/461, TNA. CC (81) 14th Conclusions, 2 April 1981, CAB 128/70, TNA. PREM 19/761, TNA. Parl. Debs, H. of C., 6th ser., 8 April 1981, vol. 2, col. 979. Thatcher Foundation transcript, https://www.margaretthatcher.org/document/ 104613 PREM 19/762, TNA. CC (81) 15th Conclusions, 9 April 1981, CAB 128/70, TNA. PREM 19/761, TNA. Ibid.

Uneasy Truce: 1980–1981 213 47 PREM 19/761, TNA. 48 In the voting on 10 May 1981, François Mitterrand received 51.76% and became the first Socialist President of the Fifth Republic. Giscard received 48.2%. 49 Mitterrand had virtually no English and only the few words of German he had picked up while a wartime prisoner of the Germans. 50 She paid up and Gilmour gave her a book on French politics: Gilmour, op.cit. p.47 51 PREM 19/761, TNA. 52 The polls were correct: the CDU won 65 seats to the SPD’s 51. 53 Pierre Mauroy, Claude Cheysson and Michel Rocard served as Prime Minister, Foreign Minister and Minister for Planning and Regional Development respectively in the new French Government. 54 PREM 19/761, TNA. 55 PREM 19/762, TNA. 56 My own recollection is that Callaghan did not warm to him. 57 CC (81) 19th Conclusions, 14 May 1981, CAB 128/70, TNA. 58 PREM 19/760, TNA. 59 PREM 19/761, TNA. 60 Ibid. 61 PREM 19/462, TNA. 62 CC (81) 26th Conclusions, 2 July 1981, CAB 128/71, TNA. 63 PREM 19/462, TNA. 64 PREM 19/462, TNA. 65 PREM 19/458, TNA. 66 PREM 19/456, TNA. 67 CC (81) 31st Conclusions, 15 September 1981, CAB 128/71, TNA. 68 Ibid. 69 PREM 19/743, TNA. 70 PREM 19/743, TNA. 71 Ibid. 72 PREM 19/459, TNA. 73 Ibid. 74 PREM 19/459, TNA. 75 PREM 19/459, TNA. 76 CC (81) 36th Conclusions, 12 November 1981, CAB 128/71, TNA. 77 PREM 19/744, TNA. 78 CC (81) 37th Conclusions, 19 November 1981, CAB 128/71, TNA. 79 PREM 19/744, TNA. 80 PREM 19/459, TNA. 81 CC (81) 38th Conclusions, 26 November 1981, CAB 128/71, TNA. 82 PREM 19/464 and PREM 19/459, TNA. 83 PREM 19/737, TNA. 84 Ibid. 85 CAB 128/71 CC (81) 39th Conclusions 86 PREM 19/737 87 ‘Change is inevitable. In a progressive country change is constant.’ (Speech given in Edinburgh in 1867) 88 PREM 19/495, TNA. 89 PREM 19/465, TNA.

7

Conflict: 1982–1983

On 13 December 1981, martial law was declared in Poland, General Jaruzelski announcing a State of Emergency and Government forces detaining most of the Solidarity leadership. The British Ambassador in Warsaw was in hospital after suffering a heart attack, and his deputy, Ramsay Melhuish, stepped in to keep London informed, commenting that although it was impossible to say whether the initial impulse for the declaration came from Moscow or Warsaw, in his view General Jaruzelski had moved against Solidarity in an attempt to impose a Polish solution without involving the Soviet Union.1 The initial reaction of the Western Europeans was cautious. Melhuish reported on 19 December, “we have repeated over many months our belief that the Poles must be left to themselves to work out their own solutions free of outside interference. Now . . . we find ourselves emasculated by the logical consequences of our past utterances.”2 The FCO made it clear to its overseas Posts that Ministers condemned what was happening in Poland and that they looked to Jaruzelski to honour his promise that martial law would be short lived and that there would be a return to the path of reform. But given a choice between rhetoric and effective action, the British Government found the former a lot more congenial than the latter. A surprisingly indifferent Margaret Thatcher agreed with Carrington that urgent messages from President Reagan and Secretary Haig advocating tough action against both Poland and the USSR were unnecessarily cataclysmic, and that it was “absurd’ and “unwise” to punish the Soviets if they had not invaded Poland. Thatcher felt wounded by Reagan’s unilateral announcement on Christmas Eve of US sanctions against Poland, which was also received badly by America’s European allies and revealed deep divisions on the best way to respond to the situation. For once, on this issue Thatcher found herself more in sympathy with other Europeans than with the Americans.3 By contrast, both the Government and public opinion in the United States were up in arms at the European attitude. Reagan told his Cabinet that Europe’s leaders were “chicken littles” and Al Haig’s deputy at the State Department, Larry Eagleburger, told the British Ambassador in Washington that Bonn and Paris had been more supportive than London.4 But Poland, though grave in human terms, was not the Government’s central foreign preoccupation. That remained the European Community. The temporary

Conflict: 1982–1983 215 deal of 1980 relieving the UK of some of its budget had been part of a package encompassing the budget, agricultural reform and new policies. At the London European Council of November 1981, there had been no agreement of substance but the cracks had been papered over by an agreement on procedure: Foreign Ministers would draw up guidelines. Fundamental differences remained. The British Government wanted more than a temporary arrangement. They wanted an arrangement that would deliver an equitable budget contribution for the UK (and for Germany as the largest net contributor) for as long as the problem of paying endured. And the problem, essentially, was that the UK had been obliged to accept terms during the accession negotiations of 1970–1972 that put her, late to the European party, at a unique disadvantage. The British Government had at first hoped that the problem could be addressed by reform of the CAP (which occupied 75% of the EEC Budget and from which the UK received limited benefit) and by EEC expenditure in the UK on industrial regeneration and social policies. However, it had quickly become apparent that those means would not suffice. The Government were therefore set on achieving a safety net whereby a Member State’s net budget contribution would be related to its per capita GDP, and which would operate on the revenue side of the budget, i.e. it would not be dependent on increased expenditure by the EEC in the country concerned. There was no support among other Member States for the British plan. There was grudging recognition that the British had a case in equity, but if the British were to pay less, everyone else would have to pay more. The French led the resistance. The new French President acknowledged the problem but, in opposition, he had criticised his predecessor for being too generous in agreeing the 1980 settlement. French politics required the President to defend the CAP. The British were arguing both for budgetary and agricultural reform, a linkage which created hostages on both sides of the argument: the British would not concede increases in agricultural prices without budget reform and the French would not concede budget reform without increases in agricultural prices. So the French position remained that any budget settlement for the UK should be both time-limited, cost-limited and degressive. The British Government hoped to make common cause with Germany, by far the largest net payer. But, in practice, the Germans were not too exercised about the size of their net contribution. And, while Chancellor Schmidt railed against the iniquities of the CAP, coalition politics meant that the Germans usually made common cause with the French in favour of price increases for agricultural products. Schmidt himself tended to be fatalistic, both regretting the CAP and yet accepting it as an unavoidable feature of the Community settlement. The coalition led by Schmidt was, in any event, in increasingly troubled domestic waters, so it was with more than polite interest that Mrs Thatcher met Helmut Kohl, the leader of the CDU Opposition, in London on 25 January 1982. Kohl was, he told her, increasingly convinced of the importance of the connection between Bonn and London. He agreed with many of the things that Mitterrand was doing in defence policy, but not elsewhere. In

216 Conflict: 1982–1983 Germany, the SPD were moving to the left, not as dramatically as the British Labour Party, but inevitably and continuously. Schmidt was no longer typical of his Party and his influence was waning. The Parliamentary SPD in Bonn was well to the right of the Party in the country as a whole. For the generation under 25, the CDU was now the most popular Party. Genscher was a genius at picking up other people’s votes, but the natural basis of the FDP was only about 5-6% of the electorate. They depended on special interest groups such as those who favoured legalisation of abortion or the liberalisation of homosexuality. They had also attracted quite a lot of pro-Schmidt voters in the last election but he did not believe that would be repeated. In the next three years, Kohl continued, the vital decision would have to be taken on where Germany stood. Many outside influences were acting on Germany. The Soviet Union had launched a major offensive, promoting the cause of neutralism. Foreign Minister Andrei Gromyko had told Kohl that the Germans would be the first victims of another war. Why did they not avoid it? Gromyko had warned that Germany could not rely on the US, and this propaganda had its influence, though Kohl did not believe that a majority of Germans would fall for it, at least as long as Berlin was divided and 17 million hostages languished in East Germany. So, if German opinion were tested on loyalty towards the US as opposed to the Soviet Union, 90% would favour the US. Moreover, there were two good bulwarks in Europe—France in the defence field, and the UK.5 Schmidt, meanwhile, remained dissatisfied with Thatcher’s stance on the Mandate negotiations, which was perhaps at least part of the explanation for another review by the British Government of whether Britain should adhere to the Exchange Rate Mechanism (ERM), as Schmidt had repeatedly urged. The Governor of the Bank of England was in principle in favour of joining. Howe, the Chancellor, remained opposed. There were, he argued, attractions in anchoring counter-inflationary policy to an exchange rate target within the ERM, but its European label might achieve the opposite effect because the Government’s measures could then be attacked as being imposed by Europe. So the UK was not in a position to join even if, on general grounds, the Government thought it right in principle to do so. Thatcher agreed. She was not, she said, convinced that there would be solid advantage in joining the ERM. She did not believe that in practice it would provide an effective discipline on economic management. She was worried by the extent to which it removed freedom of manoeuvre. She did accept, however, that when UK inflation and interest rates were much closer to those of the Germans, the case for joining what was essentially a DM-dominated system would be more powerful. 6 Schmidt had urged on Thatcher the need for compromise on the Budget at the meeting of EEC Foreign Ministers to be held on 25 January 1982. But when that meeting failed to make progress, Thatcher held her ground, telling Schmidt that she had been prepared to make compromises on the CAP milk regime in the interests of small farmers, despite the very weak text on the

Conflict: 1982–1983 217 control of surplus production which had been proposed. But on the proposition that any budget refund to the UK should be degressive, she was not prepared to budge: “I frankly do not see how we could accept any text which implied an automatic and arbitrary reduction in our refunds regardless of the development of the underlying situation . . . It is quite unreasonable to identify a problem and then to decide in advance to solve less and less of it.” If the scale of the problem diminished, then she accepted that refunds to the UK should also be reduced. What was not reasonable was that the refunds should decline regardless of the scale of the problem.7 As to the French, according to Britain’s Ambassador in Paris, Reg Hibbert, they were becoming ever harder in their attitude to the British position. Hibbert found it difficult to see how the French Government could expect to win, “but, here in France, it seems to be an established political principle that it is more important to be seen to do fierce battle on behalf of French interests than to achieve real victories. Their national hero is, after all, Napoleon, who led the flower of the nation to death and ended up defeated.”8 At home, the Sunday Times editorialist believed that “the insouciant British view seems to be that it just needs a bit of judicious bullying and these foreigners will shape up . . . in which case the episode will pass away as yet another bitter-tasting episode in the acrimonious Brussels story.” Lord Carrington, the paper said, when asked whether British attitudes could lead to the whole European enterprise breaking up, had replied that the question was “premature”. “But”, the editorial concluded “premature is a long way from unthinkable and, in the meantime, the Brussels atmosphere grows so venomous that it can only justify the jibes of the advocates of withdrawal. It cannot be that which Mrs Thatcher truly wants. The time for retreat from an untenable position is getting ominously short”.9 But the Government’s position was, if anything, hardening. On 11 February 1982, Carrington reported to Cabinet that the sub-committee on Oversea Policy (OD) had met that morning and had agreed that the UK should block agreement at the annual agricultural price fixing until the Community had agreed to a settlement of the British budget problem. However, the British position should be justified on agricultural policy grounds. In pursuit of this tactical objective, Peter Walker would argue for significantly lower price increases than those recommended by the Commission and he would be able to support his case with substantive policy arguments.10 French positions too were hardening. On 18 February, at a Press lunch, André Chandernagor, the French Europe Minister, told journalists that two conceptions of the Community were at issue. One was based on a genuine spirit of community and a meaningful CAP. The other, which Britain appeared to want, involved each Member State doing its sums at the end of the year and demanding a cheque for the difference between its contributions and receipts. If that was what the British wanted, then she should not have joined the Community in the first place. It would be better to start again from a membership of six.

218 Conflict: 1982–1983 Chandernagor then gave the first hint of what was to become a significant shift in French policy. It was wrong, he said, of one Member State to hold up Community business simply because it could not have its way on an unrelated issue. There was a definite requirement to settle agricultural prices before the new seasons opened, but no such obligation to agree the UK refunds, which were already settled. It would be seen whether the whole Community had to take cover simply because Great Britain sneezed.11 The issue which Chandernagor was talking about was the operation of the Luxembourg Compromise. After six months during which France had boycotted EEC meetings in 1966, the French Government devised what was in reality a political formula to disguise the fact that they had had to concede the use of majority voting in instances where it was provided for under the Treaty of Rome.12 Those instances included votes on the CAP. The French formula allowed for a Member State to declare that a very important national interest was raised by a particular proposal under debate, and to have discussion continue (rather than a vote taken) until agreement was reached. This formula was never agreed by the Six, or incorporated in a binding document. It was explicitly disavowed by the Benelux countries and its validity was never acknowledged by the Germans except when it suited them to invoke it. In 1982, the Luxembourg Compromise, as the French formula was dubbed, was explicitly accepted as politically binding by France, Denmark, Greece, Ireland and the UK. The UK had always set great store by it. During the 1975 EEC referendum campaign it had been cited as giving the UK a veto over measures to which it objected. Now, the French were suggesting that there could be circumstances when the invocation of the Luxembourg Compromise by one Member State could be considered invalid by those member Governments who supported it in principle and who had always also supported it in practice hitherto. In early March, officials took stock of the UK’s negotiating position on the EEC budget. They recalled that Ministers had decided in September 1981 that, while the UK ought in logic to be a net beneficiary, the UK’s fall-back objective should be a nil net contribution. Ministers had subsequently decided that the UK could, for the present, be willing to continue to be a net contributor, but only on a very modest scale. Illustrative tables had been shown to the Germans which included a UK adjusted net contribution of 150 mecus to the budget. Ministers had decided that the UK should now block the agricultural price fixing until a satisfactory agreement had been obtained on the budget. Other Member States, according to the officials’ paper, were still a long way from accepting the UK’s objectives but informal contacts had suggested that some might be thinking of a refund of two thirds of the UK’s unadjusted net contribution. The Commission’s estimate of the UK’s unadjusted net contribution to the budget in 1982 was that it would fall within the range of 1700-2350 mecus. A two thirds refund would therefore still leave the UK with an unadjusted net contribution of 575–800 mecus, very much more than the sum the British had suggested to the Germans was an acceptable level.

Conflict: 1982–1983 219 The problem was compounded by the fact that the whole concept of net contributions was anathema to the Commission and to many Member States. Various complicated formulae were therefore being examined in Brussels. The bottom line was that, if Ministers wanted to have reasonable confidence that the UK’s net contribution would not rise above 150 mecus a year over the five-year period of any agreement (the number of years for which the UK was pressing), then it would be necessary to set the level of compensation at 95%. Britain’s strongest lever for bringing other Member States to an acceptable solution was to block the agricultural price settlement. Agriculture Ministers would be meeting at the end of March, and the new marketing year for milk and beef was due to start at the beginning of April. “We expect our veto on agricultural prices to do the trick”, officials concluded. But they added a caution: “It is possible other Member States will seek to blunt its effectiveness, either by trying to force through price increases by majority vote or by paying temporary aids to farmers from their national exchequers. Officials are considering what further steps the UK might take in those circumstances.”13 With the Agriculture Council meeting in mid-March 1982, the situation began to deteriorate. Thatcher and Carrington met the Presidents of the Council of Ministers and Commission (Tindemans and Thorn) on 16 March. The discussions got nowhere. The two Presidents, as Thatcher put it, “supposed that they could persuade the UK to accept a worse settlement than in 1980 and for a shorter period of time”. The PM told them that it was not possible for the UK to accept that her refunds should get progressively smaller no matter how large the problem was. She referred them to the formula that had been devised to measure the problem in terms of the gap between the excessively high British gross contribution to the Community budget and the excessively low receipts from it. If the Community refunded to the UK 90% of that gap, the result would be a reasonable net contribution. The two Presidents reported that they were getting nowhere with other Governments. Thatcher replied that, unless other Governments moved towards the British position, there could be no agreement on agricultural prices. When the Agriculture Council met, for two days and nights without reaching agreement, its most notable feature, according to Peter Walker, was the striking level of cooperation between the French and German delegations. The Germans had given the UK no support on price levels.14 A few days later, when they met at Chequers, Schmidt told Thatcher that the pity was that the UK had joined the Community ten to twelve years too late. It was now very difficult to change the rules, especially as those rules had brought substantial benefits to some members of the Community. The “feeling in his stomach” was that Mitterrand would be bellicose. He had a lot of small and poor farmers, and France believed herself entitled to the CAP in its existing form because this was based on the rules laid down when the Community was founded. For the UK to attack others on this score was not fair. Britain should use only one argument in her search for equity. She should say that an unacceptable situation had arisen for her, and all members had

220 Conflict: 1982–1983 earlier agreed that, if that happened, they must deal with it. Britain should rest on that position. He was trying to help strengthen her case. The PM replied that the solution had to endure as long as the unacceptable situation endured. If the formula was related to the situation, the problem would not recur. She did not want a pitched battle. She wanted a lasting solution.15 Despite Schmidt’s description of Mitterrand’s bellicosity, considerable private efforts were made in talks between Cabinet Secretary Robert Armstrong and Jacques Attali (Mitterrand’s closest foreign policy adviser) to find common ground. But, when the two met at the end of March, Attali described Mitterrand’s mood as very bad. A new formula for the UK had been put forward by Tindemans and Thorn which, for the UK, represented a basis for progress since it was progressive: the refund to the UK would increase if the UK’s contribution to the budget increased. But it was this very feature that made the scheme objectionable in French eyes. Armstrong explained the nature of the political problem. The cost to the UK of Community membership was of the order of £500 million a year. Even on the basis of a 90% refund, the cost to the UK would still be of the order of £250 million, or about 400 mecus. That was a charge on the British budget and was very difficult to justify to the British Parliament. Armstrong produced a table of net contributions and receipts. This showed that, for 1981, the UK’s unadjusted net contribution was only a little less than that of Germany, while every other EEC member was a net beneficiary. If no adjustment was made for the UK for 1982, the UK net contribution would be 1800 mecus while the French would be a net beneficiary to the tune of 350 mecus. Attali took the table away with him and was due to meet Armstrong again later in the day. In the event, Attali was unable to attend and it was his deputy, Morel, who delivered a message from Mitterrand. This was that, although Mitterrand accepted that there was a UK problem for which a solution must be found, he could not agree to any solution that would transform a transitory system into a permanent one. The search for a solution would be very much more difficult in 1982 than it had been in 1980. Then, the other Member States had a reserve of resources that could be made available to help the UK. In 1982, all the other nine Member States faced important financial constraints and would have great difficulties.16 Those difficulties, at least as far as France was concerned, became apparent when the European Council met in Brussels at the end of March 1982. The Prime Minister set out Britain’s case on the budget in firm but moderate terms, making it clear that the new ideas put forward by Thorn and Tindemans were a basis for negotiation. However, as Thatcher reported to Cabinet on 1 April, Mitterrand intervened to say that France could not accept the new proposals as a basis for negotiation. This, she said, had “come as a bolt from the blue and had resulted—to the evident embarrassment of Cheysson [the French Foreign Minister]—in the isolation of France as the one Member State that was apparently not prepared to carry the negotiations forward.”17

Conflict: 1982–1983 221 On 2 April 1982, the military dictatorship of Argentina invaded and occupied the Falkland Islands. On 5 April, in the face of mounting Parliamentary anger, Lord Carrington resigned as Foreign Secretary and was replaced by Francis Pym, who was Leader of the House of Commons and had previously served under Thatcher as Secretary of State for Defence. The relationship between Thatcher and Pym was, to say the least, uneasy. In appointing Pym in place of Carrington, Thatcher had, she later said, “exchanged an amusing Whig for a gloomy one”. She and Pym “disagreed on the direction of policy, in our approach to government and indeed about life in general”.18 This was a characteristically ungenerous assessment. A combination of the critical situation over the Falklands (which commanded constant attention) and Pym’s calm self-assurance were to help avoid a meltdown in Britain’s relations with her partners in the spring of 1982. Certainly, Britain’s partners were, not for the first time, questioning whether the UK really belonged in the Community at all. The French weekly, Paris Match, carried, at the end of May, an interview with Cheysson. At first blush, it looked like a typical French attack on the British, with Cheysson asserting that he did not believe that Britain belonged to the Community. But, as the interview progressed, it became apparent that what Cheysson was saying was that the question to be faced was whether Britain did or did not want to belong to the Community and that, if it did, should the Community be changed to accommodate Britain? For example, he said, there were some Community policies, such as the CAP, in which nine members of the EEC had an essential interest, whereas the UK had only a secondary interest. When asked by his interviewer whether Europe could get along without Britain, Cheysson replied: “No, it is not possible to imagine Europe without Britain. For a start, where would Britain go? A modern industrialised country cannot remain isolated with 50 million people. That is not possible. With whom will she be associated? That is the first question. The second: Britain is in difficulty, and if she was all alone, these difficulties would be even more acute and this would be a grave problem for everybody. We need Britain in the Community. But with the Community as it stands? Can one further develop the Community so that, in the policies which are of interest to Britain, she finds compensation for those policies which interest her less? All this remains to be seen. But it will take time.”19 Pym’s first appearance as Foreign Secretary at the Foreign Affairs Council in April 1982 was a particularly tricky one. He came under strong pressure to abandon the link between a settlement of the UK’s budget problem and approval of the CAP price package that was emerging in the Agriculture Council. Pym reiterated the clear basis for the link, namely that increases in agricultural spending exacerbated Britain’s excessive budget contribution. Finally, under pressure, Pym agreed to report the strong feelings of his Community colleagues to Cabinet. He did so to avoid provoking a second crisis on top of that created by the Falkland Islands. The solidarity of the Community had been demonstrated in the willingness of other EEC countries

222 Conflict: 1982–1983 to take sanctions against Argentina, but these sanctions were particularly problematic for Denmark, Ireland and Italy. In reporting to Cabinet Pym, despite the difficulties he had encountered, recommended that he should be authorised to confirm immediately to the Council President that the Government could not give their assent to a CAP price package until the budget question had been resolved. This was agreed. Cabinet colleagues recognised that the linkage would create a very difficult atmosphere at the 28–29 April Agriculture Council, but they continued to believe that “it should also serve to induce the other Member States to approach the resumed discussions on the budget with a greater will to agree a solution acceptable to the UK”.20 By the time senior Ministers met a week later under Thatcher’s chairmanship, Pym was able to report that it was probable that, after protests and difficulties, the Community would agree to extend the sanctions against Argentina. But positions on the budget remained a long way apart and the farm price settlement (which was on the verge of being agreed as far as the other Member States were concerned) loomed in the background. Pym had so far been offered by Britain’s partners refunds of 800 mecus a year, only 50% of the UK’s unadjusted net contribution. Pym had argued that this was not fair: the Community had agreed to two thirds in 1980 and was now being offered less. But to his British colleagues, Pym argued that, if the other nine members moved up from 50%, he should be authorised to move down from 95%. Howe had earlier indicated willingness to come to 90% or even 80% in return for a satisfactory deal overall. But, Howe now said, it would be a major setback for the Government and for the Community cause in the UK, if the Government secured no more than another 66% refund. The result of such a failure would be with the Government for a very long time. He agreed, however, that the UK could agree to compromise at as low as 80% in response to an offer from the other Member Governments of 66% plus. Howe also saw advantage in offering a gesture on what had become known as ‘overpayments’, i.e. acknowledging that the size of the refund for 1982 should reflect the fact that refunds so far paid to the UK had exceeded expectations at the time of the May 1980 agreement. Walker too urged compromise. The economic sanctions against Argentina presented a number of Community Governments with genuine domestic difficulties. It would be very difficult to demand loyalty from countries with particular difficulties, such as Denmark, Italy and Ireland if, at the same time the UK was denying them an agricultural price agreement that they desperately needed. It is symptomatic of the dominance of the Falklands issue that even the Prime Minister was ready to compromise, agreeing to flexibility on the amount of the refund (if necessary as low as 75%) and that a gesture on overpayments could also be made at the right time. The UK should not, however accept only a oneyear solution.21 While the British Government was softening its stance on the budget issue, this was, of course, not yet evident to Britain’s EEC partners. What they saw,

Conflict: 1982–1983 223 so Britain’s senior Commissioner, Christopher Tugendhat told Walker, was a British Government which was not prepared to move an inch on the budget because it was certain that it could get all it was asking for by holding up the agricultural price fixing. There was, Tugendhat warned, an increasing determination on the part of the Nine to defeat these British tactics. If, despite British invocation of the Luxembourg Compromise, the agriculture package was carried by a majority in the Council, the Commission would welcome it. The Commission had never liked the Compromise and believed that the majority voting provisions of the Treaty of Rome should be respected. In reporting this conversation back to London from Brussels on 10 May during the Agriculture Council, Walker noted that even Edith Cresson, the French Agriculture Minister (representing the country which had invented the Luxembourg Compromise), had been reported as saying that she was prepared for a vote, if Britain invoked the Compromise to attempt to prevent a vote from being taken. If, the following day, a compromise acceptable to the Nine, but not to Britain, were to be reached, Walker would, he said, invoke the Luxembourg Compromise. He recognised that he might not succeed, adding that “a vote on this issue, and the abandonment of the Luxembourg Compromise, would clearly be disastrous”.22 Disaster would have been averted had the 8/9 May meeting of Community Foreign Ministers made progress, but it had not. All nine of the Foreign Ministers stood firm on a flat-rate refund of 800 mecus a year for three years. Thorn suggested a one-year solution to get past the crisis. Pym said this would only be conceivable if it were for an acceptable percentage of the UK’s unadjusted net contribution. But no one was willing to budge and the oneyear idea got nowhere. In a minute to Number 10, the Head of the European Secretariat in the Cabinet Office, David Hancock, warned: “The Belgians have hinted that they will propose that the Agriculture Council take a decision on the price package by a majority vote . . . We cannot be at all sure how events will work out; but it is clear that the other Member States, whose attitude is coloured by the Falklands crisis and growing agitation by their farmers, are doing everything that they can to pile the pressure on us. The campaign could easily get out of hand and have consequences which all Governments would later regret.”23 At Cabinet on 11 May (the second day of the Agriculture Council) Pym warned that there might be an attempt in the Council to impose the CAP price settlement by a majority vote, in which event the UK would invoke the Luxembourg Compromise.24 In the event, Walker survived to fight another day. “This week’s Agriculture Council”, he reported to Pym and the Prime Minister, “saw a number of attempts to force through the 1982 prices package against our opposition. All the other nine are now agreed on a revised package. At one time, it looked as if the Presidency might force matters to a vote, or draw a conclusion as if a vote had been taken; but with support from Greece, Denmark and Netherlands—and with the French evidently deciding against abandoning the Luxembourg accords, at any rate at that stage—I was able to fight them off.”

224 Conflict: 1982–1983 “We then saw”, Walker continued, “a remarkably irresponsible attempt by Thorn to circumvent the Luxembourg accords by a procedural device. He argued that the conditions for a decision under the Treaty now existed, with nine countries in favour of the package, and that the Commission should be authorised to prepare legal texts . . . for adoption as A points i.e. without discussion, at a future Council. The French, who by then had consulted Cheysson, seemed prepared to back this device, but again the Greeks and Danes joined us in opposing it and the Dutch were also unhappy . . . If the budget question is still unresolved on 17 May [when the Agriculture Council was due to meet again], it is possible that the Presidency will then force matters to a vote. If they do so, we can, I think, rely on Greece and Denmark joining us in refusing to take part in voting. But our combined vote falls short by one of the number needed to prevent a decision from being taken by qualified majority (QM). The attitude of the French will therefore be crucial. The Luxembourg Accords . . . have always been regarded as a cornerstone of French policy on the Community and, even now, it is hard to believe that the French will destroy them for the temporary advantage of getting the price package adopted. But some of our partners think the present French Government may be prepared to do so. Madame Cresson made conflicting statements during the Council . . . “You will wish to consider what further steps we might take to minimise the risk of a vote, or of unilateral action by the Commission . . . We should clearly be in a state of total crisis in our relations with the Community and it would in my view be disastrous if we were to take no counter action; indeed, I think we should seek in those circumstances to heighten the crisis and so bring it to a head. We could not legally prevent the agricultural package from taking effect in the UK; nor do I think it would be right to try to do so. But we could, and in my view should, in those circumstances, withhold immediately all payments to the Community; and we should need to be ready to back this, if necessary, by subsequent amendment of the European Communities Act. We should also have to add to our aim of securing an acceptable budget agreement, the further aim of reinstating the Luxembourg accords: we are too often in a minority of one for it to be tolerable to acquiesce in the abolition of the power of veto.”25 Walker referred again to withholding at Cabinet on 13 May 1982, but appeared to have gone cool on the idea since “withholding would act only very slowly on the Community finances, whereas the implementation of the price agreement in the other nine states, but not the UK, would create severe problems for British farmers at once”.26 It is a measure of the Cabinet’s preoccupation with the Falklands that Walker’s reference to withholding was not taken up in the ensuing Cabinet discussion, even though extensive preparation had been undertaken by officials. Nor is it clear from the archives whether withholding was at this point seen by Margaret Thatcher as a serious policy threat or as a bargaining lever. Had it not been for the dominance of the Falklands issue, it is conceivable that the Government could have been driven to withholding by their own previous public rhetoric on the subject. Not only

Conflict: 1982–1983 225 would that have jeopardised EEC support over the Falklands, it would have put the UK on a potentially terminal collision course with the Community. Moreover, the advice of the Law Officers had been given in categorical terms. In March, Henry Steel, Legal Secretary to the Attorney General, had written on the Attorney General’s behalf: “We cannot contemplate defying a judgement of a UK court and must therefore—if we wish to choose between doing so and making the payments we had originally withheld—legislate to give ourselves the necessary cover. We ought not—both in principle and because of the criticism which it would attract – to legislate with retrospective effect so as to deprive a claimant of legal rights which he had established, or even merely asserted, in our courts . . . If we are not going to cave in after the first judgement against us, we must legislate to prevent that judgement being given; and, if we are to avoid retrospectivity, we should legislate before the proceedings leading up to that judgement are even instituted.” As to the applicability of Community Law, the Attorney General’s view was even more adamant: “It could scarcely be asserted with any credibility or respectability that our withholding was anything other than a violation of Community law. The Attorney General has not overlooked the fact that he said in October 1979 that he would, very reluctantly, be prepared to try to defend the legality if it resulted in infraction proceedings against us in Luxembourg. But he would find it impossible, consistently with his duty in the House of Commons (and the same applies to the Lord Advocate in relation to the House of Lords) to maintain that position as expressing his own view of the law—it is not his view of the law—in any statement which he made in the House; and it would not be possible for anybody to maintain it in any forum once the ECJ had found against us or had made an interim order for payment by us.”27 So, on 13 May, Cabinet focussed on the proposal which had been put forward by Thorn and Tindemans and which Mitterrand had rejected as a basis for progress. That proposal had been for refunds to the UK of £455 million in respect of the 1982 budget. The Treasury’s central estimate of the UK’s unadjusted net contribution for 1982 was £1,080 million. The proposed refund would therefore be less than half, compared with the two thirds envisaged in the 30 May agreement. The other Community countries argued that, if the result of the 30 May agreement was averaged over three years, the average refund would work out at two thirds of the unadjusted net contribution according to Commission estimates. That would still leave the UK paying an average of nearly £300 million a year on Treasury estimates. There was no discussion of the Luxembourg Compromise.28 Following the Cabinet discussion, Pym tried a conciliatory approach in a message to Tindemans and Thorn on 14 May. He had, he wrote, gone to the most recent meeting of Foreign Ministers ready to negotiate. He remained ready to negotiate. But he had been faced with a “take-it-or-leave-it” position that was no different from what had previously been offered. And no compromise position had come forward from either the Presidency or the Commission. The British Government believed that the best course would be to continue the negotiations

226 Conflict: 1982–1983 for a longer-term solution and to bring them to an early conclusion. But Thorn and Tindemans had asked him to consider the possibility of accepting an early agreement on a third year of refunds in respect of 1982, as provided for in the 30 May 1980 agreement. Pym expressed himself saddened that the two Presidents had come to the conclusion that it would be easier to accept such a solution rather than to settle the problem for the next few years. But he would, he said, be willing to give urgent consideration to an early formal proposal from the Commission based on the 30 May Agreement, no more and no less. “Like you”, Pym concluded, “I am deeply concerned that the present developments should not lead to a major crisis within the Community, and I for my part will do all I can to avoid that coming about.”29 14 May 1982 was a Friday. By Monday, 17 May, the Agriculture Council was again in session, nine Member States had agreed to a price package and it was becoming clear that, early on the following morning, an attempt would be made to adopt the proposals by a majority vote. British Embassies in EEC capitals were instructed to intervene urgently with their host Governments. A majority vote in the Agriculture Council was, the FCO, told its posts, being justified on the grounds that Pym had criticised a Commission proposal for an extension of the 30 May Agreement to a third year as not being on the lines of the arrangement for 1980 and 1981. Embassies were instructed to say that Pym had made clear, at the meeting of Foreign Ministers also taking place on 17 May in Luxembourg, the willingness of the British Government to negotiate an extension of the 1980 Agreement to 1982. Embassies were to stress “the grave consequences that would flow from an attempt to set aside the Luxembourg Compromise”. The instruction went out to Embassies to act as early as possible on 18 May. Thatcher herself sent a message to Mitterrand on the morning of 18 May: “I understand that an attempt may be made to take a vote on the agriculture proposals in the Council in Brussels today, despite the fact that the UK has made it clear that we wish the discussion to continue because very important national interests are at stake. I do not believe that you intend to destroy the Luxembourg Compromise by allowing this vote to occur. Clearly, the compromise would not survive its abandonment on this occasion. Francis Pym made it clear in Luxembourg yesterday that the UK is ready to negotiate an extension of the 30 May agreement to 1982 and I believe that a solution to these related problems can be quickly found.”30 These messages were too late. A telegram from the UK Representation to the FCO described the action that was happening even as they reported it: “Despite repeated insistence by Mr Walker that negotiations in the Agriculture Council could and should be continued until agreement was reached on the Agricultural prices package, and his no less frequently repeated demands that the Foreign Affairs Council should meet to consider the implications of overturning the Luxembourg Compromise, the Presidency, with the support, and indeed encouragement, of the Commission, have begun the process of voting through the large number of regulations which, together, constitute the

Conflict: 1982–1983 227 price package . . . Mr Walker made it clear that, by putting texts to a vote, the Council was abandoning the Luxembourg Compromise . . . The detailed agricultural questions which [he] tried to put to the Commission when the relevant regulations on which we had reserves came to the Council, were cursorily dismissed with no attempt even at a courteous evasion.”31 Later in the day, the UK Representation took stock in a further report to London: “Council ended at teatime with all the price fixing regulations voted through and scenes of bitter recrimination. The whole day has been bruising. Until noon, the UK faced intense and concerted pressure to accept the inevitability of voting, Mr Walker having to intervene about each minute to defend our position and to try to penetrate the collective deafness of seven colleagues and get them to consider the desperate consequences of their intended course of action. A turning point came around noon, when the Chair announced that our request for an emergency meeting of Foreign Ministers had been rejected, allegedly unanimously, in the margins of the NATO Council. Voting then began on each of 62 regulations, the UK seeking changes in some, and gaining a little headway. As the Chairman, through the lunch hour, gabbled through the required formulae on each, and gained the same pattern of voting (UK, Greece and Denmark refusing to participate), more Commissioners crowded in to savour the delights of seeing the Treaty operate. Of them, and many of the Seven, one could say that they had the experience but somehow missed the meaning of the experience. The French were quietly confident that they could justify the procedure as consistent with the maintenance of the Luxembourg Compromise, but did not expose their rationale till the Council was all but over. Germany blustered and heaped abuse on the UK: they did not deign to justify themselves, and brushed aside UK attempts to draw the consequences for the Community’s institutions as a procedural gimmick . . . And so Council dispersed, enjoying the sweet and sour savour of self-congratulation on the day’s work, and apprehension as to the future, but with the sweet predominating.”32 At the end of the Council meeting, Edith Cresson, the French Agriculture Minister, made a statement. She said that the decisions the Council had taken were the annual ones imposed on the Community by the Treaty. Their purpose was to ensure the correct management of agricultural markets. The purpose of the Luxembourg Compromise was to ensure that nothing was imposed on any one Member State if its vital interests were at stake. That had never been contested. But it had never been intended that it should allow one Member State to paralyse the normal functioning of the Community and fundamentally change its rules. Italy made a similar statement. As reported by the UK Representation, Walker responded, “leaving the Council in no doubt that we were not prepared to see the implications of what had been done on the Luxembourg Compromise evaded. That procedure was now gone, for all Member States, for all circumstances. A fundamental change in the fabric of the Community had been effected. The implications were profound. Ertl, the German Agriculture Minister rejected what Walker had said. He considered the British statement a

228 Conflict: 1982–1983 challenge, and cynical and offensive. The Community had arrived at something of a crossroads.”33 The following day, the Elysée issued a communiqué incorporating a statement made that day in Algiers by President Mitterrand: “In London on Monday, I left Mrs Thatcher in no doubt about France’s determination on the conduct of the CAP. The problem which is posed today . . . is not the question of majority voting or unanimity in the Council of Ministers, but the question of what role Great Britain intends to play. And finally, depending on the response which is made to this question, the issue of the presence, or the nature of that presence, of Britain in the Community . . .” That afternoon’s edition of Le Monde concluded that a major test of strength between Thatcher and Mitterrand had been embarked on. Paris would not make any concessions, since it was unacceptable that Community rules defined in the Luxembourg Compromise should be distorted by the behaviour and pretensions of Britain. Mrs Thatcher now had her back to the wall. Either she would plunge deeper into a crisis or she would have to be content with the latest budget proposal of 800 mecus made by the Nine. Not all the French Press was so hawkish. A number of papers, according to the British Embassy, sounded a note of caution and concern about the implications for France of the abandonment of the Luxembourg Compromise. Le Matin argued in an editorial that the voting at the Agriculture Council represented a victory for those who believed in a structured, federal Europe. It described Britain’s position as brutally clear while that of her partners was strangely ambiguous. It questioned whether the French decision to vote had been clearly thought through. Gaullist spokesmen, the Embassy also reported, had also criticised Mitterrand’s departure from a Gaullist doctrine.34 The British were angry, but the early advice of David Hancock, Head of the Cabinet Office’s European Secretariat, was measured, advising No 10 and the Foreign Secretary that the first priority must be to try to get a satisfactory settlement on the budget for 1982 and that “everything else should be played long and the Community kept guessing about our ultimate intentions”. If the Government could secure a budget settlement within the following week, they could claim that they had achieved a budget settlement “in parallel” with the price fixing. Even if the UK secured only 800 mecus for 1982, the refunds would work out at 75% over three years, which was a lot better than what the Government had thought they had got back in 1980. The Prime Minister did not immediately accept this advice. She feared that what had happened at the Agriculture Council would reopen the whole European question in the UK and argued that, on the budget, HMG should be more robust than Hancock was proposing. In her view “one year on the budget is not enough now”.35 However, calmer reflection prevailed. In a paper for the Oversea and Defence sub-committee of Cabinet, Pym advocated a cool and measured UK reaction, at least until the budget issue was resolved. He distanced himself from what Walker had said at the Agriculture Council by arguing against

Conflict: 1982–1983 229 acquiescence in the demise of the Luxembourg Compromise. It was clear that things in the Agriculture Council would never be quite the same again. But the effect of the Compromise should not be exaggerated. The UK’s national veto was fully protected in the substantial areas of Community business for which the Treaty of Rome required unanimity; and in many fields where majority voting was prescribed, the UK would continue to find sufficient allies to enable her jointly to block unacceptable decisions.36 At Cabinet on 20 May 1982, Pym sought to downplay adverse media reaction to the fact that the European Community had just decided to renew sanctions against Argentina for only a week. In fact, he said, support for the Government’s policy over the Falklands continued to be strong, both in the Community and NATO. Where Community matters were going very badly, Pym argued, was over the budget. The other Member States had now broken the British negotiating lever by voting through the farm price proposals. The mandate negotiations had been so difficult and protracted that the rest of the Community was totally fed up with the issue. For that reason, he thought that, if a solution for 1982 were now obtainable on reasonable terms, the UK should accept it and then agree to a pause in the negotiations on the longer term. He did not wish to excuse what other countries had done in the Agriculture Council, but it was arguable that the important British national interest to secure a budget settlement was offset by their important national interest to fix prices immediately. Walker spoke in more apocalyptic terms: France, Germany and Italy were now saying that they would continue to observe the Luxembourg Compromise in respect of their dealing with each other. So, the UK would not be able to force a vote when other countries were defending what they saw to be in their interests. The Cabinet should realise the extent to which France now dominated the Community. France could secure the cooperation of both Germany and of the Commission under Thorn and Davignon (the Belgian Commissioner), to force through decisions in their national interest and against the UK’s. The Prime Minister, at the end of the discussion, was closer in her stance to Pym than to Walker. She was clearly vexed that “no other Head of Government had warned her in advance that they intended to force through a change in the rules on the Luxembourg Compromise; in particular Mitterrand had not done so during his visit to London on 17 May”. But her conclusion was that the Government would need to think out its position and that it was important not to be rushed into an immediate response.37 With the Falklands War moving towards its climax (the British landed on the Islands on 21 May), the British Government could not afford to fight on too many other fronts. It was probably in part for that reason that the other EEC Governments had pressed their advantage at the Agriculture Council and for the same reason that the German and French Governments now made lastminute difficulties over the budget settlement. When EEC Foreign Ministers met on 24 May 1982, it was not just the size of the refund to the UK that was at issue. The 1980 agreement had included a

230 Conflict: 1982–1983 risk sharing formula. It was a risk-sharing formula upwards (i.e. to compensate the UK if her net contribution proved to be higher than expected). Britain’s partners had neglected to ask for a risk sharing formula in the other direction, and so found themselves with no redress when the British net contribution for 1981 turned out to be 9 million ecus rather than the 700 million that the Commission had estimated. It was partly because of this “overpayment” to the UK that the British Government was now willing to settle for a smaller refund for 1982 than they would otherwise have done. But, just when agreement seemed close on both the refund figure and a variant of the risk sharing formula, France and Germany decided to question the latter. As the Foreign Affairs Council was in session, Thatcher, at Pym’s behest, telephoned Schmidt to seek his help. After a brief expression of sympathy for British losses over the Falklands, Schmidt went on to defend Germany’s vote at the Agriculture Council. Thatcher made plain she did not wish to discuss that issue, over which feeling in Britain ran very deep. She set out her case on the risk sharing formula. There was, she said, a strong feeling in the UK that, at a time when Britain was having difficulties in one part of the world, and was fighting for principles which were of as much interest to the rest of Europe as to the UK, she had been badly let down by her European partners. Great care now had to be taken with public opinion. She hoped Schmidt would ring Genscher to urge that he now accept a fair formula. Schmidt agreed with ill grace. The difficulty over the UK’s finances had arisen again and again in the Community, he complained, first at the time of the original negotiation over British entry, then during renegotiation, then in May 1980. This was in effect the third renegotiation. People now saw it as a problem which always reappeared. Germany did not like the CAP and could not keep on paying increasing sums towards it. Thatcher commented that every argument Schmidt used supported her case for long-term restructuring. Schmidt then grudgingly agreed to try to reach Genscher, but on the basis that “Germany would not stick its neck out in one direction or another”.38 In the end, and after Armstrong had spoken in similar terms to Attali in Paris, agreement was reached. Pym reported to Cabinet that the application of the 30 May agreement to the Commission estimate of 1530 mecus for the British unadjusted net contribution in 1982 would have produced a refund of 1008 mecus. The UK had come under pressure to accept a refund of only 800 mecus in recognition of the alleged overpayment, but in the end had secured agreement to 850 mecus. The other Member States had committed themselves to completing the negotiations for the solution to the problem in 1983 and later years before the end of November.39 As to the Luxembourg Compromise, in opening his first speech as Foreign Secretary in the House of Commons on 26 May 1982, Pym described the solidarity shown over the Falklands as an example of the Community at its best and the overturning of the Luxembourg Compromise as an example of the Community at its worst. The Government’s objective, Pym told the House, was now to establish clear procedures so that nothing like it could happen

Conflict: 1982–1983 231 again. The Community’s practice must apply equally to all members on all very important matters and there must be a mechanism to safeguard the vital national interest of any Member State.40 Reflecting later on the events of May 1982, Sir Michael Butler, who had been the UK Permanent Representative at the time, believed that, in the Agriculture Council, “the impossibility of the British fighting two ‘wars’ at once was a factor in the mind of those pushing for a vote on CAP prices”. Nonetheless, Butler had thought that, in the end, the French would stand by the Luxembourg Compromise. According to Butler, the difficulty of fighting a major battle in Europe as well as the Falklands War, also pushed Britain towards accepting a lower figure for 1982 than for 1980 or 1981. He added that both sides then thought it better to let the budget problem rest for a while.41 Butler believed that the voting down of the UK in the Agriculture Council was “our worst defeat. The lever we had used with success to get the 30th May settlement in 1980 was knocked from our hands.”42 It was undoubtedly a significant defeat and one that, but for the Falklands, would have created both a domestic row and a European crisis. It is clear that the British Government were well aware of the threat to vote Britain down. The Paris Embassy had reported that the issue was the subject of intense discussion within the French Government. The French Agriculture Minister had been reported as indicating willingness to vote. But for those in the British system with long memories, it is not surprising that they found it hard to believe that the French would carry through their threat. The Luxembourg Compromise was a French invention. It was so important to them that President Pompidou had made British acceptance of it by Edward Heath a key condition of his willingness to lift the French block on UK accession. The consequence, however, of the British view was that the Government over-estimated their negotiating leverage, believing until late in the day that the “veto” over agricultural prices would ensure that the UK got its way over the budget. Francis Pym clearly had a more dispassionate view of Britain’s prospects and had some success in ratcheting down the unrealistically high expectations of Thatcher and Howe of the level of refund that could be achieved. But Pym’s conciliatory letter offering to accept a one-year settlement at a more modest level was sent only on the eve of the Agriculture Council. The Commission did respond swiftly and positively, but the other nine Member States did not. That they did not do so was probably in part because they were angry and frustrated, partly because they may not have appreciated the extent of the British concession and partly because, for their own domestic reasons, securing agreement to the agricultural price package was their top priority. The Luxembourg Compromise survived. However, although British Ministers occasionally used “Luxembourg Compromise language”, i.e. warning their EEC colleagues that a subject under discussion represented a “very important national interest” for the UK, they did not again formally invoke it. The Germans, who professed fidelity to the Treaties, to the concept of a federal Europe and to reform of the CAP, and who unhesitatingly voted Britain down in

232 Conflict: 1982–1983 1982, themselves invoked the Luxembourg Compromise when it suited their national interest, most notably in 1985 to prevent any decline in cereal prices. Nonetheless, the Luxembourg Compromise was never again to be the lever it had once been. It had never had legal force and its validity had not been accepted by a number of Member States. But, before 1982, its invocation had never failed to equate to a veto. The 1982 vote in the Agriculture Council was a successful assertion of the principle that the voting rules of the Treaty should be applied. The assertion of that principle had been the main issue between de Gaulle and the Commission and other Member States when he boycotted the institutions in 1966. Now France itself had, in effect, sided with those who took the view that where majority voting was provided for under the Treaty, it was majority voting that should apply in practice. The French sought to shore up their doctrine by redefining it: a Member State could legitimately invoke the Luxembourg Compromise, but only when it related directly to the issue under discussion. That new definition was not formally accepted by the British Government, although the British had been careful to base their case in the Agriculture Council on the impact of agricultural price rises on the UK Budget i.e. an issue which was, as they saw it, directly related. Other Member States had refused to see it that way, arguing that the British were exploiting the Luxembourg Compromise as a form of blackmail. A few years later, faced with the prospect of Spanish invocation of the Luxembourg Compromise to undermine Gibraltar’s rights under the UK Accession Treaty, the Foreign Office changed its own rules on the application of the Compromise: the UK would not support the invocation of the Luxembourg Compromise if it was used to deny a right protected by the European Treaties.43 Letting the budget problem “rest for a while”, as Michael Butler put it, was a relative term. Within days of the 1982 settlement, Pym minuted the Prime Minister about the need to find a new lever in order to secure a budget settlement. Two months later, the Chancellor, Geoffrey Howe, was expressing himself less sanguine than Sir Michael Butler in Brussels that the UK could develop, in the context of enlargement and a review of the Community’s Own Resources, “either sufficient opportunities or sufficient leverage to win agreement to a satisfactory long-term solution”. Howe had therefore reached the conclusion “that we need to explore thoroughly the possible course of withholding our contribution”. Continuing, Howe, who had always been the principal Cabinet advocate of withholding, argued that “there are issues on which the British people cannot be expected to go on accepting solutions adverse to their interests which are arrived at, in effect, by Franco-German collusion. Certainly, what happened over the Luxembourg Compromise on 18 May, and over the Budget settlement for 1982, were examples of their effective domination. This no doubt reflects the power structure of the Community. But an equitable and durable Budget settlement is an essential British interest on which the public will expect us to demonstrate our firmness of purpose—as the French would do . . . If we proceed to the next stage in a way which seeks to avoid a major row, I see a great risk of our being forced to

Conflict: 1982–1983 233 accept another poor settlement, leading to further bouts of contention and argument, and the continued imposition of a burden on our people which is unjust and ultimately insupportable.” The UK would, in Howe’s view, start the new negotiation from a position of weakness: the basic rate of refund for 1982 was 55.5% against the 66% implied by the 30 May Agreement. The Government had presented the 1982 deal as 66% less an allowance for the “overpayment”, but that was not how others were likely to see it. Nor was Howe confident that the approach to the limit of Own Resources, as the 1% ceiling was reached, would decisively improve the UK’s bargaining position. He was, he said, strongly opposed to the UK taking any initiative to try to trade willingness to raise the 1% ceiling in return for a Budget deal. However, he could see that if others made the link then there might in principle be useful leverage. But Howe foresaw, in those circumstances, a long and bitter dispute with no promise of a satisfactory outcome. “So”, Howe ended, “the main conclusions which I draw at this stage are: the prospect is that we shall be offered another Budget settlement which is inequitable for the UK, in circumstances which leave the British people resentful about our apparent second class status within the Community . . . We are unlikely to obtain an acceptable outcome unless we can reconstitute some form of leverage and demonstrate our firmness of purpose”.44 Howe, Pym, Walker and senior officials met at 11 Downing Street under Howe’s chairmanship, appropriately enough on 14 July 1982 (Bastille Day), to discuss options. Officials had prepared an exhaustive analysis of the mechanics and risks of withholding. Pym opened the meeting by acknowledging that withholding must be an integral part of the Government’s strategy, but it should be a weapon of last resort given the considerable risks it entailed. To brandish it at the present juncture would be a great mistake and would only exacerbate the bitterness towards the UK felt by the nine other Member States. Howe stuck to his consistent line: the Government should certainly say that, in the last resort, they were ready to contemplate withholding. He did not accept that it would be politically damaging domestically if, having fought again to ensure that the UK paid only a modest net contribution, the Government were obliged in the end to withhold. Conversely, apparent acceptance by the Government of the prospect of net contributions rising to £1 billion would not be understood and could be electorally damaging. Walker, who had been on the side of withholding in the immediate aftermath of the vote in the Agriculture Council, had since moderated his view. He argued that withholding, and its attendant chaos, would be electorally damaging: it would be a gift to the anti-Europeans. He shared Pym’s view that the period between July and November should be propitious for negotiation on budget issues, but that the climate for diplomacy would worsen sharply if the UK were openly to threaten withholding. The reaction of the Nine could well be to look to establishing a two-tier Community. The Government should only move to withholding when it had been seen to try every other

234 Conflict: 1982–1983 tack. Howe accepted this, agreeing that the withholding card should not be put on the table in negotiations in the summer and early autumn. It was Michael Butler who cogently lodged the argument, hitherto resisted by Ministers, that the effects of enlargement, and the fact that the 1% ceiling would be reached, would create a wholly new situation. The 1% budget ceiling could only be increased by unanimous agreement. So, Britain’s partners would be obliged to join the search for a satisfactory long-term budgetary solution. In the interim, the UK might hope to get refunds for the next two years at a rate that would average out at 66% over the five-year period in which refunds would have operated. The UK would not get more. Howe disagreed. An interim deal involving two more annual refunds at a rate of 66% over the full five years would undesirably institutionalise and build in the concept of degressivity. The refunds for 1983 and 1984 would be at only around 50%. An average of 75% would be a more appropriate aim. Moreover, the crunch might not come soon enough: there were ways of fudging the 1% problem. Walker advised against picking a figure: the Government would have to settle for the best it could negotiate. Pym thought the best the UK could obtain would be refunds producing 66% over five years. Butler added that if, by 1984, it was clear that the 1% lever was proving ineffective, then it would be necessary to think again.45 By this time, the Falklands War was over, following the Argentine surrender in June. But it is a reflection of the Prime Minister’s less aggressive attitude to the European negotiations at this juncture that she made only one observation on the meeting that Howe had chaired. Against a suggestion made by Walker during the meeting that a satisfactory long term budget settlement for the UK would be the quid pro quo for British acquiescence in raising the VAT ceiling, Thatcher wrote “i.e. we give in!”46 Realism was also in evidence when Pym and Thatcher discussed the issue in September 1982. Pym’s position was at that time a strong one, whatever the Prime Minister’s reservations about him. She had lost one Foreign Secretary (Carrington); she could scarcely afford to lose another. The Prime Minister did not dissent from the notion that a settlement should, as Pym proposed, be based on a 66% refund. She did, however, wonder whether the Government should begin by asking for more. There was otherwise a danger that the UK would be pushed below its starting point. Pym, however, countered that 66% had been the figure in many peoples’ minds for some time. If the UK now started talking of a higher figure, it would be dismissed as a crude negotiating ploy. Pym also pointed out that, while the UK rejected the idea, the Nine were wedded to the idea of degressivity. The PM said that, given the sums of money at stake, the UK must not be pushed into an unsatisfactory settlement. If the other Member States agreed to 66% plus a risk sharing formula, there was no reason why this should not apply without time limit.47 The desirability of permanence was uppermost in Thatcher’s mind when Commission President Gaston Thorn met her in Downing Street in

Conflict: 1982–1983 235 mid-September. The Falklands situation had, she told Thorn, made it necessary to give lower priority to the budget issue back in May. Now that the Falklands war was behind her, she wanted a solution that lasted as long as the problem. If it were devised to last only two to three years, then the adversarial situation would recur. Being a staunch European, she found such a situation intolerable. No one was talking about the Community breaking up; that would be unforgiveable. It was wrong, too, for the Germans to bear a disproportionate burden. This was inconsistent with a relationship between partners. The attitude that Germany should pay to the Community whatever was needed to finance its policies was very short-sighted. If the injustice continued, there would one day be a political party in Germany more concerned to unify the two Germanies than to strengthen the Community. It was imperative to keep Germany in the Alliance. All this argued for a fair and equitable solution to the budget problem. To postpone the fundamental solution for two or three years would not make it easier to achieve. Much as she disliked the recurrent argument, she would if necessary continue it. A fair system should not put an unbearable burden on any one country. Seven of the Member States, including the UK, should make contributions that were reasonable in the eyes of all. Italy, Ireland and Greece were in a different position. Thorn expressed himself as practically 100% in agreement with the PM. But the problems of both enlargement and the British budget contribution would not be settled quickly. Other Governments resisted solutions, not because they were strong, but because they were weak. There was a prevalence of weak Governments in Member States. In his view, a budget settlement for a further two years would set a useful precedent for the future. It would be necessary to increase own resources, perhaps in 1984 or just after. Thatcher was not convinced. There had been agreement in the 30 May Mandate to make progress on the three chapters in parallel. But, in the event, that agreement had meant nothing. A general undertaking to change the system was not worth the paper it was written on. Unfortunately, the Community only solved such problems at the eleventh hour. Germany could take the Community to the brink by refusing to finance its policies. At this point, Thorn sought to disabuse the Prime Minister of her view of German attitudes. He did not think Germany bore an unfair burden. The budget was only part of the matter. Germany took most of the commercial and industrial advantages of the Community. Moreover, agricultural prices were only at the level they were because of the German Minister of Agriculture. Thorn agreed that Belgium and Luxembourg should probably pay more but now was not the time to ask them. Belgium’s economic position was desperate. Several other countries were in severe difficulty. For all these reasons, he could not imagine that in December there would be agreement to change the financial system. A short-term settlement was the only option. In the present political situation, the other Member States would not agree to fundamental change. On previous form, Thorn’s statement might have provoked an outburst, but not on this occasion. Thatcher said that, if such was the situation, perhaps it

236 Conflict: 1982–1983 would be possible to envisage a formula whereby, whatever result was negotiated stood in perpetuity, but was reviewed every two years—and, if the review produced no agreement, the solution stood. Thorn did not believe that others would accept a permanent arrangement of that kind. One of his most chastening experiences in politics had been the missed opportunities of the previous eighteen months, when the Community could have been so much more helpful to the people of Europe.48 As if on cue, at the September 1982 meeting of the Foreign Affairs Council, the French Government, alone among the member Governments, refused to accept what was clear to everyone else. The 25 May agreement, which Pym had negotiated, provided for a refund to the UK in respect of 1982 of 850 mecus and it was accepted that the refund should be paid net of UK contributions to the budget. In other words, the UK would not contribute to its own refund. Despite the skilful chairmanship of the new Danish Foreign Minister and the similar efforts of the Commission, the French remained adamant. The source of the difficulty, so Pym told Cabinet, was that Cheysson, the French Foreign Minister, had given Mitterrand a more favourable account of the 25 May Agreement from the French perspective than the facts justified. It was clear that the negotiations on the longer term budget settlement would be difficult and rough.49 The new Danish Government, in the chair of the EEC for the second half of 1982, was facing domestic difficulties. Even more dramatically, in September the FDP, Schmidt’s partner party in the German governing coalition, broke the coalition and switched their support to the CDU, who entered government in partnership with the FDP in October. The regular Anglo-German summit was due to be held at the end of the month but Helmut Kohl, the new Chancellor, wanted to pay a quick early visit to London, as he had already done to Paris. “You are seeing Kohl privately on 19 October”, Pym wrote to Thatcher, “and again ten days later at the Anglo-German summit. At the first meeting, you will no doubt wish to stay off detail and concentrate on establishing trust and confidence . . . You have met Kohl. He is a nice man. He was never impressive in opposition, but I see no reason why he should not develop into a very good Chancellor of the committee chairman, rather than the national leader, type. In any case, I see every reason to build him up rather than write him down. Kohl is inexperienced, particularly in foreign affairs, his coalition shaky until the elections next March and his country’s economy on a downward slope. You will want to make the most of his and our common belief in conservative values, including the family . . . “Kohl has none of Schmidt’s hang-ups about the United States. He wants to lower the transatlantic temperature and get the Alliance functioning better . . . You could rub in the unique contribution made by Britain to the defence of Europe . . . You will want to start off with some warm words about Britain’s commitment to membership and to the Community’s future success and development . . . You could stress the common interest of Britain and Germany, as the two sole net contributors, both in restraining Community

Conflict: 1982–1983 237 expenditure, particularly on the CAP, and in ensuring a fair sharing of the burden. You could perhaps express surprise that the previous Government in Bonn drew so few operational conclusions from this fact.”50 Ten days before the summit the British Ambassador in Bonn called on Kohl, finding him relaxed and confident and, characteristically, more impressive in private than in public. The only subject where Kohl thought differences might arise between the two countries was the Community. Kohl’s main interest was to exchange views with Mrs Thatcher about domestic problems in Britain and Germany. This was something he could not do with Mitterrand, whose economic policies differed so much from those of the new federal Government. There was, Kohl feared, a growing, but not dominant, tendency in the FRG towards isolationism and even neutralism. Brandt was trying to shift SPD policies towards those of the Greens. The latter were dangerous for the Alliance. Brandt’s tactics were not in the interest of Germany. The degree to which SPD policies would alter would depend largely on whether Schmidt would stand as the party’s Chancellor-Candidate in the March elections. Many thought Schmidt would not. Kohl told the Ambassador that he wanted Anglo-German relations to be as close as possible. He favoured contacts between party leaders, a useful channel which Socialist parties were already exploiting. He was making efforts to bring forward younger politicians in the CDU and favoured contacts between them and the Conservative Party.51 At his meeting with Thatcher in London on 19 October 1982, Kohl began by speaking of the internal German situation. The former coalition had been bound to fall sooner or later. The SPD had been moving to the left, in much the same way as the British Labour Party. Schmidt had glossed over this trend for as long as possible, but now that there was a more difficult economic situation, and sacrifices were required, Schmidt’s party would not accept them. Schmidt himself was an opportunist and, now that he was out of Government, he was making speeches containing propositions of class warfare, which did not reflect his views or his background but which enabled him to run with the pack. He thought there were nine chances out of ten that Schmidt would retire and take up a roving statesman role in the style of Kissinger. The only motive that might move him to stay on in politics was spite towards Genscher. The FDP, Kohl continued, had been faced with the choice of either leaving the coalition or of disappearing altogether at the next election. Perhaps Genscher had made his decision to leave the previous coalition six months too late. He (Kohl) wanted the FDP to survive at the next election because a coalition was likely to have a bigger majority than his own party would have by itself, and such a majority would enable the Government to get through difficult measures. But the SPD were conducting a campaign for Genscher’s annihilation of a sort to which Genscher had not been accustomed in his political life, during which it had been customary for the FDP to be wooed from both sides. When the two leaders were joined by Pym and Genscher, the PM sought to make common cause over the EEC budget. She had, she said, noted a statement

238 Conflict: 1982–1983 by the FRG spokesman that Germany did not envisage any breach in the 1% ceiling for the Community’s Own Resources. Genscher corrected her: what the spokesman had said was that the 1% ceiling should not be exceeded so long as Spain and Portugal were not in the Community. Thatcher pointed out that if, after enlargement, the present financing system were maintained, Germany would continue to pay an unfair contribution. However, perhaps bearing out what Thorn had said to her about the benefits Germany secured from Community membership, neither Kohl nor Genscher picked up on the point. Kohl was more concerned about Spain. He had read “with great interest, and even greater displeasure”, the electoral programme of the Spanish Socialists. If this became policy, it would have serious consequences for Europe. In particular, their policy on NATO and on American bases was damaging. In some respects, the Spanish Socialists would be worse than the Greeks. Thatcher agreed that this situation was worrying. Spanish democracy was very fragile. The British Government had hitherto believed that it was important to admit Spain into the Community in order to protect democracy. Kohl commented that it must be “our type of democracy”. He wished to avoid a situation where some countries incurred all the obligations and others took the benefits. His prognosis for Spain was bad. Thatcher wondered whether it was necessary for Spain and Portugal to enter the Community together. Portugal was ready to come in and, in the interests of democracy, the EEC should facilitate their accession. Kohl said that, as he had told the Bundestag, Germany favoured the entry of both Spain and Portugal. That position remained valid. But if new circumstances arose in Spain after the election, it would be necessary to consider what should happen. The recently appointed Permanent Under-Secretary at the FCO, Sir Antony Acland, who was present and who had been British Ambassador in Madrid, observed that Spain was a weightier country than Portugal. It was necessary to make allowance for Spanish pride and the question of face. If Spain was rejected, the Spanish reaction could put democracy in Spain in danger. The PM commented that Mitterrand would find great difficulty in allowing Spain to enter the Community. So there was still a question of whether Portugal should move ahead alone. Kohl said he was very much favour of bearing in mind the Spanish national character, but not at any price.52 On a personal level, Thatcher was never capable of establishing a close relationship with Kohl, even though they were from the same political stable. Kohl was a tough politician but he was also someone who valued similarity of political background and looked for a relationship of trust in which political confidences could be exchanged. But the chemistry was never there and, much later in Thatcher’s premiership, Kohl took to meeting Thatcher’s last Foreign Secretary, Douglas Hurd, in Bonn in an effort to have the sort of discussion he was unable to have with Thatcher herself. There is a hint of this in Thatcher’s account to Cabinet of her first meeting with Kohl in his new role. The talks had gone well, she said, and she had found Dr Kohl’s approach encouraging. He had grown in stature with his

Conflict: 1982–1983 239 assumption of office and had been surprisingly optimistic about his Party’s prospects in the General Election due in March 1983. But, she added, Kohl would not necessarily prove easier to deal with than Schmidt from the point of view of British interests. Thatcher was, on the other hand, clearly impressed by Kohl’s economic policies: his Government were embarking on tougher measures to restore the German economy than would be acceptable in the UK. Pay and pension increases were being delayed for six months; the Civil Service pay increase was being held to 1.5%; and a tax to finance capital development was to be levied on the better-off in the form of a compulsory interest-free loan for three years. The readiness of the Germans to respond to this more disciplined approach meant that the FRG was likely to emerge from recession sooner than the UK and the competitiveness of British industry would again be eroded.53 A further factor in the Anglo-German dynamic would of course be the nature of Franco-German relations as conducted by the Socialist French President and the German Chancellor. Kohl’s first meeting with Mitterrand had, according to the Bonn Embassy, gone “distinctly well”. Kohl, said the Embassy, saw himself as the heir to Adenauer and, as such, he intended that the Franco-German relationship should remain the relationship that mattered most to Germany.54 By the time Kohl and Thatcher met again, for the Anglo-German Summit in Bonn on 29 October 1982, the Spanish elections had resulted in an overall majority for the Socialist Party under the leadership of Felipe Gonzalez. Kohl was dismayed at the outcome. Gonzalez had already made remarks against NATO in his victory speech. The European Community must recognise that the accession of Spain under such a Government would raise more problems than that of olives: although it was not a defence Community, defence issues could not be isolated from other Community interests. The Prime Minister shared some of Kohl’s anxiety. It was worrying that Gonzalez had made his remarks about NATO at the moment of his election victory. However, no doubt some allowance must be made for election rhetoric. In Greece, Papandreou had made similar remarks about his attitude to NATO, which had not been reflected in his subsequent actions. Kohl was disappointed by the poor performance of the Christian Democrats in Spain. He had worked hard for them for four years and had given financial help, although he had withdrawn some 18 months earlier when he saw the direction in which things were going. It would now be necessary to try to influence the new Spanish Government tactfully, but he could not be expected to open the gates wide to Spain in the EEC if the Spanish Government were to shut the door on defence matters. Thatcher observed that Britain had supported the accession of Spain, but it was difficult for Britain to influence Spain, particularly in the aftermath of Spanish support for Argentina over the Falkland Islands. Discussion of EEC budget issues at the Anglo-German Summit was largely left to Howe and his new German opposite number, Jens Stoltenberg, the two men agreeing to stick to the 1% ceiling for the foreseeable future and to resist

240 Conflict: 1982–1983 attempts by others to raise the ceiling in the context of Spanish and Portuguese accession. As regards the British budget contribution, Stoltenberg thought it realistic to look for a solution of the 1983 problem, with a duration of two to three years. It would, Stoltenberg said, continue to be important to check Community expenditure, especially on the CAP. Both sides, he added, had agreed that the ERM contributed to stability and convergence, but Howe had said that the British felt that they could not at present join because of special features in the British economy, including Britain‘s status as an oil producer. At her post-Summit Press Conference, the Prime Minister was upbeat. The news from the Community over the past few days had been very good and had generated renewed faith in it as well as a determination to sort out the Community’s problems. To get a steel agreement had been an achievement. So too had been agreement on the budget (the French having given way). She hoped very earnestly that these achievements would be followed up by the first long-term agreement which the Community would have made for a long time, namely the fishing agreement, which had been concluded on terms satisfactory to the UK and agreed by all Member States (except Denmark, on whom huge pressure was being applied). “Throughout”, the Prime Minister continued, “our approach has been very constructive to all Community problems. If big budget problems come up in the future, we shall have to tackle them again on a strategic basis . . . When we met together in London, I said that there was a great meeting of minds . . . [We] are on the same wavelength. I think the talks we have had today . . . have given a great feeling of confidence for the cooperation and fruitful cooperation in the future. One can ask no more than that.”55 Thatcher’s report to Cabinet five days later was markedly less upbeat. Her discussions with the German Chancellor had not achieved much. It had been clear that Kohl wanted to be seen to be getting on well with everyone but did not wish to negotiate seriously about contentious issues before the German elections in March 1983. At the Summit, German Ministers had taken a strongly anti-protectionist line, but had failed to give any convincing reply when she had pointed out that the CAP was in itself highly protectionist and that the Community had failed to legislate for free competition for insurance and air fares. Like so many Governments, the new German Government was strongly in favour of free trade except when it suited them otherwise.56 The Prime Minister was similarly downbeat when, on 11 November, she gave Cabinet her impressions of the Anglo-French Summit that had been held a week earlier. The main outcome had been an agreement that officials would be in more regular contact than previously, so that each Government would get to know more of what the other thought and the possibilities for agreement be more thoroughly explored. Some of the bilateral meetings between particular Ministers at the Summit had, she said, been businesslike and reasonably friendly; others had been rather acrimonious. Regardless of the atmosphere in each particular bilateral, the relevant French Minister had then, at the plenary session, read out a prepared statement which underlined the

Conflict: 1982–1983 241 French difficulties, and appeared to take no account of any cooperation that had been achieved in the bilateral discussions. Mitterrand’s presentation to the Press afterwards had been reasonably satisfactory, and the decision by the French Government to abstain in the UN vote on the resolution about the Falkland Islands had been most welcome and no doubt accounted for by the fact that British Ministers were in Paris at the time.57 Germany’s stance in the budget negotiations remained a source of concern in Whitehall. According to the Cabinet Office, in a minute from Hancock to Coles in No. 10, “a number of reasonably well disposed people have advised us not to link our case with Germany in our public statements”. The PM had had that message from Thorn and the Luxembourg Prime Minister. Sir Michael Butler had had the same message from other Permanent Representatives in Brussels. Some of their Governments were evidently resentful because they believed the UK was stirring up German public opinion on the question of Germany’s budget contribution, and thus forcing the German Government to be more restrictive than they would otherwise be. It was also being argued that the result was not, in any case, beneficial to the UK since the refusal of the German Government to pay their normal share of refunds to the UK undoubtedly made it more difficult for Britain to obtain the scale of refunds that she required. The German line in the 1982 negotiations, Hancock continued, had thus far been far from helpful to the UK and there had been no change for the better since Kohl had come to power. Both he and his Finance Minister had told Thorn that Germany did not have a budget problem as such: they only had a problem if the UK insisted on a refund. They had also said that the new German Government would be ready to contribute even less to any future UK refunds than in 1982 (when they had contributed only half their normal VAT share). Hancock proposed a new public line which would make the point that, in the original Six, the financial arrangements had been felt to be fair; but in an enlarged Community it was clear that the arrangements needed adjustment to preserve that sense of fairness and to permit the development of Community policies. Asked whether she agreed with this new line, the Prime Minister wrote: “Generally, yes.”58 After Cabinet on 21 October, the PM held a meeting with Howe, Pym and Walker to consider policy on the EEC budget issue. A refund had been agreed for 1982 but the argument would have to be renewed for 1983. Walker suggested that one approach to 1983 would be, once again, to use British leverage over the agricultural price settlement. Clearly, the UK could not, given the experience of 1982, make an overt link between the price fixing and the budget, but it would be open to the Government to oppose the price fixing commodity by commodity on merits until such time as a budget deal had been done. At that point, the Government could, without admitting why they had changed their minds, agree to accept the majority view in order to enable the price agreement to be implemented. The UK’s bargaining position would, Walker said, be strong because all the other Member States would, for political reasons, need a higher price settlement than would be acceptable to

242 Conflict: 1982–1983 the UK. France, Greece and Italy had an inflation rate way above that of the UK. Ireland, Denmark and Belgium all had minority Governments and their farmers were in serious financial difficulties. Even the German Government would require a substantial price increase: they would not wish to alienate the farmers’ vote in the period before the election in March. Given the flaws in Walker’s plan—the principal one being that its blatancy would have been obvious to Britain’s partners—the meeting gave the scheme more consideration than it deserved. Ministers thought that it had tactical advantages compared with an early threat to withhold. But it would not be without cost at home since Walker would be required to say that he disagreed with the agricultural price proposals on their merits and then suddenly say that he accepted them. It would be essential to ensure that the negotiations on the price review and the negotiations on the budget proceeded in parallel so that the other Member States would have the incentive to meet the UK on the budget at the right time. It was for consideration whether the Government should confine its opposition to only the main agricultural commodities under discussion so that the UK was not in a minority of one in relation to all of them. On the wider budget issue, the meeting heard that, according to the most recent assessment, the ceiling on Own Resources would not be hit in 1983, and possibly not in 1984 either. There might in any event be measures, such as an agricultural co-responsibility levy, which would stave off the crunch. Ministers agreed that the UK would now put the pressure on and get a negotiation going. The British Commissioners were deemed not to have been active in furthering the British interest and the PM would talk to at least Tugendhat in the near future. The PM summed up that the short-term solution potentially on offer would be a very bad deal for the UK and very difficult to defend to Parliament and the country. The UK negotiators should, therefore, never attempt to secure too little. A further 250 mecus could be conceded in full and final settlement of the so-called “overpayment” claim, but only on condition that the Community agreed to 66% refunds, plus satisfactory risk sharing for an indefinite period up until such time as there was agreement on a fundamental change in the financing system. The tactical plan to exploit the 1983 price review suggested by Walker should be further pursued. The UK would retain the option of withholding if it failed. The PM said she would interview Tugendhat on a convenient occasion and seek to persuade him of the need to fight more effectively for British interests in the Commission. The FCO should supply briefing on how such an interview might most effectively be conducted, with an explanation of the terms of the British Commissioners’ appointments and period of office.59 The Foreign Office’s advice, when it came, cannot have been especially pleasing to the Prime Minister. “We very much doubt”, the FCO wrote, “that Tugendhat would in fact be able to persuade his Commission colleagues not to take action if we were to withhold in the context of the Council’s failure to agree on a solution for 1983 and later . . . It is of course conceivable that our

Conflict: 1982–1983 243 partners might ‘not take it too tragically’ if we withheld; it would have little financial effect on them for a year of more. But we consider it a great deal more likely that they would not take it quietly. They would see it as a chance to isolate us on a point where we would be on weak ground legally, and they would hope to reduce the pressure on them to take the politically unwelcome step of agreeing to further refunds.” Nor did the Foreign Office think it a good idea for the PM to speak to Ivor Richard, the second British Commissioner, who came from the Labour Party. He was unlikely to be responsive and might want to gain favour in the Labour Party by demonstrating that he was defying such advice. Sir Michael Butler would do his best, in the course of normal business in Brussels, to enlist Richard’s support. The Foreign Office went on to point up the Treaty obligation on Commissioners to be “completely independent in the performance of their duties”, and neither to seek nor to take instructions from any other body. Moreover, there was an obligation on each Member State “to respect this principle and not to seek to influence the members of the Commission in the performance of their tasks”. “Practice in Brussels does not in fact live up to this ideal, at least in respect of seeking to influence Commissioners”, the FCO continued, “but the principle . . . remains valid. It is therefore important that any such efforts should remain confidential and disavowable.”60 With the final European Council of 1982 only a few weeks away, in midNovember the Commission submitted their proposals for solving the British budget problem for 1983. In an analysis of the paper for the Prime Minister, Hancock noted considerable progress. The Commission now accepted that a new budget system was needed, and that the UK budget problem was persistent and needed to be solved within that new system. There was no suggestion that future refunds should be degressive. The outline of a formula for the period immediately ahead was imprecise but offered the hope of a solution within the objectives set by British Ministers. The two most unsatisfactory aspects of the paper were its assumption that the VAT ceiling would have to be raised and its suggestion that the new solution for Britain should be confined to 1983 and 1984, with the possibility of extension to 1985. Presciently, Hancock advised that “given the way that the Commission have decided to play their hand, it now seems unlikely that negotiating about future Own Resources will come to a head during 1983 or even before the middle of 1984. The issue is therefore unlikely to arouse great public interest before the General Election . . . As the PM already knows, I am not at all optimistic about our chances of securing, in the period before the Community’s financial system is fundamentally reformed, a solution which is both (i) of indefinite duration and (ii) sufficiently favourable to the UK. I therefore feel that Ministers will eventually have to choose between an indefinite duration and the size of the refunds.” To Hancock’s suggestion that, at the Foreign Affairs Council, the Foreign Secretary should cast doubt on the case for an increase in Own Resources, the

244 Conflict: 1982–1983 Prime Minister commented: “We must not increase Own Resources. Own Resources must not be increased. But enlargement may be far away bearing in mind that we can’t agree to Spanish accession while the gates to Gibraltar are closed.”61 The first discussion of the Commission’s paper by European Foreign Ministers was brief and, not surprisingly given the helpfulness of that paper from a British perspective, mostly hostile. The issue was remitted to the Permanent Representatives. Discussion at the 3–4 December 1982 European Council in Copenhagen also got nowhere, despite what Mrs Thatcher described as the able chairmanship of the Danish Prime Minister, Poul Schlueter. Two current issues had, Thatcher told Cabinet, been of special interest to the UK: fish and the budget. On fish, the Danes were still unable to accept the deal agreed by all other Member States and appeared to be asking for one or two concessions outside the package. She had made it clear that negotiations had come to an end. No progress had been made on the budget issue. Mitterrand had told the press, unhelpfully, that the UK was asking for more money “as usual”. The matter had been referred back to the Foreign Affairs Council and, if they failed to produce a solution, to the next meeting of the European Council in March, which would be dominated by the budget problem. This would, in Thatcher’s view, be unfortunate but might well prove unavoidable. If lasting solutions could be found to the problems of fish and the budget, a great deal of antiCommunity feeling in the UK would go away.62 In a pre-Christmas minute to No. 10, entitled “Community Budget Problem—Game Plan for 1983”, Hancock noted only three levers of pressure available to the UK: the possible exhaustion of Own Resources; the 1983 agricultural price review; and withholding. All three had, in his view, their limitations but the Government could not afford to neglect any of them entirely. Under the terms of Article 201 of the Treaty, the UK would have an absolute veto over any increase in Own Resources and could therefore impose conditions as the price of her agreement. This lever would not, however, be effective in 1983 because the Own Resources would not run out until later. To concede an increase would imply an extension of the range of Community activity, which might be unwelcome to domestic opinion. On the other hand, the UK could not realistically expect to veto an increase in OR when the agricultural budget ran out of money and to get agreement to a lasting solution to the UK’s budget problem. [MT: “why not?”]. On withholding, Hancock wrote that contingency plans were well in hand. But withholding was the most difficult lever of all. Mishandled, it could do more harm than good. For example, the other Member States might decide to make life in the Community so difficult for the UK that the Government would be forced to choose between backing down and leaving the Community. The French at least would be likely to consider retaliating against British agricultural exports. All the other Member States and the Commission would become progressively less willing to pay attention to British interests when taking commercial and

Conflict: 1982–1983 245 agricultural decisions that, under the Treaty, were for decision by majority vote. It was unlikely that the UK would be allowed to invoke the Luxembourg Compromise on any issue if the others all agreed that the UK action in withholding had been inconsistent with Community membership. To avoid collective reprisals, the UK would need to be seen to have a grievance that was privately recognised to be legitimate by at least some of the other Member State. The circumstances and tone of voice would be of major importance.63 As if on cue, withholding came back on the agenda in the week before Christmas when the Chancellor reported to Cabinet that the European Parliament had voted to reject the Amending and Supplementary Budget for 1982, which had included provision for the payment to the UK of refunds before the end of the year as a charge on the 1982 budget. Serious though this was, it did not, according to Howe, necessarily mean that the UK would fail to get the money by the end of the year. It might be possible to persuade Thorn, who happened to be in London, to authorise the Commission to transfer the funds into their account in London before the end of the year, and thence to the British Government before the end of the financial year. The Prime Minister said that, if she were asked about the issue in Prime Minister’s questions in the House of Commons that afternoon, she would be bound to say that, if the terms of the agreement were not fulfilled, the possibility of withholding part of the British contribution to the Community in order to achieve the result intended by the Council of Ministers would have to be seriously considered. In the event, the issue was not raised.64 As 1983 began, withholding was again on the agenda. Hancock had received what he told No. 10 was a “troublesome report” from Michael Butler, emanating from a wide range of sources in Strasbourg, that MEPs believed that the PM had decided that she would withhold the UK contribution to the European budget shortly before the next British General Election, regardless of what was done in Strasbourg or Brussels or anywhere else. This rumour needed to be scotched by means of briefing from No. 10. Hancock proposed a form of words which, with the Prime Minister’s own amendment, was agreed as follows: “The Prime Minister earnestly hopes that a solution to the current budgetary problems—both over 1982 refunds and over 1983 and later—will be found so that no question of withholding will [MT: ‘could’] arise before the General Election.” In explaining her amendment, the PM wrote: “‘See comments on the formula. This sounds as if we shall withhold immediately after the General Election.” The Prime Minister’s Press Secretary, Bernard Ingham, was not impressed. The proposed formula, he wrote, would, even as amended by the PM, only encourage speculation about withholding. Playing clever and using fancy words would rebound: “We must hit the Strasbourg rumour firmly on the head. Direct methods are invariably sound and efficacious.” Ingham proposed a different line: “We have heard rumours circulating in Strasbourg that the PM, wholly for electoral reasons, will withhold UK budget contributions before a General Election regardless of the outcome of any

246 Conflict: 1982–1983 budget solution in the meantime. This is monstrous. The PM is not in the business of withholding for the sake of it; of being a bad or gratuitously difficult partner; of playing confrontation politics for the sake of some alleged electoral advantage at home. I propose to scotch this once and for all. The allegation is monstrous, unfounded, and disgraceful. The PM is very much in the business of securing early reform of the European budget, not least because it is in the interests of the development of Europe, and the PM is politically and economically committed to Europe, as she had repeatedly made clear. The last thing she wants to contemplate is withholding—and both she and her Government do not expect the issue to arise.”65 With Chancellor Kohl facing an election in Germany on 6 March 1983, British expectations of the German Presidency of the Community, which had started in January, were not high. Yet when Kohl came to Chequers in early February, he responded positively to Thatcher’s insistence that the problem of the UK’s 1983 refund should be settled by the Germans during their term. The German Government would, Kohl assured her, have this matter very much in mind in preparing for the June European Council. It was a strong German interest that the British Government should be able to present its membership of the Community in a favourable light to its electorate and go into its expected election with its European colours flying high.66 When the Prime Minister chaired a meeting of senior Ministers later in the month, the first point on the agenda was whether the UK should in any circumstances indicate a willingness to be more flexible on the Own Resources ceiling. The PM’s own view had become more tactical than hitherto. She feared that the Government would be “inched towards it by negotiating stages and find ourselves having conceded a further surrender of sovereignty to the Community which would not be in the national interest nor meet the wishes of the British public. If the CAP was properly run, there would be no case for an increase.” Pym agreed with her—in principle—but feared that it would not be possible to get agreement to a lasting solution without, at the appropriate moment, making a concession on Own Resources. For that reason, he thought it would be unwise to use the word ‘never’. Howe feared that the UK might face the worst of two worlds: an increase in the UK’s gross contribution as a result of the ceiling being raised coupled with an inadequate corrective arrangement. The Ministers (Walker included) did agree without difficulty to drop Walker’s earlier plans for holding the agricultural price settlement to ransom. Decisions on the price fixing should, they decided, be taken on their own merits and the UK should not seek to make a link with the Budget negotiations. Ministers accepted that the June European Council would not agree on a lasting solution for the UK. But the Government’s opening position should be that the arrangements for 1983 and later should last until a fundamental reform of Community finances had been implemented. If that did not work, the Government should accept three years. In the very last resort, an interim

Conflict: 1982–1983 247 arrangement, for 1983 only, could be accepted but should not be hinted at in advance. By the end of the meeting, agreement had been reached to resist any proposals to increase the Community’s total revenues, but with a proviso. “In the last resort, however, it might be right to concede an increase in the Community’s total revenues provided that it was combined with a corrective arrangement that would ensure that the UK’s net contribution never rose higher than what it would be with two thirds under the existing OR system.”67 At Cabinet on 3 March 1983, the Prime Minister gave an account of a meeting she had held earlier in the week with the British Conservative members of the European Parliament. She had told them that it was essential that the budget problem be solved by June. The UK still had absolutely no protection for 1983 and it would be impossible for the Government to go into an election campaign with the problem unsolved. The Government would therefore be obliged to contemplate withholding if nothing were done. It was unfortunate, Thatcher told Cabinet, that reports of this private discussion had appeared in the Press. In the ensuing Cabinet discussion, some suggested that some of the positions taken by the UK in Community negotiations carried the risk that the Government would appear to the British public as hostile to the Community. On the other hand, it was argued that, by firmly defending British membership and, at the same time, fighting hard for British interests within the Community, the Government occupied a comfortable position between those who wanted to withdraw and those who admired the Community uncritically. In any case, British public opinion would turn against Community membership if nothing was done about the UK’s net contribution to the Community budget, which was likely to be well in excess of £1 billion if it were not corrected.68 In Germany, Kohl won a convincing victory in the General Election and the coalition with the FDP was maintained. The new Government was not due to take office formally until the end of March or to make its declaration of policy to the Bundestag until 25 April. But Mrs Thatcher lost no time in returning to the charge on the budget. She telephoned Kohl on 19 March 1983, following a meeting with the Commission President 48 hours earlier which had left her “deeply concerned, and indeed dismayed”, because he had virtually said that no one in Europe was prepared to discuss the budget formula for 1983 except for the German Chancellor, and Thorn had seemed unwilling to do anything about it. That would not do. She had been very patient and reasonable. But, to her utter amazement, there was no urgency in the Commission. She would be closely cross-examined in Parliament on her return from the European Council (which was to take place two days later) and she had to be in a position to say that there had been an instruction both to the Commission and to and the Foreign Affairs Council to settle the matter in May. She feared that the Commission were frightened to death of the European Parliament and therefore would not do what had to be done. Thus, she and the Commission were on a collision course.

248 Conflict: 1982–1983 Kohl, who had scarcely been able to get a word in edgeways, drew Thatcher’s attention to the fact that he had other difficulties, notably a currency realignment within the ERM, but he was, he said, “clear about your difficulties”.69 It is striking that Kohl and Thatcher, who had known each other since the late 1970s, were still (and largely remained) only on formal speaking terms with Thatcher addressing him as “Chancellor Kohl” and he addressing her as “Prime Minister” throughout the conversation. In the event, Kohl delivered. The March 1983 European Council agreed that refunds would be made to the UK in accordance with the undertaking made by EEC Foreign Ministers in October 1982 and that consequential figures for 1983 would be incorporated in the draft Community Budget for 1984. Even Thorn appears to have earned the Prime Minister’s gratitude for this outcome. She was, she wrote to him, grateful for his, and the Commission’s, part in securing a satisfactory outcome. “Of course”, she added, “the real negotiations still lie ahead and the Commission will need its skill to steer them to a successful conclusion. But I feel that we have now made a good start down the right road.” To Kohl, Thatcher wrote: “I want to congratulate you on a successful European Council . . . I am particularly grateful for your help . . . I recognise that difficult negotiations lie ahead. But I feel that, under the German Presidency, we are now back on a constructive course.”70 To her Cabinet colleagues Thatcher reported that, after a difficult first day, the UK had done better than might have been expected. Kohl had been a strong and effective Chairman and the German Presidency had tabled helpful draft conclusions. Mitterrand had not played a substantial part in the proceedings, no doubt because his attention was concentrated on France’s domestic political and economic problems, and reservations by Denmark, Greece and Ireland about a reference to budget imbalances had not affected the final result. The negotiations to achieve a settlement in June were going to be very difficult, but the formula for 1980 to 1982 refunds was a perfectly good basis, and the real argument would be over amounts.71 Kohl was due in London in late April for an Anglo-German summit. In briefing the PM, Hancock drew her attention to the FCO’s general brief which said that “relations between London and Bonn have rarely been closer; those between Bonn and Paris are less intimate than for a long time”. Hancock thought the PM might be interested in a few words of explanation. When Schmidt had been Chancellor, the German Government had always given priority to the relationship with France. Schmidt had frequently expressed in private views sympathetic to the UK, but had not translated them into action because to do so would have displeased the French. Features of French policy of which Schmidt disapproved were tolerated in order to foster the relationship. Things were now different. For example, Kohl had gone out of his way to secure agreement at the Brussels European Council to budget conclusions acceptable to the UK. Kohl had, Hancock had since learned, checked that the draft was acceptable to the UK and had then told Mitterrand, very firmly, that

Conflict: 1982–1983 249 he expected France to accept it as well. Mitterrand had eventually done so, even though French officials had produced a rival draft. British officials had not seen the draft but were “confident [it] would have been unacceptable to the PM”. No official dealing with European matters could remember an incident quite like it. The historic pattern had been for Germany to use her influence to try to get the UK to agree to propositions that met French political requirements. By contrast, German contacts with the French were now less intimate than they had been. Kohl disapproved of the economic policies that had led to the recent troubles of the French franc, and he had no sympathy with French protectionist tendencies. Schmidt would not have allowed the recent dispute about the EMS realignment to have gone on so long, or become so obvious in public. It was not unrealistic to hope that the Paris/ Bonn axis would now loom less large and that the UK might be able to superimpose upon it a triangle in which both France and Germany regarded the UK at least as warmly as each regarded the other. Hancock did, however, warn of one fly in the ointment: “Kohl is idealistic about the European Community in a rather cloudy way. He is fond of describing himself as Adenauer’s heir. He is reported to be distressed by what he regards as nationalistic behaviour of other Member States. He may need to be convinced of the sincerity of the British Government’s commitment to Europe.” Hancock accordingly recommended that the PM should repeat what she had already told Kohl, namely that she was fighting in order to remove this last major obstacle in the way of willing acceptance of Community membership by the vast majority of the British public. It would also be worth stressing that British Ministers had lots of constructive ideas about the future of the Community.72 The British Embassy in Bonn also saw a moment of opportunity for AngloGerman relations, since Kohl’s election victory had given him the prospect of being the major figure in federal German politics in the 80s. The FrancoGerman relationship remained indispensable to the Germans, but tensions between Bonn and Paris had constrained the atmosphere of trust which had existed previously. Kohl would continue to be helpful to the UK over the budget and it would pay large dividends if the UK could respond by gestures on matters of importance to him.73 The difficulty of turning these fond hopes into reality soon became apparent. There was harmony between Kohl and Thatcher in their discussion in London on the Budget, but also the first open evidence of a very different approach to the future development of the Community. For some months, discussion had been going on in Brussels on a document drafted by Genscher and the Italian Foreign Minister (Emilio Colombo). It was designed to pave the way for European Union, a concept then somewhat imprecise but replete with the kind of political promise which the British found threatening. It had originally been presented as a draft “Act” of the European Community but the British, fearing that this would make it look to sceptical eyes in the UK like a binding legal commitment, had secured acceptance that it would instead be a

250 Conflict: 1982–1983 solemn declaration. The Germans also wanted the text to commit the Community to majority voting where the Treaty so provided, but the UK could not accept any substantive change to the Luxembourg Compromise. Now, at the Summit, Thatcher explained to Kohl that the Luxembourg Compromise had been part of the terms on which Britain had joined the Community in the first place. It had been included in the British White Paper on membership to which, so the British Government believed, other members of the Community had assented. Kohl said that he applauded what he called the Prime Minister’s spirited remarks. But the Community must not be limited to an institution for exchanging money. He urged the Prime Minister to consider the matter constructively and in a far-sighted spirit. The German Government had done much in the interests of Europe. They relied on the good will of their partners in making reciprocal gestures. People would find it hard to understand if, at the end of the third session of the elected European Parliament, no progress had been made on European integration. Progress in this direction was essential to maintain the westward orientation of the FRG and to counter the nationalism to which East Germany was increasingly resorting. Mrs Thatcher said that she was wholly committed to the European project, but she believed that progress could only be made through solving practical problems such as the Budget, the internal market and lorry quotas. Some issues were fundamental in terms of the equity that was at the heart of British law. Germany had special treatment under the Treaty in terms of her relationship with East Germany. For Britain, the Luxembourg Compromise was part of her special position. The UK had not been ungenerous to the Community: she had contributed her fish to the Community; she expected to go on making a net contribution to the Budget and she provided much of the market for the agricultural products of others.74 Despite these differences, Thatcher considered the visit to London by Kohl and his senior colleagues to have been “outstandingly successful”. The atmosphere had been genuinely friendly and Kohl himself had performed more impressively than on previous occasions. The visit had been, she believed, good for Anglo-German relations and for Europe. It had, however, been necessary to remind the Germans of the undertaking to find a solution to the problem of the British 1983 refund before the end of their Presidency at the end of June.75 Optimism waned quickly. By early May 1983, Howe was warning Thatcher that, although the Stuttgart European Council was less than five weeks away, progress towards an interim budget solution had been minimal. He had learned in confidence that the German Foreign Office had drafted a Presidency compromise proposal which would appear to give the UK a fixed refund for 1983 of only some 400 mecus net, compared with the UK’s objective of a basic refund of 1320 mecus (66% of the UK’s likely net contribution of 2 billion ecus). This, according to Howe, was “all very unsatisfactory”. He and Pym proposed to take an early opportunity to table the UK’s own ideas for an interim solution, making it quite clear that the only basis for a settlement was

Conflict: 1982–1983 251 for a refund of 66%. “If you too agree, we would propose to launch a preemptive strike at the informal meeting of Foreign Ministers on 14/15 May.”76 But, before that could happen, there was to be another pre-emptive strike. On 9 May, the Cabinet approved the Prime Minister’s proposal to ask The Queen for the dissolution of Parliament on 13 May with a view to a General Election being held on 9 June 1983.77 An election had been in the air for some time. It was usual for governing parties to seek election some four years in to their five-year term and the Government’s popularity had grown on the back of the Falklands victory and the evidence that their economic policies were starting to produce results. Thatcher therefore went into the election as the firm favourite to win, not least because of the leftward tilt of the Labour Party under its new leader, Michael Foot. Labour entered the election on a policy of withdrawal from the European Community. “The next Labour Government”, read their Manifesto, “committed to radical, socialist policies for reviving the British economy, is bound to find continued membership a most serious obstacle to the fulfilment of those policies . . . For all these reasons, British withdrawal from the Community is the right policy for Britain—to be completed well within the lifetime of the Parliament . . . There will need to be a period of transition, to ensure a minimum of disruption . . . This will enable us to make all the necessary changes in our domestic legislation. Until these changes in UK law have taken place, the status quo as regards particular items of EEC legislation will remain. And this period will, of course, extend beyond the date when we cease, formally, to be members.” The Conservative Party manifesto described the creation of the European Community as “vital in cementing lasting peace in Europe and ending centuries of hostility”. The Conservatives had come to office “determined to make a success of British membership of the Community. This we have done.” A Conservative Government would continue “both to oppose petty acts of Brussels bureaucracy and to seek the removal of unnecessary restrictions on the free movement of goods and services between Member States, with proper safeguards to guarantee fair competition”. “The Labour Party”, the Manifesto continued, “wants Britain to withdraw from the Community, because it fears that Britain cannot compete inside and that it would be easier to build a Socialist siege economy if we withdrew. The Liberals and the SDP appear to want Britain to stay in but never to upset our partners by speaking up forcefully. The Conservatives reject both extreme views. The European Community is the world’s largest trading group. It is by far our most important export market. Withdrawal would be a catastrophe for this country. As many as two million jobs would be at risk. We would lose the great export advantages and the attraction to overseas investors which membership now gives us. It would be a fateful step towards isolation, at which only the Soviet Union and her allies would rejoice.” In the event, Europe was just one of a number of issues, notably the economy, defence and the image of the Labour leader which persuaded the

252 Conflict: 1982–1983 electorate to give Mrs Thatcher a second term. The Labour Party had seen defections, partly over Europe, from leading pro-Europeans, including Roy Jenkins, David Owen and Shirley Williams, who had formed a new centre party, the Social Democratic Party (SDP). Although the SDP made few inroads in the election, its very existence was a reminder of the leftward tilt of the Labour Party. The Conservatives increased their seats by 38 and Labour lost 52 seats. Thatcher’s overall majority went up to 143 in the biggest landslide since 1945. The German Government had wisely postponed the Stuttgart European Council until after the British election. By the time it took place, Thatcher had dropped “one would-be pilot whose sense of direction had on several occasions proved faulty”, namely Francis Pym, who returned to the back benches.78 Not surprisingly, Pym himself saw things differently. On taking over from Carrington he had, he later wrote, found not only a total impasse in negotiations between Britain and her partners, “but also a feeling of frustration which could easily turn into bitterness . . . The British position was untenable. It suited us, of course, but the other nine could not possibly have agreed to it . . . My advice was at first criticised by the Prime Minister and the Chancellor of the Exchequer, who felt that I was not sticking up for Britain’s interests with sufficient vigour.”79 Pym’s realism and moderation had prevailed, and it was perhaps for those qualities that he could not be forgiven by the Prime Minister who, in Pym’s judgement, “likes everything to be clear-cut: absolutely in favour of one thing, absolutely against another”. In any event, Pym was replaced as Foreign Secretary by Geoffrey Howe, the man who was later to be Thatcher’s nemesis. He had not been Thatcher’s first choice. That would have been Cecil Parkinson, hitherto Chairman of the Conservative Party and someone who was politically close to Thatcher. But Parkinson’s fathering of a child with his secretary ruled him out for the job, although he remained in the Cabinet. “I wanted to promote Geoffrey as a reward for all he had done”, Thatcher wrote in her autobiography, “but I had doubts about his suitability for the Foreign Office. And, in retrospect, I was right . . . He fell under the spell of the Foreign Office where compromise and negotiation were ends in themselves. This magnified his faults and smothered his virtues.” Among those virtues, as identified by Thatcher, was that he would be “a perfect right-hand man for the European Councils I attended”.80 Those virtues were to have an early test. The British Ambassador in Paris, Sir John Fretwell, had warned that the French would not be prepared to settle the UK interim budget question at the Stuttgart summit. The French aim was to use Stuttgart to launch the major negotiation on EC budget restructuring. French officials argued that long term reform could be agreed by 31 December and that there was no overriding reason to settle the UK’s 1983 refund before then. But the Foreign Office’s overall view was upbeat. The Permanent Under Secretary, Sir Antony Acland, told the new Foreign Secretary that the return to power of a Conservative Government in Britain would usher in a period of

Conflict: 1982–1983 253 electoral stability in Europe while, across the Atlantic, Reagan’s fortunes were looking up. European policy presented particular difficulties, but opportunities as well. “The last Government”, Acland believed, “had a difficult task in recovering the ground lost in the Community as a result of the atmosphere created by renegotiation and the subsequent conduct of policy by the Labour Government. A residue of suspicion still remains and there is a resulting tendency on the part of our partners to set higher standards for British behaviour than they do for themselves. And our budget problems have kept alive the feeling that we are uncomfortable and demanding partners in Europe. This can, however, now change. The election can reasonably be interpreted as final confirmation—if this were needed—of the British national commitment to Europe. We can build on this, not only in the Community, but also in our bilateral relations in Europe, especially with France and Germany . . . There is no more important foreign policy task for 1983 than to agree an improved financing system which the UK can live with for the indefinite future, with an adequate refund for 1983 as an essential objective . . . If you were to ask me to set immediate priorities, I would put the European Community first.”81 Two days before the European Council, the new senior Ministerial team met under Thatcher’s chairmanship. In addition to Howe, Nigel Lawson, the new Chancellor, and Michael Jopling, the new Minister of Agriculture, were present. Howe reported that there had been very little progress at a meeting of the Foreign Affairs Council on 13 June 1983. Despite the conclusions of the March European Council, the French Minister, in particular, had not been willing to discuss the UK refund for 1983 so long as the debate on the future financing of the Community was not fully engaged. Lawson said that it now seemed very probable that it would be necessary for the UK to withhold funds immediately after the next meeting of the Foreign Affairs Council in July. Jopling agreed that a robust attitude was necessary but there were some areas, such as the renewal of the arrangements for the import of New Zealand butter into the Community, on which the Government could expect difficulties from other Member States if it was in confrontation with them. The Prime Minister said that she attached the highest importance to the adherence to the conclusions reached by the EEC Heads of Government in March. If, at the Stuttgart meeting, the UK could not persuade other Member States to comply, then the Government should withhold funds after the July meeting of Foreign Ministers. There would be no retreat. A draft White Paper and a more detailed paper on withholding should be prepared for collective consideration by Ministers after Stuttgart.82 Whether Howe was or was not already exhibiting the tendency to compromise that Margaret Thatcher detected and deplored in the FCO, he put pen to paper immediately after the meeting to urge that the UK not talk openly about withholding at the Stuttgart meeting. Acknowledging that he had always been an advocate of withholding, Howe now advanced three arguments for caution, which Thatcher accepted: (i) the need to guard against subsequent accusations

254 Conflict: 1982–1983 that the UK was already determined to withhold, come what may; (ii) the danger that, by declaring an intention to withhold in advance, the UK could lay itself open to a forestalling action in the ECJ; and (iii) the risk that other Heads of Government, particularly Kohl and Mitterrand, might be placed in an impossible political position if faced with an express threat of illegal action. Instead, Howe and Thatcher agreed a form of words to use at Stuttgart: “If the figures for 1983 are not incorporated in the draft Community budget for 1984, it will be because our partners have failed to meet a commitment which they have repeatedly reaffirmed—without linkages or conditions—and most plainly at the European Council in March. In such circumstances, we would have no alternative to taking—and we would take—whatever measures are necessary to remedy this situation.”83 Thatcher had sent a message to Kohl, stressing the importance and urgency of the situation. By Cabinet on the eve of the summit there was, it was reported, “some evidence that the Germans, foreseeing the risk, were now increasing the effort for a solution”. Cabinet agreed to the stance which senior Cabinet members had earlier adopted and the Prime Minister concluded: “It was necessary that other members of the Community should be in no doubt that the UK might be driven to withhold Community funds and that, if so driven, would be prepared to take this action. She hoped that the Government would not in the event be obliged to carry this threat out.”84 That hope proved realistic, thanks to what Thatcher called determined, effective and helpful chairmanship by Kohl at the European Council and, perhaps, thanks to the fact that the other European leaders now knew they would have to deal with Margaret Thatcher for a further five years. “Whether it made a psychological difference in their minds or not, I don’t know”, Thatcher said at her end of summit Press Conference, “but I did make it perfectly clear that I thought we had done an extremely good job, really throughout our membership, and through the election, in demonstrating our loyalty to the European ideal and to the European Community, and all question about whether we are in or out, I think is out of British politics.”85 The agreement reached was for a 1983 refund for Britain of 750 mecus (£437) net, to be included in the Community’s 1984 draft budget. This figure was not hailed as a triumph in the British media, reflecting, according to Bernard Ingham, “Fleet Street’s (and Britain’s) dislike of a winner and its early determination in your second Government to take you down a peg or two”.86 Not surprisingly, therefore, the Prime Minister was at pains, in reporting to the House of Commons, to stress that, for the four-year period 1980 to 1983, the UK would have received budget refunds of more than £2,500 million— roughly two thirds of its unadjusted net contribution. In response to a pertinent question from a young Labour MP named Jack Straw, Thatcher did, however, acknowledge that the refund for 1983 would be only around 40% of what would otherwise have been the net contribution.87 One issue from the Stuttgart summit received little attention in the PM’s Press Conference, her report to Cabinet or in the House of Commons. One of

Conflict: 1982–1983 255 the things that Margaret Thatcher had agreed at Stuttgart was the Solemn Declaration on European Union. Taxed by one journalist for its vagueness, the Prime Minister, acknowledged that “yes, Solemn Declarations tend to be [a bit vague] but they do tend to be a renewal of the principles and ideals which brought the Community together and really these are very important . . . One of the things that I always constantly say at home is one of the reasons why I, myself, am a great, passionate, believer in the European Economic Community, is that it is absolutely vital, looking at the world as a whole, that those who believe in freedom and justice and democracy should stand together, should be seen to stand together, as an area of stability.”88 The Solemn Declaration was in fact rather more than a rehash of old commitments. The Treaty of Rome had talked of “Ever closer union among the peoples of Europe”. Under the Stuttgart Declaration, that commitment was extended to “ever closer union among the peoples and Member States of the European Community”89. The Heads of Government committed themselves to “strengthen and continue the development of the Communities, which are the nucleus of European Union”. The European Council undertook to “address a written annual report to the European Parliament on progress towards European Union” and the European Parliament itself was said to debate “all matters relating to European Union”. None of this language had been congenial as far as Mrs Thatcher was concerned. But she authorised her officials and Ministers to agree on the condition that “European Union” was defined as a process rather than a goal and provided that it could not be interpreted as leading inexorably to greater Community competence over matters hitherto reserved for the Member States. The British had played a key role, therefore, in securing language in the final provisions of the Solemn Declaration, which read: “European Union is being achieved by deepening and broadening the scope of European activities so that they coherently cover, albeit on a variety of legal bases, a growing proportion of Member States’ mutual relations and of their external relations.” It was this language that enabled the Thatcher Government to accept progress towards something called “European Union”. It was the same language that was henceforth to underpin the efforts of others, most notably Germany, to advance the Community towards something that would be clearly identifiable as a political union of a kind which Mrs Thatcher would neither countenance nor accept.

Notes 1 A detailed account of the events in Poland and the British reaction to them can be found in DBPO, Series III, Vol. X, The Polish Crisis and Relations with Eastern Europe 1979-82, Chapter II. See Nos. 118 and 119 for Melhuish’s first reports on the crisis. 2 Ibid., No. 119, note 2. 3 Ibid., Nos. 119–21.

256 Conflict: 1982–1983 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54

PREM 19/871 PREM 19/743, TNA. PREM 19/743, TNA. PREM 19/737, TNA. Ibid. PREM 19/738, TNA. CC (82) 5th Conclusions, 11 February 1982, CAB 128/73, TNA. PREM 19/738, TNA. See Wall, Official History, Vol. II, pp. 112–13. PREM 19/738, TNA. CC (82) 11th Conclusions, 18 March 1982, CAB 128/73, TNA. PREM 19/764, TNA. PREM 19/739, TNA. CC (82) 13th Conclusions, 1 April 1092, CAB 128/73, TNA. Thatcher, Downing Street Years, p. 306. PREM 19/739, TNA. CC (82) 20th Conclusions, 28 April 1982, CAB 128/73, TNA. PREM 19/739, TNA. PREM 19/1018, TNA. Ibid. CC (82) 25th Conclusions, 11 May 1982, CAB 128/73, TNA. PREM 19/739, TNA. CC (82) 26th Conclusions, 13 May 1982, CAB 128/73, TNA. PREM 19/741, TNA. CC (82) 26th Conclusions, 13 May 1982, CAB 128/73, TNA. PREM 19/937, TNA. PREM 19/740, TNA. Ibid. PREM 19/740, TNA. Ibid. PREM 19/740, TNA. A French official involved at the time told the author that the decision to vote was taken by Cheysson and that Mitterrand had said that is was never to be done again. PREM 19/740, TNA. and Wall, A Stranger in Europe, Chapter 1. PREM 19/740, TNA. CC (82) 28th Conclusions, 20 May 1982, CAB 128/73, TNA. PREM 19/740, TNA. CC (82) 29th Conclusions, 25 May 1982, CAB 128/73, TNA. Parl. Debs, H. of C., 6h ser., 26 May 1982, vol. 24, cols. 936–37. Butler, Europe: More Than a Continent, p. 101 Ibid, p.100 Author recollection. PREM 19/741, TNA. PREM 19/741, TNA. Ibid. PREM 19/742, TNA. PREM 19/744, TNA. CC (82) 43rd Conclusions, 14 October 1982, CAB 128/74, TNA. PREM 19/765, TNA. PREM 19/765, TNA. PREM 19/765, TNA. CC (82) 44th Conclusions, 21 October 1982, CAB 128/74, TNA. PREM 19/1036, TNA.

Conflict: 1982–1983 257 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89

PREM 19/1036, TNA. CC (82) 47th Conclusions, 4 November 1982, CAB 128/74, TNA. CC (82) 48th Conclusions, 11 November 1982, CAB 128/74, TNA. PREM 19/1020, TNA. PREM 19/1020, TNA. PREM 19/742, TNA. PREM 19/1020, TNA. CC (82) 52nd Conclusions, 9 December 1982, CAB 128/74, TNA. PREM 19/1020, TNA. CC (82) 53rd Conclusions, 16 December 1982, CAB 128/74, TNA. PREM 19/1020, TNA. PREM 19/1037, TNA. PREM 19/1020, TNA. CC (83) 7th Conclusions, 3 March 1983, CAB 128/76, TNA. PREM 19/1027, TNA. PREM 19/1027, TNA. CC (83) 11th Conclusions, 24 March 1983, CAB 128/76, TNA. PREM 19/1037, TNA. Ibid. PREM 19/1037, TNA. CC (83) 14th Conclusions, 28 April 1983, CAB 128/76, TNA. PREM 19/1020, TNA. CC (83) 16th Conclusions, 9 May 1983, CAB 128/76, TNA. Thatcher, Downing Street Years, pp. 306-7. Francis Pym, The Politics of Consent (London: Hamish Hamilton, 1984), p. 74 Thatcher, Ibid, p. 309 PREM 19/1155, TNA. PREM 19/1021, TNA. PREM 19/1029, TNA. CC (83) 19th Conclusions, 16 May 1983, CAB 128/76, TNA. PREM 19/1029, TNA. Ibid. Parl. Debs., H. of C., 6th ser., 23 June 1983, vol. 44, col. 150. PREM 19/1029, TNA. Author’s italics.

8

Thatcher Victorix?: 1983–1984

Sir Geoffrey Howe, appointed Foreign Secretary in 1983, would eventually resign from Mrs Thatcher’s Government in 1990 because of her growing hostility to the European project. He had, when serving as Solicitor General in the Government of Edward Heath, carried much of the responsibility for shepherding through the House of Commons the legislation for Britain’s accession to the EEC. He was a convinced European, albeit one who, as Chancellor, had often spoken in the stern language of the Treasury, whose officials prided themselves on rigorous absolutism. It had been relatively comfortable for Howe to take robust positions, especially on the issue of Britain’s budget contribution for, although much of the policy stance reflected Treasury views, the heat and burden of the negotiations, including the opprobrium of Britain’s European partners, had fallen to Carrington and then to Pym. So, Howe’s early advice to the Prime Minister in his new role already reflected a more nuanced view of the issues facing the re-elected Government. It may be that John Coles, Thatcher’s Foreign Office Private Secretary, anticipated a less than enthusiastic reaction from the Prime Minister for, in submitting Howe’s paper to her, he was at pains to point out that a lot of work had gone into the paper and that the Foreign Secretary had taken much trouble with it himself. The paper saw the new Government as being at a moment of opportunity in Britain’s Community membership. Britain’s influence over the Community’s development in the years ahead should, Howe argued, be considerably stronger than in the past, and the Government should seize the opportunity. The election “should have settled the in or out question once and for all”; the balance of power among the Member States had shifted and the Franco-German relationship was less close than it had been; Thatcher’s relationship with Kohl had already proved its importance in a decisive fashion; and the PM’s seniority and experience would greatly help the Government to achieve their objectives. In concrete terms Howe saw these objectives primarily as the achievement of a budget settlement, based on British ideas for a safety net that would ensure no Member State had to pay an excessive budget contribution, and British proposals for a binding financial guideline to control the rate of increase of agricultural expenditure.

Thatcher Victorix?: 1983–1984 259 Howe, in his new role, was a convert to the idea that “we shall only be able to obtain our objectives if we are, at the end of the day, prepared to agree to an increase in Own Resources”. Beyond that, the UK should seek to secure the establishment of criteria for European Community action. In language which Thatcher was to reprise in a speech in Bruges five years later, Howe argued that “we must not let our efforts at national level to diminish the role of the state be contradicted by the development of interventionist policies at Community level”. Some possible criteria for EEC activity, which had emerged during discussion of the Conservative Manifesto for the recent election included taking action: • • • • • •

“Where results can be achieved collectively which cannot be achieved nationally; Where expenditure at Community level would allow savings at national level; Where collaboration between firms on a Community basis can be stimulated to help them meet competition from firms outside Europe with large home markets; Where a reduction of excess industrial capacity needs to be fairly spread throughout the Community; Where there is a need to see that state aids by other Member States do not distort the market; Where problems are transnational, such as control of pollution.”

Howe went on to set out, for the first time, an outline plan for the development of a genuinely Community-wide home market, not only for industrial goods, but also for services. To make this attack on technical barriers to trade effective, the Government should, he argued, concentrate on a relatively small number of important objectives: • • • • •

“Measures to free the movement of goods and people across frontiers within the Community, including simplification of frontier checks and introduction of a system of deferred payments for the collection of VAT; Liberalisation in the transport field, including free movement of goods vehicles and increased cooperation over international rail traffic; A common market for services, particularly insurance and air services, such as the Treaty of Rome already required; An effective policy to control state aids and unfair competition so that British industry is not disadvantaged against industry from freer-spending Member States; Effective implementation of the Community’s public purchasing policy.”

Howe also raised the issue of British membership of the ERM, which as Chancellor he, like Thatcher, had opposed, advancing an argument which was to become a source of fatal friction between him and Thatcher in later years:

260 Thatcher Victorix?: 1983–1984 “Our line that we will join when the time is ripe will sound increasingly unconvincing to our partners as time goes by. If we did come to the conclusion that joining would help our national economic policies, there would be some useful political spin off.” Howe concluded: “We do not want a static Community and we should use the opportunity . . . to make it an easier Community for us to live in and influence, accepting progress towards greater integration where we are persuaded that action at Community level will bring us real benefits.” Beyond the Government’s budgetary negotiations, Howe saw the objectives for the next five years as being: • • • • • • •

A successful conclusion to the negotiations for the accession of Spain and Portugal; The development of a genuine Community-wide home market, not only for industrial goods, but also for services. Officials should work out a plan of campaign; Re-examination of the economic arguments for joining the ERM; To improve the cost-effectiveness of the Community’s institutions; To continue UK efforts to bring Community aid expenditure under better control; To strengthen political cooperation (foreign policy); “When the budget is settled, we should continue our effort to present a balanced and favourable picture of the conditions of Community membership and of our decisive role in shaping its future.”1

By September, David Hancock had been replaced as Head of the Cabinet Office’s European Secretariat by David Williamson. Williamson was a Ministry of Agriculture official who had served in the Agriculture Directorate of the European Commission in Brussels. He was a man who combined genuine niceness with an inventive mind, rigour and the ability to present issues with a clarity, and in a style, which quickly commended him to Margaret Thatcher. He rapidly made his mark in a summary for the PM of where matters stood on the main EEC negotiations. On the main budget issue, Williamson wrote, there were three papers on the table: the Commission’s proposal for increased Own Resources, the UK Government’s paper on the safety net and a Danish proposal for a convergence fund. On agriculture, there were no less than five documents on the table: a detailed communication from the Commission; the UK’s paper on a strict financial guideline for agricultural expenditure; a Dutch paper, which had some important points in common with the British ideas; an Irish paper about their dependence on agriculture, and a Danish paper on milk. The UK’s safety net proposal was based on the idea of applying financial relief to the whole of a Member State’s net contribution. It worked on the principle of relative prosperity. If a Member State’s GNP per head was less than 90% of the Community average, its net contribution would be zero, i.e.

Thatcher Victorix?: 1983–1984 261 the relief would be total. Above that limit, the limit on a net contribution would rise gradually with relative prosperity, the limit being expressed as a percentage of a Member State’s total GDP. That left to be resolved how a Member State’s net contribution should be measured. In British minds, the safety net was intended to operate in two parts: one part setting relief because the UK received too little from the Community budget (the payments or expenditure gap); and the other part setting relief because the UK paid in too much money from customs and levies: the excess contribution. All aspects of the British proposal were illreceived by her partners, though there was some recognition that the UK received less than its due in the form of expenditure from the Community budget.2 On agricultural spending, the Government’s proposal, which had so far received support from no other Member State, was relatively simple in concept: the rate of growth of CAP expenditure should be markedly lower than the rate of growth of the Community’s Own Resources. This was to be achieved through a strict financial guideline of some technical complexity.3 Achievement of these two policy outcomes, as succinctly described by Williamson, was to become, over the course of the autumn of 1983, the clear condition established by the Government for their willingness to contemplate an increase in the overall level of the Community’s Own Resources, an increase which would require the agreement of all EEC member Governments. Howe set out the policy in the House of Commons in November: “We would be prepared to consider an increase in Own Resources provided that two very important conditions were met: first, that agreement was reached on an effective control of the rate of increase of agricultural and other expenditure; and secondly that it was accompanied by an arrangement to ensure a fair sharing of the financial burden.”4 In parallel with the negotiations on these issues, Howe decided that there would be tactical advantage in tabling a paper giving the British view on other policies. The budgetary issues were extremely important, but did not comprise the only message the Government wanted to put across in the Community. Thatcher, perhaps because she was told by Coles that the paper “makes no new proposals”, gave it the go-ahead. Although not new in substance, the paper did articulate what was to become the policy advance most closely associated with Margaret Thatcher, and the one which was her most significant positive contribution to the evolution of the European Community. “The principle of the free circulation of goods and people and the free offer of services within the European Community”, the paper said, “is one of the foundation stones of the Treaty of Rome. 25 years after signature, however, it is still not a reality. The Community has got little further than the abolition of tariffs. This falls well short of our business community’s expectations: what they experience day by day is a range of non-tariff barriers and administrative measures which impede a true common market for both goods and services; which seriously add to the cost of trading across frontiers and which indeed are in

262 Thatcher Victorix?: 1983–1984 danger of growing despite recent efforts to make progress in this area. This situation should not be tolerated and a top priority for the Community’s development over the decade should be to bring about a genuine Community-wide internal market. The free circulation of goods within the Community of 270 million people (or 320 million after enlargement) would constitute a drive wheel for Community industry and a powerful measure for wealth creation.”5 Chancellor Kohl had proved a staunch supporter at the Stuttgart European Council in achieving agreement on the UK’s 1983 refund. In the search for a definitive solution to the budget inequity and to the perpetual problem of agricultural subsidies the German Government, freed from the constraints of the EEC Presidency, were now proving less useful allies. On the eve of a meeting in September 1983 between the German and British leaders, Britain’s Ambassador in Bonn warned that, despite the major interests the two countries shared as net contributors, there was a disappointingly wide gap between their respective approaches to the “great negotiation”. On agriculture, it was clear that the Germans would settle for a much less rigorous solution than that proposed by the UK; and, even on the safety net, they had developed ideas which were much weaker than those of the British. As usual, according to the Ambassador, the German Government were greatly influenced by the Foreign Ministry’s cautious assessment of what was negotiable. Kohl himself “dominates the scene and exudes a relaxed and optimistic self-confidence”.6 In London, such caution as the British Foreign Office may have felt was not likely to deter the Prime Minister. Her meeting with Kohl produced a measure of agreement on the overall goal of responsible spending but, for Kohl, important as was the reform of the EEC, it was also, he said, secondary to the maintenance of peace and freedom. Thatcher countered that she too regarded the Community as a major factor in the maintenance of peace and freedom. That was why she regarded it as essential to find a fair and lasting basis for it.7 From this conversation, and from meetings with the Italian and Dutch Prime Ministers, Thatcher emerged pessimistic about the chances of final agreement on budgetary reform at the Athens European Council to be held 4–6 December 1983. The Italians did not think it possible within that timescale. The Dutch continued to stand firm on control of agricultural expenditure but supported only a partial result on budgetary reform. She doubted whether the Germans would remain firm on the control of agricultural spending.8 As the Athens Council drew nearer, progress remained elusive apart from some headway on the idea of a guideline for agricultural spending, albeit not binding as the British wished. “We approach Athens”, Chancellor Nigel Lawson wrote to Thatcher at the end of November, “against a background of increasingly vocal criticism, not just from the Opposition, but also from many of our own supporters, both inside and outside Parliament, of the workings of the Community and, in particular, the increasingly heavy level of expenditure on CAP surpluses. Many of our own people sincerely believe that the only way to remedy the Community’s defects is to sit tight on the 1% limit and use that to enforce reform.”

Thatcher Victorix?: 1983–1984 263 Lawson saw the overriding objective, therefore, as being to achieve a really satisfactory safety net for budgetary imbalances. If that was secured, then the Government could afford to settle for a financial guideline for agricultural spending that “does not match up precisely to our own strict guideline proposal”. Of the alternatives proposed, the most promising was one that had been tabled in Brussels by the French Finance Minister, Jacques Delors. But the Government should not, said Lawson, trade in their demands on the safety net, even for an improved version of the financial guideline. The Government should explain to their supporters that a really good safety net on Britain’s budget contribution was also the best way to ensure agricultural reform, because the main burden of financing the CAP would be transferred to other Member States. Without such an “alpha class solution” there should be no question of the UK giving up its leverage on the 1% ceiling. The Government should agree to neither the timing, nor the amount of any increase in the OR ceiling, nor even the principle. Any statement of the Government’s readiness to move on Own Resources would have to be clearly conditional on the details of the safety net and other parts of the package being satisfactorily put into place: “otherwise I foresee major problems in the House and the country.”9 At the Cabinet meeting in the week before the Athens summit, Howe set out the remaining difficulties. The French ideas on agricultural spending were promising, not least because Delors’ proposal covered all Community spending and involved fixing the amount of available revenue before fixing the expenditure programmes. On the budget problem, other Member Governments were beginning to accept that there had to be a permanent corrective mechanism on the revenue side of the budget, but it would be very difficult to persuade them that the net contribution was the real difficulty and that the whole of the problem had to be solved. The Prime Minister summed up. She had laid down clear conditions at Stuttgart before the UK would consider the Community’s requirements on Own Resources. It remained essential to obtain a lasting correction of the budget inequity that took account of the UK’s excessive net contribution. It was also necessary to have effective control of agricultural and other expenditure in the Community. If these conditions were met, the UK would be able to consider a small increase in the VAT ceiling since, through the operation of a safety net, the UK’s contribution of VAT would be substantially below this ceiling.10 “One of the fundamental reasons for failure [at the Athens summit] was President Mitterrand’s firm position that he was not prepared to contemplate dealing with the British (and German) budgetary imbalances with a new system but would only consider a short term ad hoc arrangement, modest in size, to relieve the British burden.” So wrote Crispin Tickell, Deputy UnderSecretary at the FCO, seeking an explanation, if one was to be had, for Mitterrand’s perplexing behaviour at the European Council. Thatcher and Mitterrand had met on the morning of the last day of the Council (6 December 1983) when, according to Mitterrand, the Press had been given the impression that the Council had been dominated by an Anglo/French

264 Thatcher Victorix?: 1983–1984 conflict. He did not seek such a conflict, he told Thatcher, and, unless the present situation was corrected, the Press would soon be talking of a return to the Hundred Years War. Mrs Thatcher was not about to give the President any comfort. She did, she said, regard the situation in the Community as very serious, and as much more serious than just a Franco/British disagreement. The Council had passed up a historic opportunity and had run away from the fundamental problems. She found, she continued, disagreements between herself and the President particularly difficult to understand because, in October, the two of them had agreed to maintain close relations on these matters and both had appointed personal representatives (Morel and Williamson) to hold discussions with a view to avoiding misunderstandings. Despite this, the President’s attitude at the Council had taken her by surprise. She had come to the Council pleased with the proposals of Delors on budgetary control, but had found herself alone in supporting them. She did not know how this situation had come about, particularly without any warning.11 Thatcher’s mystification was understandable. Andreas Papandreou, the Chair of the meeting, had not endeared himself to many of his colleagues over the preceding six months of the Greek Presidency. “Over most of the six months, they got what they expected”, according to the exceptionally well-informed American observer, John Newhouse, writing in the New Yorker. The Presidency had indulged in shrill critiques of Western policies, especially American policies in the Middle East and the Caribbean. Papandreou had had to be bludgeoned into deploring the Soviet Union’s shooting down of a Korean airliner the previous year. A vexed US official had suggested that NATO trade Greece to the Soviet Union in exchange for Romania. At the Athens summit, however, Papandreou was methodical and businesslike. But the agenda had become heroic in scale and, by trying to make progress on all fronts, large and small, he made progress on none.12 Thatcher herself described the Council as a fiasco, observing that Papandreou always proved remarkably skilful in gaining Community subsidies for Greece but was less skilful in his role as President of the European Council.13 But her main criticism was reserved for Mitterrand. According to Tickell, “Mitterrand appeared not to know what the PM was talking about when she referred to the Delors paper (I understand that when she mentioned it, Attali had to give Mitterrand a rapid briefing). All this has left some pretty fundamental questions in the minds of the PM and Foreign Secretary about how to communicate with Mitterrand. They are most concerned about the mechanics, as well as the substance, of our relationship with him . . . Are we to think that Morel was in the dark about the line that Mitterrand would take in Athens? Or that he knew it and chose not to tell Williamson? Did Mitterrand go to Athens ignorant of the line his own Minister had been taking . . . Or did he get there properly informed but decided without warning us or them to shift his position so radically? Could he be deliberately working for a crisis from which he would hope France would be able to benefit . . . Does Mitterrand seriously

Thatcher Victorix?: 1983–1984 265 believe we would settle for a short term ad hoc arrangement in return for an increase in Own Resources?”14 In his initial reaction from Paris, John Fretwell noted that, following the summit, Morel had briefed the British Press on the principle that attack was the best form of defence. But other French officials were telling a different story. They too had been surprised by Mitterrand’s performance at Athens. It had seemed as though he had not applied his mind to the subject since Stuttgart, and had therefore reverted to first principles. Fretwell suspected that Mitterrand had decided, perhaps just before setting out for Athens, that he did not want to make the compromises necessary to reach agreement at that point. It might be that he believed that he could use the next six months, with France holding the European Presidency, to his own political advantage in the run-up to the European elections, and that any decisions which could not be delayed could either be swung a little in the French direction, or at least be put in a form more palatable to domestic opinion. “I doubt”, Fretwell concluded, “whether Mitterrand ever really got to grips with the issues or that he has thought through the problem of dealing with them in the French Presidency.”15 In response to Tickell’s letter, and looking to the next six months of the French Presidency, Fretwell predicted that Mitterrand would fight hard against a long-term budgetary solution at anything like an acceptable level, an observation with which Thatcher agreed, writing in the margin of the Paris Embassy telegram: “This is uncomfortably close to the truth, I fear.” Fretwell did note one hopeful sign. Mitterrand had just appointed, as Minister for European Affairs with Cabinet rank, Roland Dumas, whose “closeness to Mitterrand should enable him to . . . remove the incoherence which has characterised relations between the Elysée and the Government machine on European Community matters in recent months”. Fretwell recommended an early invitation to Dumas to visit London, to which Thatcher readily agreed.16 The theory that at least part of Mitterrand’s behaviour at Athens had been motivated by a desire to take the reins into his own hands was borne out by Dumas’ appointment. David Hannay, the senior official in the Foreign Office dealing with European issues, quickly found that Dumas, “a subtle and serpentine lawyer who had for many years been a confidant of the President . . . held the reins of the French Presidency and that Claude Cheysson, the Foreign Minister, who had been a thorn in our flesh, and who had never even begun to negotiate with us seriously, was being marginalised”.17 Mitterrand and Thatcher were due to meet in France in late January 1984 and, in preparation, Williamson reminded her that the UK safety net proposal was designed to produce a system which must deal with the problem of budget inequity for as long as it lasted; that it should set limits on Member States’ net contributions to the EEC budget, based on ability to pay, as measured as a percentage of a Member State’s GDP; and that the inequity would be corrected by reducing a Member State’s VAT contributions to the Community in the following year. That the correction should be on the revenue side of the budget in this way was something the French accepted. What the

266 Thatcher Victorix?: 1983–1984 French did not like was the fact that the UK’s proposal would set a limit, and give relief, relating to the whole of the net contribution i.e. that it would correct, not only the UK’s inadequate receipts from the Community budget, but also the UK’s disproportionate contribution to the Community of customs duties and levies, which formed part of the Own Resources system. The UK, Williamson argued, must have a result that, in practice, gave relief to a substantial part of the UK net contribution while avoiding a sterile argument about the concept of net contributions.18 The issue surrounding net contributions, to which Williamson referred, was a mirror image of the alleged French dictum: “We know it works in practice, but does it work in theory?” Own Resources were, in principle, the resources due to the Community and, so most of the EEC members argued, it was quite wrong to argue about national ownership of any part of them, as Mrs Thatcher did when she claimed that it was “her money”, a phrase which caused more outrage in Europe than any other uttered by a British Prime Minister during the course of Britain’s membership. But, whatever the theory, in practice, as the Foreign Office knew from its Embassies’ reporting, all Member States calculated their gains (or in the case of Germany and the UK, their losses) from the Community budget in terms of their net contribution or net benefit. This was of course a convenient hypocrisy: wrapping national self-interest in the flag of European idealism. It was also why Schmidt had advised Thatcher to limit her case for the rebate to the simple proposition that there was, in the operation of the system, an inequity that needed to be corrected. In devising a scheme which would in principle deliver benefits to any qualifying Member State, albeit in practice only to the UK in the first instance, the UK was seeking an outcome that might appeal to Germany, looked communautaire and would, above all, be durable, avoiding the annual, querulous, negotiations over annual refunds which had bedevilled relations between Britain and her partners from 1979 onwards. The scheme was ingenious, reflecting the intellectual acumen of the Treasury team who had devised it. But, as Robin Renwick, who succeeded Hannay at the Foreign Office in the Spring of 1984, quickly found, the scheme “had no chance whatever of acceptance . . . While most of the other Governments had scarcely even bothered to study it, they were unanimous in their determination to have nothing to do with it.”19 When Thatcher and Mitterrand met at the Château de Marly near Paris in late January 1984, the atmosphere was civil. Mitterrand opened the discussion by referring to a recent incident involving demonstrators who had hijacked two British lorries carrying lamb. Mitterrand had reportedly dismissed from his post the senior French official responsible for law and order in the area, and Thatcher thanked him for the firm action that had been taken. The incident, Mitterrand said, had been deplorable. French farmers behaved rather frequently in this way. Spanish lorries taking fruit and vegetables to Germany via France were sometimes stopped and burned. The previous week, 150 farmers had burned down the

Thatcher Victorix?: 1983–1984 267 Prefecture building in Brittany during the night. That kind of person would not move with the times. The Prime Minister then sought Mitterrand’s view of the Soviet internal situation. Mitterrand said that the Russians did not, in his judgement, want war. Their economy was in a bad way. The army was of low standard. Russian memories of the last war were strong. The Soviet Union did not profit from war—but nor did it, at present, profit from peace either. Thatcher commented that the Russians would benefit enormously from real peace, but would they be able to depart sufficiently from Communism to allow people the necessary economic incentives? She doubted whether they could move away from the present rigid system. The next twenty years in the Soviet Union would be fascinating. Mitterrand said that he told his friends that the Soviet empire would disintegrate by the end of the century. The Russian people had developed tastes for Western art and for consumer products, and could not be prevented by force from seeking those things. Tensions would develop and would make themselves felt in other communist countries. He agreed with Thatcher that the Soviet leader, Andropov, was unlikely to make the necessary changes towards a freer society. Yet such changes were inevitable. But when Eastern Europe began to disintegrate, the world situation would be very worrying, for the Soviet armed forces would try to save the situation. Turning to the Community, Mitterrand observed that Mrs Thatcher was the first European leader he had met since taking over the Presidency. She was the first, but she was not the most difficult, though he sometimes thought that perhaps she was. But he thought he could quickly reach an understanding with her. He saw three parts to the necessary approach: the European Community budget should not increase more quickly than national budgets, and the rate of growth should clearly be smaller than the present rate; Britain, France and Germany should agree on control of non-obligatory EEC expenditure (broadly everything except agriculture) so that overall expenditure was reduced; and there should be refunds. By adopting the first two of the three approaches it would be possible to arrive at reasonable national contributions and the British problem would be much smaller. He did not wish to see the issue in terms of the PM getting a refund of two thirds or of him preventing her from getting it. The basis for calculating refunds over the past few years had been unsatisfactory—and had been worked out by a very able British official inside the Commission. Thatcher responded that her approach was more fundamental. She reiterated the main elements of the British approach: a political aspiration was not enough. When Mitterrand suggested starting with what had been agreed at Athens, Thatcher retorted that nothing had been agreed at Athens. But Mitterrand thought that, while there had been no formal agreement, progress had been made.20 Reporting to Cabinet later in the week, the Prime Minister observed that Mitterrand “had not yet fully grasped one of the fundamental conditions which the UK had set for a solution. There could be no consideration by the

268 Thatcher Victorix?: 1983–1984 UK of an increase in the Community’s Own Resources if there was not a different and fairer sharing of the budget burden.”21 Dumas paid his first visit to London a fortnight later. Thatcher again denied that any progress had been made at Athens and repeated the British position. Bur she clearly warmed to Dumas: “I write to thank you for the most beautiful orchids which you sent to me after our meeting the other day. I found our talks most valuable and send you my best wishes for the daunting task which you have undertaken.”22 On 24 February 1984, Dumas returned to London for a meeting with Sir Geoffrey Howe at the latter’s official London residence, 1 Carlton Gardens. It was to be the first of a number of meetings, away from public eyes, and supplemented by official-level contacts. For the first time, there was a detailed discussion of a way of measuring the gap between the UK’s excessive budget contribution and the paucity of her receipts. The French were not prepared to compensate the UK for the large total of levies and duties that she collected, in particular, on her considerable agricultural imports from outside the Community. So what Dumas now proposed was compensation to the UK for the gap between her VAT contribution to the budget and her share of expenditure: the VAT share/ expenditure share gap. Howe replied that such a scheme would be difficult, but potentially acceptable if it could be made to deliver the right result in money terms for the UK. The British baulked at another French idea, which was for a system of steps in the correction rate under the scheme that Dumas was now outlining. It would mean, Howe argued, that, if relative prosperity improved by 1%, compensation could decrease by 35%. If there was to be such a so-called ticket modérateur, then it should be set on a linear curve relating to relative prosperity. Turning to duration, Howe made clear that the scheme must, as the French were proposing, last as long as the new Own Resources Decision (which would be needed since the Community was running out of money). In other words, the scheme would last unless it was displaced by a further decision on Own Resources which, crucially, could only be taken by unanimity and following ratification by national Parliaments.23 When Thatcher met Kohl in Downing Street a few days later, the German Chancellor was keen that France, Germany and Britain should stick together. For his own part, he was prepared to make concessions. But it was clear from the conversation that Kohl was thinking of a further round of refunds, albeit over five years, rather than of the enduring system Thatcher was seeking. Kohl was in any case, and by his own admission, much more interested in the future of the Community. “Where do we go from here?” was, he said the decisive issue. The European Community was vital for Germany. In no circumstances could Germany afford to find itself in no-man’s land. Much of the misery of the 20th century had been caused by a lack of clarity in Germany’s position. Neutralism was spreading through Europe. Soviet expansionism was being described as harmless. What was portrayed as peace was no more than neutralism—and, for Germany, that meant leaving the Western camp.

Thatcher Victorix?: 1983–1984 269 The European Community, Kohl continued, was stagnant. The concept of a bridge across the Atlantic was flawed, for a bridge needed a pylon at both ends and the European pylon was not strong enough. The Treaty of Rome was not just about a common market but also about political integration, of which the most important aspect was security policy. If, by the 1990s, the United States felt that, having developed weapons systems for Space, it was secure against missile attacks, then there was a danger of the fortress mentality in America regaining ground. So, it was vital that America and Europe should be close. All these things were more important to him than the current issues under discussion in the Community. Britain, France and Germany should work together to make progress on the future of the Community. The Prime Minister’s response was characteristic and illustrative of the gap of perception between her and Kohl. In strengthening the European pillar, great care must be taken, she argued, not to undermine the arch over the Atlantic. Europe needed to move closer to America and to be seen to do so. But she preferred to work through NATO and the best step would be for France to accept full military integration into NATO. Her worry was that, in trying to intensify the unity of Europe, Europe might be seen by the United States as attempting to act independently of them. When Kohl mentioned the need to oppose US protectionism, Thatcher agreed, but pointed out that the US would say, with truth, that the EEC offered the worst case of protectionism, viz. the CAP. She believed that Europe should be outward looking. Mitterrand tended to see it as an inward looking, protectionist club. Kohl agreed. That was his permanent argument with Mitterrand. The British tradition of Empire and Commonwealth was different from that of Germany. The present generation in Germany was the first to be outward looking. Thatcher said that the British tradition had indeed been to send people out of Britain to serve. At the very end of the meeting, Thatcher asked Kohl whether he was considering putting forward a candidate to succeed Gaston Thorn as President of the Commission. Kohl said that he would do so and would be in touch with the Prime Minister in good time.24 With the first European Council of the two that would be held under the French Presidency less than three weeks away, Howe gave a fairly upbeat assessment to Cabinet. It was clear that the French were working for an agreement at the March 1984 meeting but expectations should not be raised. Even though there was some movement within the Community towards a system of correction on lines which might be satisfactory, there was still a substantial disagreement on the scale of the correction necessary. If an agreement could not be reached, the French would certainly try to show that the UK had been isolated.25 The gap that had to be bridged between the position of the French Presidency and that of the British Government remained wide in terms of the results that could be expected from the British safety net and the French idea of using the VAT share/expenditure share gap. The UK had stated that it could agree to make a net contribution of 450-500 mecus (based on 1982 figures and using the relative

270 Thatcher Victorix?: 1983–1984 prosperity of a Community of 12). The French Presidency were thought likely to propose that the UK’s net contribution should be of the order of 1200-1300 mecus. The main reason for the disparity was that the French plan, by using the VAT share gap as the basis of calculation, reduced the UK’s apparent burden by about 340 mecus on average over the period 1979-1983. Moreover, the French remained attached to the so-called ticket modérateur, whereby a Member State whose measured “gap” was still above its threshold would still make a marginal contribution to the excess. The French also proposed to redefine the budget so as to treat administrative expenditure in a way which would reduce the UK’s apparent burden, and thus eligibility for relief, by a further 100 mecus a year. The decision British Ministers had to take, so the Cabinet Office advised, was whether, provided the figure was right, the UK should be prepared to accept a scheme based on the VAT share/expenditure share gap. Because the measured gap under this scheme was smaller than under the UK safety net, it would have to give relief for a higher proportion of the ‘gap’ if it was to produce the same net contribution as the UK plan.26 When Mitterrand and Thatcher met again on 5 March 1984, the President told her that, in his view, no other Member State would accept that the UK’s net contribution should be reduced to the level the UK was proposing. He added that, if there was no agreement, there was a risk that the Community would begin to break up. Thatcher retorted that the responsibility for any failure to agree would rest with other Member States. In any case, she did not expect the Community to break up.27 Thatcher promised to send Mitterrand a paper setting out the history of the problem and how it might be solved. In writing to him on 9 March, she drew attention to the fact that the UK’s net contribution (not taking account of the ad hoc refunds negotiated from 1980) had risen from 228 mecus in 1978 to 2,036 mecus in 1982. She reminded the President that, before the UK joined the Community, a solemn assurance had been given to the UK that “should unacceptable situations arise within the present Community, or an enlarged Community, the very survival of the Community would demand that the institutions find equitable solutions”. Thatcher described “an emerging consensus” that a reformed budget system must (i) be lasting and be included in a revised Own Resources Decision; (ii) involve a correction on the revenue side by reducing a Member State’s VAT contribution in the following year; (iii) be based on a Member State’s relative prosperity, limits being expressed as a percentage of a Member State’s GDP; (iv) come into effect in 1985, so that it could operate in respect of 1984 and subsequent years. She went on to argue that the reformed system should be so designed as to leave the UK at the outset with a net transfer of resources through the Community budget, to other Member States in a 12-member Community, of 400-500 mecus per year. While advancing the merits of the UK’s safety net scheme, Thatcher did not rule out a scheme based on the VAT share/expenditure share gap. But her explanation of how such a scheme could be made to produce an acceptable

Thatcher Victorix?: 1983–1984 271 result illustrated the realms of complexity into which the Community had entered—realms which were likely to prove alien territory for other Heads of Government, focussing on the issue only intermittently and less concerned with the merits of any scheme than with what it would cost them. For the UK, Thatcher pointed out, the French scheme would produce a measured gap which would have been 350 mecus a year lower than the actual transfer of resources through the budget. In order to keep the UK’s transfer of resources to within 400-500 meus, “the limit would have to be very low. The result could be achieved by technical adjustments in the system. If, for example, it were decided that a Member State whose GDP per head was below the Community average made no net contribution, and the limit rose by 0.01% of the Member State’s GDP for each percentage point increase in its relative prosperity, the UK’s actual net contribution after adjustment would have been 400 mecus . . . Alternatively, a Member State whose GDP per head was at or below 97.5% of the Community average could make no net contribution, with the limit rising by 0.008% of the Member State’s GDP for each percentage point increase in its relative prosperity. This would have given, on the same assumptions, a UK actual net contribution of about 460 mecus.”28 A few days later, a meeting of senior Ministers under the PM’s chairmanship confirmed that “We should not move from the safety net proposal, related to the whole net contribution, although we might discuss the VAT share/ expenditure share gap.”29 Friction between London and Paris increased in the days leading up to the European Council held in Brussels on 19-20 March 1984, when the French Government, alone among the Member States, refused to adopt the regulation authorising the UK’s 1983 refund pending resolution of the wider budget issue. When, on the PM’s instruction, he telephoned Attali to remonstrate, Armstrong argued that, if the French block was maintained the situation would be seen as an Anglo-French dispute and would make it more difficult for the PM to negotiate meaningfully and constructively at the European Council. Attali, however, said that for the French to back down would be a matter of great political difficulty in France, since it would appear to remove one of Mitterrand’s bargaining points.30 From Paris, the Embassy confirmed that “the French now see the European Council as essentially a contest with the UK over budget refunds. Mitterrand has retained flexibility over whether and where to strike a bargain. He would like a success but probably reckons that the alternative strategy of isolating and pillorying the UK would go down quite well in France.” Mitterrand, in Fretwell’s view, would count on a solid front against the UK for excluding levies and duties from the calculation of the net contribution. He would encourage others to join him in concentrating on the size of the refund rather than on the residual contribution. Mitterrand would like a success, Fretwell thought. It would raise his stature domestically and internationally as the man who “saved Europe”. Mitterrand’s standing in the polls was at its lowest ever; his Party was heading for a setback in the European elections; he faced difficulties over industrial restructuring and educational reform; there was a risk of violence from farmers over cuts in milk

272 Thatcher Victorix?: 1983–1984 production and the enlargement of the Community. It would be a good moment for him to bring home a resounding success from Brussels. On the other hand, Mitterrand was to some extent a prisoner of positions he had taken publicly in the past, and Fretwell was not sure that he had grasped the necessity for a genuinely equitable long-term settlement: he was still focussing on how much he and others were conceding in relation to existing arrangements. Moreover, the alternative strategy of denouncing the UK for obduracy and for putting the future of the Community in danger would also have its domestic attractions. There was in France a flood of anti-British sentiment that could readily be unleashed and exploited. A great deal of bitterness could be aroused and, for a time at least, it would appear attractive to be acting as if the aim were to run the Community without the UK. There would be a strong temptation to railroad through decisions on various matters, including agricultural prices, by majority vote. It would be an alternative way for Mitterrand to look tough and effective, at least up to the European elections in June. In general, Mitterrand would be well content with the way Chancellor Kohl appeared to be following in the footsteps of previous Chancellors, at some cost to German interests and no cost to the French. The toughness of Mitterrand’s bargaining stance would be influenced by his confidence that the Germans would stand by him in dealing with a Community crisis if one were to arise.31 The Foreign Secretary took a different view. Dumas had been privately to the UK again on 17 March and, after two and a half hours of talks, Howe was convinced that the French wanted to get an agreement at the Summit.32 “Well, what can I say? So near and yet so far. What a pity.” Those were Margaret Thatcher’s opening words at her Press Conference on 20 March 1984 at the end of another failed European Council. “I therefore come to this Press Conference in sorrow, not in anger, because I know only too well how difficult this problem is for all my colleagues. What we have now to do is to persevere—just as I have persevered these last five years—to bring effective control over, and fairness to, the method of financing of the Community.” Thatcher paid tribute to Mitterrand’s efforts, both before and at the meeting, to pave the way for a solution. She would continue to work with him with the objective of disposing of the problem in June and providing a basis for a relaunch of the Community. There had been times when an agreement had seemed attainable, “but, alas, it was not to be”. The Irish had had problems over milk. Then Germany had problems over their role in limiting the UK contribution. And, of course, that led to a problem over the British contribution. “From the beginning”, Thatcher concluded, “ten keys have been required to turn this lock. Once again, it has not been possible to get them all turned simultaneously. We shall try again and, sooner or later, the door will open to a fairer, more soundly based, Community which can be relaunched to play a more influential role in the world. In the meantime, of course, nothing is agreed and that is a matter for regret. But we shall keep at it.”33 The assessment of Sir Michael Butler, Britain’s Permanent Representative in Brussels, was less reflectively philosophical than the Prime Minister’s words at

Thatcher Victorix?: 1983–1984 273 her Press Conference. As he saw it, the European Council had failed as much because some of the leaders had not understood the issues, and had not thought through the consequences, as because they were determined to protect their national interests and their political position at home. It had been clear since Athens, Butler argued, that Mitterrand’s plan was either to “save Europe” by an agreement or to blame the UK and, in Butler’s view, Mitterrand had still been on that track on the morning of the second and final day of the meeting. “By allowing Dumas to settle all outstanding points on the text on budgetary imbalances with us, and then by tabling it as a Presidency proposal after lunch, he went further than he need have done to meet us if he had decided that agreement was not going to be reached. Such experienced observers as Noel (the Secretary General of the Commission) and Davignon were saying after lunch that the UK had finally got its way on the correcting mechanism and the Commission spokesman was saying as much to the Press. But when Mitterrand did come to the conclusion in mid-afternoon that agreement was going to elude him, he reverted to his second option.” In Butler’s view, the Germans bore a large share of the responsibility for failure. Kohl had not seemed to understand the merits of the scheme from the German point of view. He was absolutely determined not to go beyond a 1,000 mecus refund for 1984. He had ignored the advice of his close adviser, Tietmeyer, that he should support Thatcher when she put forward Tietmeyer’s own idea of a 1,000 mecus arbitrary refund in 1984 and a system based on a refund of 1,250 mecus for 1985 and later. The extent to which Kohl had also been responsible, in his breakfast meeting with Mitterrand, for bringing the latter back from the offer of 1100 mecus for 1984 that he had made overnight, was not clear. But Butler’s strong impression was that Mitterrand would have been prepared to go to 1200 mecus along with the long-term system. The Italians, Butler thought, had also to bear their share of the blame by their refusal to accept the system, though Andreotti’s officials had made every effort to persuade him to do so. The Irish, because their Prime Minister, Garrett Fitzgerald, had walked out in dudgeon over milk quotas, had also contributed to the failure. In the late afternoon, the feeling had begun to spread that it was hardly worth making a major effort on the other issues if Fitzgerald was to continue to sulk in his tent.34 At Cabinet on 22 March, Thatcher praised Mitterrand’s handling of the Council, but Kohl’s determination to limit Germany’s financial commitment, arising from the new financial system of benefit to the UK, meant that it had not been possible in the end to deflect Kohl from his suggestion of a 1,000 mecus (about £590 million) rebate for the UK for five years. In discussion of a good Presidency proposal for the UK, it was Kohl’s suggestion which had risked losing the system altogether. In an effort to rescue the situation, the PM had proposed an ad hoc figure of 1,000 mecus for one year, followed by the introduction of the new system for 1985 with a rebate of 1,250 mecus (about £740 million) based on 1983 figures. But no agreement had been reached, even though at least some in the German delegation had been ready to recommend it.

274 Thatcher Victorix?: 1983–1984 Howe reported that there had been a brief meeting of the Foreign Affairs Council immediately following the Summit, at which Italy and France had maintained their blocking reserves on the regulations necessary to implement the UK’s 1983 refund of 750 mecus net. Howe had described this as a step that would have serious consequences, and officials had worked on a withholding scheme. But the general mood of Cabinet was upbeat: the gap which divided the UK and other Member States did not appear to be very wide, and since there was no legal obligation on the Community to make payments to the UK before 31 March 1984, Cabinet did not need to consider whether, and, if so, how to safeguard the UK’s financial position before then. The Prime Minister agreed. There was to be a special meeting of EEC Foreign Ministers on 27 March, which was a new factor. Nor had Cabinet yet considered, still less taken, any decision on safeguarding the UK’s financial position more generally.35 In France, TV, radio and much of the Press placed the blame for the failure to reach agreement at Britain’s door. But a television interview by Mitterrand had a calming effect. In Germany too, officials were concerned to cool things down and clear up misunderstandings. The Germans were aggrieved at the criticisms levelled at them in the UK Press, but the German claim, in a conversation between State Secretary Lautenschlager and the British Ambassador in Bonn, that the objective of Kohl’s proposal for five years of flat rate compensation had been to win time so that the solution could then be converted into a system, did not tally with events at the Summit. In any case, there would have been no circumstances in which Thatcher could have accepted ad hoc refunds for such a long period and she had made this abundantly clear to Kohl, as she had to others.36 In the short term, the British Government had to decide its stance for the special FAC on 27 March 1984 and the Agriculture Council beginning on 26 March 1984. A meeting between Howe, Lawson and Jopling concluded that the UK should continue to work for an overall agricultural package. If such a package did emerge, Jopling would make clear that, although the UK was prepared to let it go through, the UK was making no commitment to finance expensive measures which would exceed the existing ceiling on Own Resources. The Prime Minister did not like this one bit, writing on Howe’s report of the meeting he had chaired: “I find this very worrying. It was clear in the Stuttgart text that no decisions would be taken until all decisions were taken at the end. This cuts the ground from under our feet and is the first step to surrender.”37 But when the PM herself chaired a meeting of Ministers days later, she was persuaded to let the agricultural package go through provided UK requirements were met on an issue relating to beef. The main reason, she argued, for allowing the package to be agreed was that it would increase the financial pressure on other Member States and thus help to secure UK objectives on the main Stuttgart package. She added, however, that, at the FAC, there should be no retreat from the figure of 1250 mecus which she had tabled as the required level of rebate under the proposed new system.38

Thatcher Victorix?: 1983–1984 275 The discussion at the FAC managed to reach agreement “more or less”, (in Butler’s words) that there should be only one further year of ad hoc refunds to the UK before the introduction of a full budgetary correction system. Most of the discussion concentrated on the figure for the base of the system. No delegation other than the UK was willing to make any move to bridge the gap between the 1,000 mecus on offer and the 1,250 mecus which the Prime Minister had said she would accept. Cheysson, in the chair, allowed the meeting to degenerate into a 9:1 line up. It became clear that the meeting had been called at German initiative (which cast further doubt on German motives,) and Dumas, who was present, told Howe that the timing had not been good.39 British Ministers could sense that an agreement remained within reach and that Mitterrand wanted one provided he was the man to deliver it. From Paris, Fretwell was of the same mind. It seemed to him, he wrote in a letter to Tickell, that the UK’s strategy had been vindicated by the results achieved so far, and that the UK was well placed for the final stage of the negotiations. Fretwell saw four important factors which all appeared favourable: only the UK could open the door to increased Own Resources. The Community was running out of money and the various escape routes all had unanimity stamped on the door. However much they might wriggle and protest, the other member Governments had to secure an agreement with the UK if the Community, and in particular the CAP, was to continue to operate beyond the autumn of 1984. In Fretwell’s view, the various threatening noises made by the French and others about variable geometry, a two-speed Europe, reversion to the Europe of the Six, a new Messina, building Europe around a Franco-German axis extending into security and defence etc. all looked unrealistic on closer analysis. Fretwell doubted whether the French themselves believed that these spectres were going to frighten the British into accepting an inadequate deal. Mitterrand, in Fretwell’s judgement, had his Community triumph almost within reach. He was badly in need of a success. His claim to have solved 95% of the outstanding EEC problems during the French Presidency would look hollow if he handed on a Community with no agreement to increase Own Resources and with bankruptcy looming. Since he had decided to swallow the bitter pill of a durable system, why would Mitterrand choose to put all his gains at risk over the odd 200 mecus as the starting point of the system? Despite all this, Fretwell confessed to feeling “a slight unease” about the final crucial stage of the negotiation. There were people close to Mitterrand who remained capable of putting spokes in the wheel. Cheysson might still believe that the UK could be forced back into line by the constant pressure of nine against one. More generally, a mood of exasperation—even bitterness— could start to spread through the French governmental machine. The tide that was flowing in the UK’s favour might start to ebb. So, the UK might have to move rather soon, or at least there was an opening in the coming weeks which might not recur until the late autumn, by which time the mood in the Community might be very sour and the whole course of events unpredictable

276 Thatcher Victorix?: 1983–1984 and uncontrollable. With their backs to the wall, some in Paris would prefer brinkmanship against the UK to further moves in negotiation. The key as always, Fretwell wrote, was Mitterrand himself. Fretwell was sure that the President wanted to be seen as the saviour of Europe and to carry the day with suitable French panache. There might have to be some theatre about the concluding stage of the negotiations, and Fretwell assumed that a little playing up to French vanity would be a small price to pay for the long-term solution the UK required. “I would recommend”, Fretwell concluded, “that, however strong our underlying position, we should try to sew things up in the next few weeks and pay due attention to Mitterrand’s ego in the process.”40 Fretwell’s advice was shared by the Foreign Secretary, who reported to Thatcher that a meeting of European Foreign Ministers on 9/10 April had been completely unproductive. Cheysson had chosen to give an impression of total blockage caused by Britain’s supposed unwillingness to move beyond the positions taken up at the European Council. Cheysson and Genscher had been in touch before the meeting, and Cheysson had claimed that the only proposition still on the table was Kohl’s offer of a 1,000 mecus refund over the next five years. Howe had described this as totally unacceptable, but the fact was that much of the momentum that existed at the time of the European Council had been lost and needed to be restored. Despite the British leverage over any agreement to increase Own Resources, it would not, Howe argued, be in British interests to let matters drag on. If a solution could not be found within the span of the French Presidency, it was likely to be more difficult to achieve thereafter. The French would then regard themselves as free agents. The Presidency system, from which the French were already trying to resile, would be lost and the UK would have no relief for her budget contribution in 1984. The task, therefore, was to get the French off the idea, on which they had fallen back, of short term refunds.41 Before further argument with the French, however, the British Government had to engage with the German Chancellor, due at Chequers on 2 May 1984. The Kohl Government was, according to Britain’s Ambassador, doing well domestically. The German Government was, in general, satisfied with their bilateral relations with Britain and Kohl would probably swallow his undoubted annoyance at British Press criticism of him after the Brussels summit. Kohl would, it was thought, be most interested in reiterating his commitment to the reanimation of the European ideal through moves towards political union once the post-Stuttgart negotiations were over. Kohl’s ideas on steps towards this still hazy goal seemed still to be unformed. Meanwhile, the Budget argument had increased doubts in Germany about how far the UK was committed to the development of Europe. The more Kohl could be convinced that the British Government was committed, the more he would be willing to take account of British views as his own developed.42 When the two leaders met, it was evident that Kohl was under the misapprehension, peddled by German journalists working in London and Paris, that Mrs Thatcher’s tactic was to enter the European elections with the

Thatcher Victorix?: 1983–1984 277 budget issue still open. Kohl, on the other hand, wanted the issue settled as soon as possible. Thatcher disabused him. Nor was there any question, she said forcefully, of Britain being anything other than loyal to Europe. She could challenge every other Member State, Germany apart, to show how it did more for Europe than Britain. The UK kept 65,000 troops on the front line. The UK brought to the Community 65% of its waters and about the same proportion of fish. The UK had an adverse trade balance of £8 billion in manufactured goods with the rest of the Community. The UK provided a market for agricultural produce but was denied markets in the areas where she was particularly strong, such as services. Even on the basis of the system which was on the table at Brussels, the UK, like Germany, would still be a net contributor, and thus subsidising countries like Denmark more heavily than countries such as Bangladesh, Zimbabwe and Mozambique. The UK would pay its contribution to the club but was not prepared to go on contributing an unfair amount. The British people felt, with some justice, that they were getting a raw deal from the Community. The British were passionate Europeans who had joined the Community so that conflicts that had occurred in the past could not recur. The Community might dishonour its word but the British Government would not. They upheld international law and kept their word. The Prime Minister said that she, Kohl and Mitterrand were electorally safe for a long period. If they could agree on a solution to the outstanding problems, the other Member States would follow. She had little room for manoeuvre on the budget and she could not move another inch unless this would clinch a deal. Her worry was that Mitterrand might not want a settlement before the next European Council. Kohl did not think that was Mitterrand’s attitude. The tactic of delay was wrong. The image of Europe was miserable. The Prime Minister expressed concern that there was inadequate cooperation between like-minded groups in the European Parliament. For her, the label ‘conservative’ did not mean a concern simply to preserve old practices but, rather, to keep the best of the past and to adapt to the future. There had been limited cooperation between her Party and that of Kohl, even though both subscribed to the international grouping of the centre right. If the two failed to cooperate, and to put up a good candidate for President of the new European Parliament, the Socialists would be let in. Kohl reminded Mrs Thatcher that they had discussed the problem two years previously. Nothing could be achieved in the European Parliament in the long run if a common party was not established. This could not be done overnight but it could be achieved in the foreseeable future. Kohl agreed with Thatcher’s suggestion that personal representatives should meet as soon as the EP election results were known, but he thought there might be a problem with Chirac. Thatcher had earlier given Kohl a strong indication that she would support a German candidate for President of the Commission but the signs from Bonn were that Kohl had so far been unable to find someone who was both of the right quality and acceptable to him. Howe had recommended to Thatcher that Etienne Davignon, the Belgian European Commissioner, who had already put

278 Thatcher Victorix?: 1983–1984 his hat in the ring, would be a strong chairman. He was “a man of exceptional talent and fertile mind and one of the world’s best fixers”. He was sometimes thought to be too clever by half but, in Howe’s view, Davignon had done “more than anyone else to keep the present sorry Commission on the rails”.43 Now, Thatcher suggested to Kohl that, unless another good candidate came forward, Davignon would be a front-runner. But Kohl assured her that he was still considering the matter and that he would present a first class candidate. He did not see why the Benelux countries should provide the next President. He would never agree to Davignon.44 Kohl did not spell out why he was so opposed to Davignon, but his reason was thought by the British to be related to the tough and communautaire stance Davignon had taken over steel restructuring in Germany. This was an issue where Britain too had had difficulties, but had been less protectionist than Germany. During the course of his visit to Britain, Kohl gave a speech at St Antony’s College, Oxford on 2 May. According to a Foreign Office account, Kohl’s lecture had been “a comprehensive, if somewhat turgid account of his view of Germany’s place in the world and his priorities in foreign policy”. He had been greatly preoccupied by the question of the division of Germany. The lecture had got a largely favourable press in both Germany and Britain, the most interesting analysis, in the view of the FCO, being an article by the historian and journalist, Timothy Garton Ash, in The Spectator. According to Garton Ash, Kohl’s central thesis had been that Adenauer (on whom Kohl sought to model himself) had taken a decisive and irreversible decision to anchor the FRG (which Kohl referred to as “the free part of Germany”) in the western family of nations, notably in NATO and the EEC. However, Kohl also insisted that he (and, he believed, the German people) would never give up the idea of reunifying the nation, however long it might take. Kohl had argued that the division of Germany could only be overcome in the context of overcoming the division of Europe. In his speech he had said, for example: “Our passionate advocacy of European unification stems to a great extent from awareness that a positive settlement of the German question is only conceivable within a greater European framework . . . The national question, German unity and freedom, European reunification and the security of Europe will continue to receive the special attention of future Federal Governments.” Garton Ash drew particular attention to a reference in Kohl’s lecture to the Locarno Pact of 1925, concluded by British Foreign Secretary Austen Chamberlain, French Foreign Minister Aristide Briand and Gustav Stresemann, the best known Foreign Minister of the Weimar Republic.45 The treaty was essentially an attempt to cement a lasting peace in Europe in the aftermath of the First World War. In a passage which had not been in the draft prepared for Kohl by his officials, Kohl suggested that Stresemann, together with Briand and Chamberlain, had made a great, and largely unrecognised, effort to integrate Germany in Western Europe. According to Garton Ash, Stresemann had indeed inaugurated an era of good relations with France in which Germany had been accepted into the family of

Thatcher Victorix?: 1983–1984 279 nations, including the League of Nations. But, in praising Stresemann, Kohl raised doubts in Garton Ash’s mind about his true aims in Europe. Stresemann’s primary motivation, as seen by most historians, had been the urgent national requirement of regaining full sovereignty and independence for Germany. A central feature of Stresemann’s policy had been the restoration of German power in Eastern Europe. There was no evidence that Kohl shared those ambitions, but his remarks had illustrated the fact that, whereas France and the UK were content with the status quo in Europe, the Germans were not. Kohl’s answer to the concerns expressed in France about German objectives was that the aspiration of the German people to reunification must be channelled into safe enthusiasm for European Union. It was for this reason that Kohl was such a passionate advocate of European union and sometimes so frustrated by the priority attached by others (i.e. the British) to bookkeeping and agricultural surpluses. Seen in that light, Kohl’s lecture was a clear statement of his view that, for Germany, those practical problems were of secondary importance. They nonetheless had to be overcome because they constituted a block on the road to European Union and thus to Kohl’s ambitions for Germany.46 Garton Ash saw these ambitions for a united Germany as being very long term. In reality, they were to be realised on a much shorter timescale than anyone could envisage in 1984. But Garton Ash’s insight might have served Thatcher and other policy makers well. Robin Butler, the Prime Minister’s Principal Private Secretary, submitted the FCO analysis to Thatcher with a note reading: “Not essential reading but you may like to glance at it.” There is no evidence from the file that she did and, if she did, she ventured no comment. The British Government’s preoccupation remained what Kohl might have dismissed as “bookkeeping”. With the French Government showing no sign of wishing to promote an early settlement, Howe wrote to Cabinet colleagues in mid-May 1984 to bring them up to date. The negotiations were, he reported, not making much headway. Britain’s partners were insisting that they would not go beyond their last and inadequate offer at the Brussels European Council in March, and Howe invited other Cabinet Ministers to make clear to their European opposite numbers that without a deal on the lines Britain was proposing there would be no British agreement to an increase in the Own Resources ceiling, and the Community would be condemned to running out of money in the autumn.47 There was fluttering in British dovecotes at a speech made by Mitterrand to the European Parliament in late May 1984, where Mitterrand implied that France might be willing to accept a new treaty on European Union. But his words were guarded: “France is prepared to examine and defend this approach”—and Fretwell thought the speech more interesting for what it said about Mitterrand’s tactics than for its substance. Mitterrand would not, Fretwell thought, be averse to taking his place in history as a visionary and an architect of Europe. The French seemed to think it more important to be in the lead on such matters than to consider whether their proposals were realistic or useful. The wish to show up the UK as less European than France was also a factor. But Fretwell leaned “to the sceptical

280 Thatcher Victorix?: 1983–1984 interpretation of French conduct and would expect enthusiasm to wane as the moment approaches to take hard decisions”.48 In early June, and with elections to the European Parliament due on 14 June, the French Presidency renewed its effort to find a budget settlement and the private meetings between Howe and Dumas resumed. In Whitehall, thinking was also changing. On taking up his role as Hannay’s successor as the senior official dealing with European Community matters, Renwick had spent his first week studying the record of the negotiations thus far. He concluded, and his view was shared by Williamson at the Cabinet Office, “that we must adopt a radically simplified solution, based on an automatic two-thirds abatement of the difference between what we contributed and what we received, provided this was made a permanent mechanism, enshrined in Community law and changeable only by unanimity”. When the two men tried this on Geoffrey Howe, “the response was that we could try to negotiate something on these lines—but on our heads be it if the Prime Minister didn’t like it”. 49 In presenting this idea as a realistic way forward, the Cabinet Office were careful to point out the main flaw from the British perspective. The French were likely to offer the UK a two-thirds rebate on the whole of the VAT share/expenditure share gap. But that gap was not the whole of the real gap as measured by the UK’s net contribution. To achieve a two thirds rebate on the true gap would require a 75% rebate on the VAT share/expenditure share gap. A 70% rebate would yield refunds equivalent to about 62% of the British net contribution. Even so, the Cabinet Office pointed out, under a scheme of this sort, the UK’s marginal contribution to additional expenditure would be 25 or 30 per cent of her normal contribution.50 In the European Parliament elections in mid-June 1984, the British Labour Party gained fifteen seats at the expense of the Conservatives. The German FDP, Kohl’s coalition partner, lost all their seats. In France, in a portent of things to come, the far right party made substantial gains at the expense of the Communist Party. Overall, the result had been a satisfactory one for the British Conservatives, leaving them with 60 seats, compared with 17 for Labour, and Thatcher enjoined her Cabinet colleagues to present the results positively: the result was the Conservatives’ fourth Parliamentary election victory in a row. Howe said that he was encouraging closer relations between the British Conservatives in the European Parliament (the EDG group) and the Christian Democrats as a means of increasing the effectiveness, and reducing the isolation, of the British members. Others in Cabinet were prepared to agree, provided that the aim was a closer working relationship, not integration. It was important not to reduce the links between the EDG in Strasbourg and the Conservative Party in the UK.51 Three days before the start of the Fontainebleau European Council, Williamson was optimistic. Despite the “alarms and excursions of the last day or two”, he wrote to Howe, he believed that all the other Member States would agree on: one ad hoc year and a refund system expressed as a percentage of the VAT share/expenditure share gap. The likely figure for the first year of the

Thatcher Victorix?: 1983–1984 281 system (1100 mecus) would be approximately 68%, equivalent to an estimated average refund over the period 1985-1988 of a system based on the full net contribution of 60%. There was, Williamson warned, still a risk of the French Presidency starting on a wrong and unacceptable basis. If so, Howe and the Prime Minister might need to bring the negotiation back on to a more acceptable basis by stating clearly that the UK would settle on one ad hoc year and the equivalent of either 1125 or 1100 mecus, expressed as a percentage of the VAT share/expenditure share gap of 1622 mecus. There could be a serious danger of rupture if discussion remained on an unacceptable basis without a substitute proposal from the British side.52 On the eve of the European Council, Dumas wrote to Howe proposing three more years of ad hoc refunds followed by a system based on 60% of the VAT share/expenditure share gap. As the Council was about to open, on 25 June, Williamson and Renwick saw Guy Legras, Renwick’s French opposite number, who had been part of the private exchange between the two Governments over the preceding weeks. The two Britons told Legras how annoyed they had been to receive Dumas’ latest proposal. It misrepresented the British position and no negotiations would be engaged on that basis. Legras agreed that the proposal was absurd. He had asked Dumas to argue against it being put forward at all. Dumas would be continuing to try to achieve a result based on a percentage return. Legras produced a draft text that he was not authorised to show to the British, and which was intended to form the basis of draft conclusions from the meeting. It was based on a percentage return but with two ad hoc years. The British pair said that a second ad hoc year would not be acceptable. Legras indicated that the Presidency were likely to proceed on the basis of the percentage route, albeit starting “with some absurdly low figure in the region of 60%” from which they would go up “some way”. The British presumed that this meant to two thirds of the VAT share/expenditure share gap.53 Armstrong had a similar conversation over lunch with Attali. Attali asked what Armstrong thought of the proposals circulated by Dumas and Armstrong responded “with some firmness” that they were not a basis on which the problem could be solved. What would the British think of a straight percentage, Attali asked? Armstrong said that the key was that the figure should be acceptable. The percentage figure implied by the Dumas proposal was, Attali said, 55%. He understood the UK was looking for 70% of the VAT share/ expenditure share gap. President Mitterrand’s upper limit was two thirds. As the conversation progressed, Attali tacitly abandoned the Dumas proposal and seemed to assume that the agreement would focus round the system and a straight percentage. If Heads of Government could agree on that as a matter of principle before dinner, the President was likely to propose that Foreign Ministers should continue the discussion over dinner with a view to reaching agreement on the figure and reporting to Heads of Government by the end of the evening. “I came to the conclusion”, Armstrong reported to the PM, “that the President would settle for a system and a straight percentage and was ready to

282 Thatcher Victorix?: 1983–1984 go to 66 and two thirds percent. The problem will be to get him above that figure.”54 To Mrs Thatcher’s frustration, the opening session of the European Council, on the afternoon of 25 June 1984, was largely devoted to issues other than the budget. When, after two hours, discussion began, Mrs Thatcher opened, arguing for a system on the lines that the UK had put forward, but not ruling out an alternative provided it delivered an acceptable result. After this, Mitterrand gave what Mrs Thatcher called “a lively account” of a recent visit to Moscow and referred the budget matter to Foreign Ministers to discuss over dinner. Heads of Government and Foreign Ministers adjourned to their separate dinners at the Hôtellerie du Bas-Bréau, near the village of Barbizon. Over dinner, the Heads of Government discussed, among other things, the appropriate number of Commissioners after enlargement. Up till then, the large Member States (UK, France, Germany and Italy) had had two Commissioners and the other Member States one. Enlargement would involve the Spanish having two Commissioners and a consequent increase in the total number to seventeen which, in the British view, was liable to be too many for efficiency or to provide all Commission members with serious portfolios. Thorn, the Commission President, agreed with Mrs Thatcher that there was not enough work for seventeen Commissioners, but she was alone among the Heads of the large Member States in being willing to forego their second Commissioner. The discussion may not have been to Thatcher’s satisfaction, though the menu evidently was since she kept it to show to her officials: foie gras, lobster, rack of lamb and soufflé. The Prime Minister was even less satisfied with the discussion that had gone on among the Foreign Ministers. As the Heads of Government drank their coffee, they could see the Foreign Ministers taking theirs on the terrace and imagined that they had completed their work. But it emerged that much of dinner had been taken up by Cheysson’s own account of the Moscow visit. A displeased Mitterrand sent them back to do their work. The Foreign Ministers again emerged at about 11.30 p.m. They had not reached agreement but had “clarified points of difference”. Cheysson had suggested that the UK might get back between 50% and 60% of her contribution, based on the VAT share/expenditure share gap. Thatcher was furious. “How dare they treat Britain in this way? Have they forgotten that we saved all their skins in the war?”, she fumed. Renwick told her that he believed that things could still be worked out with the French and Dumas authorised Legras to discuss a revised paper on the lines that Legras had earlier outlined. Thatcher’s officials (Williamson and Renwick) who, along with Michael Butler, were thought by the Prime Minister to have “the brains, experience and determination required to retrieve something from this débacle, set to work with their opposite numbers all through the night and into the early morning”.55

Thatcher Victorix?: 1983–1984 283 When the European Council met on the morning of 26 June 1984, discussion opened with Cheysson reporting that, after the Foreign Ministers’ discussion the previous night, three issues remained to be resolved: (a) whether or not there should be two ad hoc years; (b) whether to compensate a percentage of the whole VAT expenditure gap, or a part added to a fixed sum and (c) the percentage, where the UK wanted 70% and the other Member States could not go above 60%. At 11.15, Mitterrand interrupted the session for bilateral consultations, known in Community jargon as “confessionals”, an inappropriate nomenclature in the case of Margaret Thatcher for whom penitence was an unknown posture. In a first meeting between Thatcher, Howe, Mitterrand and Dumas, Mitterrand would not be drawn beyond 60% of the gap. Howe and Thatcher then saw Kohl and Genscher. Kohl indicated that 65% was his limit. He also told the PM that Germany would insist on getting a refund for Germany of a part of the German contribution to the UK refund. Dumas separately told Howe that Mitterrand would not go up to the 70% the UK was seeking.56 In a further bilateral between the PM and Mitterrand, the President indicated that he might just be prepared to go to 65% in order to settle. Meanwhile, the British delegation were hearing from other delegations that 60%, or just possibly 65%, was the limit and that there was no question of anything like 70%. There were a number of corridors and small rooms off the main meeting room, and Mrs Thatcher told Howe, Butler and Williamson that she wanted a private word with them in one of them. On the way there, Williamson told Butler that now was the time: “We must advise her to settle”. Butler agreed, but advised Williamson to wait and see what the PM had to say. “The four of us sat in a little room”, Butler later wrote, “and there was quite a long silence while Mrs Thatcher thought. Then she turned to us and said: ‘It’s time to settle’.”57 The Prime Minister saw Mitterrand again. She was ready to settle, but it would be helpful to her to have 66%, rather than 65% i.e. the same percentage as in the 30 May agreement originally negotiated by Carrington and Gilmour. Mitterrand suggested she raise the point when the plenary session resumed. When it did so, the French tabled a paper that had been agreed with the UK save in one respect. At the Brussels European Council, the UK and France had agreed on a text which would have made it clear that any increase in the British net contribution due to the accession of Spain and Portugal in 1986 would be subject to the corrective mechanism. Now, the French had inserted a paragraph that said the opposite. Mrs Thatcher argued strongly against it and got her way. She also told the meeting that it would be absurd to deny her “my one percentage point”—not, of course, indicating that as well as being presentationally important, the extra 1% would be worth about £15 million a year to the UK. “Of course, Madam Prime Minister, you must have it”, the President replied.58

284 Thatcher Victorix?: 1983–1984 Thatcher was successful, but she could not claim a rout. The media’s aim, Ingham warned her, would be to pick holes and to show that she had lost, rather than gained, from holding out. “You must present a successful outcome as a success, and not grudgingly. This does not mean going overboard in triumph. But it does mean saying as a minimum that your two conditions have been met and that it was right to strike a reasonable deal. You should not give the critics queueing up any encouragement”.59 Early comment in the French Press mirrored the “neither conqueror nor conquered” line of the Elysée spokesman, and acknowledged that both Britain and the Nine had made concessions. In Bonn, Kohl’s reported observation that it had been “a very respectable settlement” was widely echoed.60 It was echoed too in London where the Prime Minister told Cabinet that the outcome represented “a very reasonable settlement” and that, following the agreement, the atmosphere in the Community had changed immediately. The French and Italian reserves, which had held up the payment of the UK’s refund of about £440 million had immediately been withdrawn. It was a cause of satisfaction that, at a period when many issues were the subject of prolonged and difficult disagreements, the question of Community financing and UK refunds had been resolved by negotiation. In discussion, Cabinet Ministers thought that the outcome provided a good opportunity to look at the way in which Community issues were presented in the UK. It was no longer a question of arguing about UK membership but about the sort of Community the UK wanted. In particular, the Government needed to convince people, both in Britain and in the rest of the Community that a Community-wide common market, not only in goods, but also in services, would help to create jobs. As, perhaps, an omen of disputes to come, Thatcher reported that “the draft recommendation on Working Time had been raised in the European Council and she had not accepted it.”61 The long struggle for an equitable budget settlement had started in the Renegotiation of 1974-1975; it had risen to the top of Callaghan’s EEC agenda by the time of the 1979 General Election; and it had dominated—and soured— Britain’s relations with her European partners for the first five years of Margaret Thatcher’s premiership. At the end of it what had been lost and what had been gained? In the immediate aftermath, the whole issue was put into perspective in France by being squeezed out by other news, not least the French victory in the European football cup. Le Monde rejected arithmetical attempts to calculate who won or lost in the argument, arguing that the result was balanced: “Madame Thatcher did not make her partners surrender . . . She has attained her principal objectives: a substantial compensation durable in time, so inscribed in the facts that it is practically permanent. What a distance travelled in ten years. Great Britain, even if mental attitudes have not followed, is, on the evidence, better integrated into the Community.”62 In Germany, the Press was less than euphoric. At the Summit, Kohl had secured agreement to his Government giving some domestic subsidy to

Thatcher Victorix?: 1983–1984 285 German agriculture: “Thatcher has her millions and Kohl permission to spend his”, as Die Welt put it.63 Mrs Thatcher herself did not claim a great victory. And, in an interview in 2009, Jacques Attali, Mitterrand’s closest aide, claimed that she had suffered a defeat since, he asserted, she was demanding a 100% cashback deal.64 As the records show, the considered stance of the British Government was that the UK should remain a net contributor to the EEC budget, albeit on a small scale. The ad hoc refunds which the Government secured over the period from 1980 averaged out to around two thirds of the total net contribution. It is true that, to secure the same level of rebate under the VAT share/expenditure share gap would have required a figure of over 75%. To that extent, the Prime Minister got less than she wanted. But, if, as Attali claimed, the deal was such a bad one for the UK, why had Britain’s partners fought Mrs Thatcher every step of the way to the final outcome? Mitterrand’s stance until very late in the day, shared by the other Member States, was for more years of ad hoc refunds, reducing over time. The prize which Mrs Thatcher secured was to achieve a lasting system—one that has endured for more than three decades. Mrs Thatcher was never less than fortiter in re. Could she have been more suaviter in modo?65 Undoubtedly. But it is questionable whether another politician would have been so determined and so resilient. It is clear that she did not relish the ongoing warfare. But her most crucial and valuable decision was to settle for nothing short of a lasting system. And to achieve that, she had no choice but to fight. Her reference to the UK contribution to the EEC budget as “her money” was technically inaccurate and politically provocative. Even today, “I want my money back” is the catchphrase by which Mrs Thatcher is most remembered in the rest of the European Union. But, to those British officials working on the issue at the time, it was evident that Britain’s partners found it convenient to wrap their own hard-headed self-interest in a European flag of principled outrage. The United Kingdom had been compelled by the founding six member Governments to accept an unfair budget arrangement as the price of accession. Edward Heath had started to address the issue towards the end of his time in office. In the end, it took three Prime Ministers (Wilson, Callaghan and Thatcher) ten years to achieve an equitable settlement which should never have been denied to Britain in the first place. The injustice, and the bitterness of the quarrel, have resonated ever since. There is some justice in the claim by Hubert Védrine, Mitterrand’s diplomatic adviser, that the quarrel helped cement the relationship between Mitterrand and Kohl, which then dominated the evolution of the European project for the best part of a decade.66 But, lack of chemistry apart, no British Prime Minister was likely to share Kohl’s vision of European Union. Mitterrand did not share it either, but the Franco-German relationship was the bedrock of the Community. It was always exclusive, as the exclusion from it of the other large founding member, Italy, demonstrates. Mitterrand had much more domestic latitude

286 Thatcher Victorix?: 1983–1984 to sing from the European hymn sheet than did British politicians, because France’s historical fear of Germany and her economic and political need for good and close relations with her neighbour found a ready echo in French public opinion. Mrs Thatcher was at the end of the UK spectrum in her views on European union but she was nonetheless part of a continuum which embraced every British Prime Minister from Macmillan onwards, a continuum in which British leaders believed that the European Community should be primarily about cooperation between Governments, with Britain, Germany and France taking the lead. This did not mean that Margaret Thatcher had no ideas to offer about the future evolution of the European Community. Her ideas were not theoretical, or institutional but intensely practical. They found their most comprehensive reflection in a document that Mrs Thatcher presented to the June 1984 meeting of the European Council. The document was called Europe—The Future.67 It was largely the work of officials but the Prime Minister gave it her imprimatur, which she would not have done without close scrutiny. The document set eight objectives for the future development of the European Community. Those must be, it suggested, to: • • • • • • • • •

Strengthen democracy and reinforce political stability in Europe. This means bringing to a successful conclusion the accession negotiations with Portugal and Spain; Develop a dynamic society in which industry thrives and activities which create wealth are encouraged. To do so, we must complete the internal market, particularly in the services sector; Strengthen the European pillar of the Alliance and the contribution Europe makes to its own security; Promote policies which will improve the quality, as well as the standard, of life in the Community; With due regard for the needs of economic and industrial efficiency, do more to promote the improvement and protection of the environment; Agree urgently on certain organisational changes; Adopt policies which will guarantee the relevance of the Community to the problems, particularly unemployment, which affect our societies; Take the necessary steps to strengthen the voice of the Community and make its influence felt in the world; Heighten the consciousness among our citizens of what unites us.

The document’s most significant section was a call to action, to create jobs by harmonising standards that created barriers to intra-Community trade; more rapid and better coordinated customs procedures; a major effort to improve mutual recognition of professional qualifications; and liberalising trade in services, including banking, insurance and transportation of goods and people: “if we do not give our service and manufacturing industries the full benefit of

Thatcher Victorix?: 1983–1984 287 what is potentially the largest single market in the industrialised world, they will never be fully competitive at international level.” Translating these intensely practical proposals into reality was to involve for Mrs Thatcher an epic clash between her practical objectives and the institutional changes demanded by other Member States in order to bring them about.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

PREM 19/1155, TNA. PREM 19/1025, TNA. PREM 19/1225, TNA. Parl. Debs, H. of C., 6th ser., vol. 48, col. 609, 14 November 1983. PREM 19/1022, TNA. PREM 19/1036, TNA. Ibid. CC (83) 28th Conclusions, 22 September 1983, CAB 128/76, TNA. PREM 19/1025, TNA. CC (83) 35th Conclusions, 1 December 1983, CAB 128/76, TNA. PREM 19/1025, TNA. John Newhouse, ‘The Diplomatic Round: One Against Nine’, The New Yorker, 22 October 1984. Thatcher, Downing Street Years, pp. 335-38. PREM 19/1225, TNA. Ibid. Ibid. Hannay, Britain’s Quest for a Role, p.104 PREM 19/1225, TNA. Robin Renwick: A Journey with Margaret Thatcher, p. 98 PREM 19/1242, TNA. CC (84) 3rd Conclusions, 26 January 1984, CAB 128/78, TNA. PREM 19/1240/1, TNA. PREM 19/1226, TNA. PREM 19/1245/1, TNA. CC (84) 8th Conclusions, 1 March 1984, CAB 128/78, TNA. PREM 19/1221, TNA. CC (84) 9th Conclusions, 8 March 1984, CAB 128/78, TNA. PREM 19/1227, TNA. PREM 19/1221, TNA. PREM 19/1227, TNA. PREM 19/1227, TNA. PREM 19/1221, TNA. Ibid. PREM 19/1227, TNA. CC (84) 12th Conclusions, 22 March 1984, CAB 128/78, TNA. PREM 19/1221, TNA. PREM 19/1224, TNA. PREM 19/1227, TNA. Ibid., and CC (84) 13th Conclusions, 29 March 1984, CAB 128/78, TNA. PREM 19/1227, TNA. PREM 19/1227, TNA. PREM 19/1245/1, TNA. PREM 19/1220, TNA.

288 Thatcher Victorix?: 1983–1984 44 PREM 19/245/2, TNA. 45 See FCO Historians, Locarno 1925: The Treaty, The Spirit and the Suite (FCO, 1991): https://issuu.com/fcohistorians/docs/history_notes_cover_hphn_3 46 PREM 19/1245/2, TNA. 47 PREM 19/1228, TNA. 48 Ibid. 49 Renwick, A Journey with Margaret Thatcher, p. 100 50 PREM 19/1229, TNA. 51 CC (84) 23rd Conclusions, 21 June 1984, CAB 128/78, TNA. 52 PREM 19/1222, TNA. 53 PREM 19/1229, TNA. 54 Ibid. 55 Thatcher, Downing Street Years, pp. 542–43; Renwick, A Journey with Margaret Thatcher, p. xii 56 PREM 19/1222, TNA. 57 Butler, Europe: More than a Continent, p. 109 58 Butler, Europe: More than a Continent, p. [add no]; Thatcher, Downing Street Years, pp. 544–45. 59 PREM 19/1222, TNA. 60 Ibid. 61 CC (84) 24th Conclusions, 28 June 1984, CAB 128/79, TNA. 62 PREM 19/1222, TNA. 63 Ibid. 64 The Guardian, 4 July 2009. 65 Fortiter in re, suaviter in modo (‘resolutely in action, gently in manner’), a motto of the Counter-Reformation Jesuit thinker Claudio Aquaviva. 66 Charles Moore, Margaret Thatcher: The Authorized Biography, Volume Two, Everything She Wants (London, Penguin Random House UK, 2015), pp. 380–81. 67 See Appendix.

9

Thatcherism on a European Scale: The Single Market, 1984–1985

The course of European policy rarely ran smooth—for the United Kingdom, at least. At the Fontainebleau summit in June 1984, Margaret Thatcher had given her agreement to an increase in the Own Resources ceiling in exchange for a long-term rebate on Britain’s budget contribution. But that increase could only take effect after ratification in all the national Parliaments of the ten Member States. In the meantime, the European Community was running out of cash. The British Government were not prepared to go along with the way in which the Irish Presidency, which had succeeded the French in July, attempted to handle the issue. As the British Government saw it, the Presidency were “suggesting that we should write out a cheque, outside the Treaty arrangements, to finance other people’s agricultural overspending”. There was no prospect of the British agreeing to this and if, as it appeared, the Irish thought that public pressure was all it would take to get the British to back down, they could not be more wrong. The position of the other Member States was that the money should be found. The position of the British Government was that the 1984 budget overrun should be dealt with by a combination of savings and deferrals. If those were achieved, then the British Government would be ready to work to bring the new Own Resources decision into effect in 1985. This last proposal put the British as loggerheads with the Germans, who were not willing to see the increase in Own Resources take effect before 1986.1 With almost Pavlovian predictability, the European Parliament reacted to the British stance by voting to block the approval of the UK’s 1983 refund. What was her feeling about it, John Tusa asked the Prime Minister on the BBC’s Newsnight programme on 27 July 1984? Mrs Thatcher’s response was crisp: “I thought it was absolutely despicable”, she said. “No country”, she continued, “does more for Europe than Britain does and then they do this to us . . . Expenditure has gone up far more than it should have done and therefore they want to put up income. I think it was Errol Flynn who said that his net income was not enough for his gross habits . . . The Treaty says that the budget has got to be in balance. You cannot borrow.” Invited by Tusa to embark on withholding Britain’s budget contribution, the Prime Minister declined “to default on our undertakings even though

290 Thatcherism on a European Scale other people default on theirs”. The European Parliament had time to reconsider. And she looked forward to Jacques Delors taking over as President of the Commission (the Germans having vetoed Davignon without coming up with the promised candidate of their own). On the basis of Delors’ strict management of the French budget, she hoped the Commission would now be better run than in the past.2 Chancellor Kohl’s failure to nominate a candidate for the Commission Presidency, after he had explicitly told Mrs Thatcher that he would, was, so the PM told Roland Dumas at a meeting in Downing Street in July, a source of astonishment to her. She told Dumas of her continuing support for the Belgian Commissioner, Davignon. He was outstanding. He was also, she said, very proFrench, but that did not inhibit her from supporting him. If she could not get Davignon, then she would support the candidature of Delors, for whom she had the highest regard. To save Dumas the embarrassment of having to ask her “she would tell him that the French Foreign Minister, Cheysson, would not make a good President”. Dumas replied that she “was right in her comments on possible French candidates”, and that he expected Mitterrand to nominate Delors.3 The appointment of Delors was well received in Cabinet. He was thought likely to be a very good President of the Commission. But Cabinet members expressed some misgivings: the willingness of the Germans, despite their own claim, to agree that the next President of the Commission should be French demonstrated once again the strength of the Franco-German axis. The French, it was argued, would now have a strong hand of major international posts in the IMF, OECD and the Commission.4 The United Kingdom, of course, had to nominate its own candidate to the Commission. Christopher Tugendhat, though a Conservative, had served two terms—longer than any other UK Commissioner—and was not eligible for reappointment. He had, in any case, irritated Mrs Thatcher by not standing up for the British national interest as robustly as she thought he should. His obligation as a Commissioner to serve the Community, and not the national, interest cut little ice with her. Nonetheless, on the eve of his departure from Brussels, Tugendhat sought to educate the Prime Minister on what the job of Commissioner entailed. The Commission, he told her in a letter, was “a strange institution for which there is no parallel in British national life . . . By its very nature, the Commission cannot be expected to make proposals which reflect the interests, however deeply felt, of one Member State but which are known in advance to be likely to be anathema to nine others; and no individual Commissioner can hope somehow magically to persuade it to do so . . . A Commissioner who is perceived by his colleagues as merely reflecting views which could just as easily obtained from a Permanent Representative will soon find his opinions discounted”. Tugendhat acknowledged that there was some hypocrisy in this highmindedness: when a position was held by the great majority of member Governments it tended to be regarded in the Commission as communautaire. When it was held by only one or two Governments, it was likely to be considered as “national”. This meant that a Commissioner from a minority

Thatcherism on a European Scale 291 country who wished to assist that country’s Government would be an object of suspicion. Tugendhat went on to point out a reality of political life in the Community which was to become painfully apparent over a decade later: although it was the Council which appointed the Commission, it was the European Parliament which could, if it so wished, dismiss it. The European Parliament’s views, and its likely reaction to Commission proposals, therefore loomed much larger in the Commission’s scheme of things than was generally realised in capitals. In a final apologia, Tugendhat reflected that he had sometimes been struck “when receiving approaches from some senior British officials, by their failure to appreciate the extent to which I, as a British Commissioner, must consider the wider Community issue as well as the more specific British one. Indeed, if I had followed some of the exhortations directed to me, I would have effectively ensured that my views and opinions would be discounted in any subsequent discussion in which British interests were involved. I have also sometimes felt that the British interest would be better served if those who made representations to me would be more prepared to consider advice that I and my cabinet give on the handling of certain issues.”5 There is no record of the Prime Minister commenting on Tugendhat’s letter. She was unlikely to have been impressed by his arguments. She may, however, have had later cause to reflect on them. For she was determined to appoint, as Tugendhat’s successor, someone who would be a doughty fighter for Britain, and her clear favourite was Lord Cockfield, the Secretary of State for Trade. Yet Cockfield was destined to end up playing Becket to her Henry II, “going native”, as she saw it, to a disturbing degree. She was warned of Cockfield’s limitations in a personal minute from her Foreign Office Private Secretary, Charles Powell. “You have”, he wrote in August 1984, “frequently proposed Lord Cockfield as the Government candidate to be the main British Commissioner in the next Commission. You have met with equally constant, but not very well defined, reluctance from several whom you have consulted . . . There is no doubt that Lord Cockfield would be excellent at trench warfare. But that is more the role of the representatives of Member States in the Council. In the Commission, you need someone who is fast-moving, tactical and above all, someone who can get into the inevitable inner circle of senior Commissioners (which in practice means speaking French). The doubt is whether Lord C, despite all his admirable qualities, could operate in that way.” Powell concluded that the Prime Minister would get “the most effective service” from Sir Michael Butler.6 This idea held some appeal, since the Prime Minister held Butler in high regard. But she also had to consult the Leader of the Opposition, Neil Kinnock, about the second British Commissioner, and she told Kinnock that she had considered Butler but that it would be unpopular with her own Party if she were to nominate him (an official) alongside a politician nominated by the Labour Party. Although Thatcher did not spell it out, it must have been in her mind that it would be hard for Butler, as a Civil Servant, to establish his seniority over a fellow Commissioner who was a politician.

292 Thatcherism on a European Scale For his part, Kinnock wanted the existing second British Commissioner, the Labour politician Ivor Richard, to serve a second term, but the Prime Minister thought it wrong for Commissioners to serve for too long and Kinnock accepted her decision reluctantly but with good grace, acknowledging that it was for the Government to make the nominations.7 The Labour nominee was Stanley Clinton-Davis, a former Labour Minister. Despite the misgivings of others, Thatcher stuck by her choice of Cockfield as the senior of the two nominees.8 Clinton-Davis became Commissioner for the Environment, Transport and Nuclear matters. Cockfield took the portfolio responsible for the Internal Market, Tax Law and Customs. Since Cockfield was a member of the House of Lords, and erroneously thought to be a Thatcher placeman, there was considerable opposition to his appointment among Labour members of the European Parliament. Carol Tongue, Labour MEP for London East, sought a ruling from the ECJ on her contention that a Life Peer, as a legal member of a national legislative body, could not be a Commissioner. The former senior Labour Cabinet Minister, Barbara Castle, also a member of the European Parliament, wrote to the Prime Minister in similar vein. Neither the Government’s own legal advisers, nor those of the European Commission, shared these doubts. In their view, Lord Cockfield was under an obligation under Article 157 of the EEC Treaty not to engage in any other occupation. Membership of a non-elected House was, the Government’s advisers contended, quite different from membership of an elected legislature. Had Cockfield been a member of the House of Commons, he would have had to resign his seat. As a Life Peer, Lord Cockfield could not resign his seat even if he wished to do so. Cockfield had made it clear from the outset that he would take no active part in the affairs of the House of Lords once appointed. To make his position absolutely clear, he subsequently decided to seek leave of absence from the House of Lords for the duration of his appointment. This arrangement satisfied the Commission authorities and a formal letter was sent by them to confirm the position.9 This set the matter to rest formally. It was also laid to rest politically once, on his appointment, it became clear that Lord Cockfield began to be seen by Mrs Thatcher as a thorn in her side. “Alas, it was not long before my old friend and I were at odds”, Thatcher commented later. “Arthur Cockfield was a natural technocrat of great ability and problem-solving outlook. Unfortunately, he tended to disregard the larger questions of politics . . . He was the prisoner, as well as the master, of his subject.”10 All this was to come. The Fontainebleau European Council had established two committees to consider the future evolution of the Community. Both committees were set up under the heading of A People’s Europe, with terms of reference ranging from the formation of European sports teams and the development of a European flag and anthem to the abolition of frontier formalities for people and the creation of a single document for the movement of goods. The second of the two committees was to consist of the personal representatives of Heads of Government, and was to make suggestions for the “improvement of

Thatcherism on a European Scale 293 the operation of European cooperation in both the Community field and that of political, or any other cooperation”. The key to its work lay, however, not in its remit but in its description as being “on the lines of the ‘Spaak Committee’”, the Committee that had set the parameters of what became the European Community. In other words, the remit was potentially very far reaching. Chancellor Kohl was determined that this latter committee should be chaired by Karl Carstens, a former German President, and was by turns angry and sulky when the Irish Presidency, quite correctly, appointed their own chair, Professor James Dooge, a member of the Irish senate. Although Margaret Thatcher had given her support to the nomination of Carstens, and had to backtrack when EEC Foreign Ministers endorsed Dooge, Kohl did not appear to bear a grudge when, in late September, Sir Julian Bullard paid his first call as Britain’s new Ambassador in Bonn. Kohl, Bullard reported, “looked healthy, vigorous and pleased to see me”. The ensuing conversation, “enveloped in a broad, but to me obscure, historical framework with allusions to Austen Chamberlain, the Treaty of St. Germain etc . . . was a one-sided one with not much operational content. Teltschik, who was present, closed his notebook early on in Kohl’s monologue.”11 Reflecting on the German scene in a “First Impressions” despatch to the Foreign Secretary, Bullard noted that these were in fact his third impressions after two previous postings in Bonn. “Much is naturally unchanged since I last served here in 1979. In politics, the norm for a speech is still one hour, the shirt is still usually white, indoor plants still block the view from Ministerial windows, and Genscher is still Foreign Minister. In the arts, taste is still too often outgunned by money: the current production of The Ring in Berlin must be the only one in Wagnerian history where the Valkyries make their celebrated entrance wearing black plastic bus conductors’ uniforms and pushing hospital trollies, each with a sheeted corpse.”12 Bullard believed that, since the Stuttgart and Fontainebleau European summits, the caricature of Britain as the odd man out in Brussels, nagging away about her refunds while everyone else in the room wanted to get on with building Europe, had definitely begun to fade. Nonetheless, Bullard had been told by Walter Albrecht, the Prime Minister of Lower Saxony (and considered a possible future Chancellor) that there was a feeling among Germans of all ages and political parties that, if Britain and Germany were to maintain their position in the world, they and the rest of the Community must take seriously the idea of European union. Bullard thought this a shrewd comment, and that it would pay British decision makers to re-read the passages on this subject from the speech which Thatcher had heard Kohl deliver in Oxford in May 1984. The key sentences were, in Bullard’s view: “The question will be: is every partner in the Community ready, even in the most difficult times, to consider its membership of the Community as irreversible? We certainly are. Are all partners ready to tread the path to the political union of Europe? The FRG certainly is. I hope that the answer of all other partners in the Community to these two decisive questions is the same as ours.”13

294 Thatcherism on a European Scale In a separate despatch to Howe on the German question, Bullard, reflecting the conventional wisdom of the time, wrote: “For very many years ahead, the Soviet Union will not allow German reunification under any circumstances.”14 Kohl had asked Bullard to convey his greetings to Thatcher. A week later, the Prime Minister agreed to write to Kohl a letter of introduction for a visiting group of Conservative MPs, led by John Gummer. “It would help John Gummer and be good for relations with Kohl”, Powell advised her. “It would only be a gesture; but gestures seem to matter a lot to Kohl and he is susceptible to flattery . . . If you don’t want to write, it could be converted into a speaking note but I think a letter would be more effective with Kohl (particularly if you can bring yourself to put ‘Dear Helmut’).” Evidently, that was a bridge too far. “My dear Chancellor”, the PM wrote, signing off: “Yours sincerely, Margaret Thatcher”.15 There was one exception to this habitual formality on Thatcher’s part, a formality that reflected her uneasy relationship with Kohl, since she had been happy to address Schmidt (whom she liked) as “Helmut”. After the IRA bombing of the Brighton hotel, at which Thatcher and others were staying during the Conservative Party Conference on 12 October 1984, Kohl sent Thatcher a letter of sympathy and a personal gift. The Prime Minister replied: “My dear Helmut, I was very touched by your kind letter, and delighted with the very pretty dish you sent me. It does indeed give me great pleasure: how clever of you to guess that I collect porcelain. Yours ever, Margaret.”16 The majority of Government leaders appointed a Minister as their so-called personal representative to the Committee on Institutions (the Dooge Committee as it soon became known), the British appointee being Malcolm Rifkind, Minister of State at the FCO. Both that committee and the committee on a people’s Europe (on which David Williamson was the UK representative) quickly proved problematic. In a first report to the Prime Minister on their activities in late September, Howe noted that Ministers, meeting in OD (E) committee, had found the tone of a paper presented to them by officials “rather negative on some points” and advised that the UK would need to present its case in a positive manner. Charles Powell disagreed, minuting to the Prime Minister that officials had indeed been rather negative, and rightly so, on symbols like European flags, anthems, football teams and so on. He and Williamson had thought this would be the PM’s view, whereas “some of your colleagues appeared more enthusiastic”. To Powell’s suggestion that any conclusions from OD (E) should be submitted to her, Thatcher replied: “Yes, I think officials took the right line.”17 The Prime Minister’s vigilance extended to reading “with interest” the telegram summarising the first meeting of the Dooge Committee. She had, Powell wrote to the FCO, been “a little surprised” that the UK delegation were giving such high priority to proposing a common approach in external affairs, and he sought confirmation that “in fact you have no more in mind

Thatcherism on a European Scale 295 than what appeared in the PM’s paper ‘Europe—the Future’”. The FCO were able to confirm that Malcolm Rifkind had indeed been quoting almost verbatim from the Prime Minister’s document.18 More problematic was how to achieve progress towards creating a genuine internal market with no barriers to the provision of goods and services, which the United Kingdom wanted, without making difficult concessions on freedom of movement of people. “We are agreed”, Howe wrote to the PM on 21 September, “that we should concentrate on the internal market, and particularly liberalisation of air transport and services. We have put forward a number of ideas and others are being worked up. I think it important, however, to recognise that progress over the internal market . . . will be considerably facilitated if further progress can be made in reducing frontier formalities”. Howe drew attention to a point made to him in a letter from Norman Tebbit, the Secretary of State for Trade and Industry, namely that, in the eyes of Britain’s partners, there was a connection between free movement of people and attempts to open up the internal market. Thatcher immediately spotted one of the major problems with this approach, commenting in manuscript: “As we are the only country with supplementary benefit on a national scale, we must make efforts to restrict this help to our own nationals.”19 A few weeks later, the Prime Minister was expressing alarm at some of the ideas being aired in the Dooge Committee, such as giving the European Parliament responsibilities on the revenue side of the EEC budget, Central Bank powers for the European Monetary Fund and restrictions on the invocation of the Luxembourg Compromise. Still worse was the suggestion of a new European treaty.20 The FCO responded to the Prime Minister’s request for an assessment of the Dooge Committee’s work, and she commented crisply in manuscript as she read it. There was, the FCO reported, pressure from the Germans to increase the legislative powers of the European Parliament [MT: “No”]. There had been some suggestions—unlikely to be supported, for giving the EP some role related to revenue [MT: “No”]. There was a German proposal to establish a permanent secretariat in Brussels to manage Political Cooperation [MT: “Why ever more bureaucracy?”]. It had been suggested that Qualified Majority Voting (QMV) should be introduced in some areas. This would be of major concern to the UK given the implications for sovereignty, but a number of other Member States were certain to shoot it down. [MT: “I have seen this advice many times and watched those who were against just fade away when the argument got tough, leaving us alone to fight their cause.”]21 Powell had earlier asked Thatcher whether she could agree to a case by case look at the possible extension of QMV in Community business, subject to maintenance of the Luxembourg Compromise, but the Prime Minister had responded: “In view of our manifesto commitment . . . I don’t see how we can.” But Powell returned to the charge, and was able to offer the FCO a little flexibility. “In general”, Powell wrote to the Foreign Office, “the PM agrees with the views set out in your letter and analysis. There are clearly a number

296 Thatcherism on a European Scale of ideas which we cannot accept. These include: QMV in POCO [Political Cooperation], or any other commitment which hinders us from acting in defence of essential British interests; extension of the powers of the European Parliament [which the PM had commented was “NOT a Parliament”]; ‘objective tests’ for invoking the Luxembourg Compromise; a new European Treaty; UK participation in the ERM; new Community social legislation; Community preference in arms procurement . . . The crux comes in the formalisation of arrangements for POCO; and the extension of QMV. The PM agrees that perhaps we could adopt a slightly more open position than hitherto on these proposals, subject to the following qualifications: On POCO, we should not agree to do more than formalise existing informal arrangements. On QMV, the key requirement is that the Luxembourg Compromise should be preserved intact. The PM is against extensions of QMV, but understands that other countries would also argue against particular cases, as they arise”.22 As Geoffrey Howe saw it, the main problem for the UK could be traced to the Germans. The main thrust for what he described to the PM as a “recent burst of activity” was coming from Kohl. One part of Kohl’s motivation coincided with British interests: the desire for faster progress on the establishment of a truly common market. The other part—much less clear—was Kohl’s wish for further evidence of political progress. It was for this reason that Kohl was said to be determined to achieve a new intergovernmental agreement of an essentially declaratory kind dealing, inter alia, with POCO. Kohl was, in Howe’s assessment, under political pressure at home, and the French saw a national interest in helping him counteract tendencies in German opinion which worried them. While, therefore, Mitterrand appeared ready to go along with Kohl, on the real substance the French position was closer to that of the UK: they would not agree to any effective transfer of authority to the Community. Howe advised that the British Government should avoid falling into the trap of taking up the essentially defensive positions that some of the other Member States expected her to adopt. Both in Europe and outside, the UK must be seen to be playing no less central a role in the Community than France and Germany. The UK should try to match the French in ingenuity in seeking to turn to advantage Kohl’s declared enthusiasm for completion of the internal market, where, Howe feared, progress otherwise would continue to be painfully slow. The UK had put forward its own ideas for the development of the Community. Her attitude to the ideas of others should be affected by their willingness to implement the existing treaties and, in particular, to commit themselves to taking specific actions to bring about the completion of the internal market within a given timetable. The UK should press for the removal of all non-tariff barriers within the decade of the 1980s. The main point the Government needed to get across to Kohl and others was that there were enough areas for action by agreement, in terms of completing the Treaties and developing POCO, to represent real reform. The way to a united Community could not be through a route (a new Treaty) that would divide some Member States from others.23

Thatcherism on a European Scale 297 By the end of November, the Dooge Committee had produced an interim report which, according to Rifkind, in a memo to Thatcher, was “like the curate’s egg: good in parts”24. Those parts included excellent conclusions on the internal market (including services such as insurance) and a reduction in the size of the Commission. The institutional recommendations were less palatable but, in Rifkind’s estimation, manageable. The report contained a majority recommendation to increase the powers of the European Parliament and to minimise the use of the veto. This reflected the determination of Kohl, in particular, to achieve a qualitative leap forward in the development of the Community. Rifkind had at least got it formally recognised that the Committee, having voted for greater use of QMV, would now have to discuss the practical implications.25 Rifkind was putting an optimistic gloss on a situation that was not evolving in Britain’s favour. In December, in an interview with Die Welt, Kohl made his intentions crystal clear. “The fathers of the European Community wanted a political Community and not simply a free trade zone. The time is now ripe. We shall do everything to win all partners for such a decision. We do not want to exclude anyone. But I am nevertheless firmly decided to go this way, even if one or another member country is not in the position today to rally to such a decision. I have repeatedly said that the slowest ship should not be allowed to determine the speed of the convoy. Who today cannot follow could do so tomorrow.”26 Some of the other preoccupations of the Government moved towards resolution as the autumn progressed. A compromise was reached on the supplementary funding needed to keep the European Community solvent. A draft supplementary budget was agreed by Foreign Ministers on a conditional basis. The UK agreed to it on the understanding that the UK would not enact its domestic procedures for financing its share unless the European Parliament released the 1983 refund, and unless the UK was also satisfied with progress towards budgetary discipline more widely. On this latter topic, the Chancellor was able to report that agreement was in sight; and the European Parliament swiftly agreed to release the UK refund.27 Meanwhile, the Prime Minister held her first meeting with Delors in his new role as President of the Commission and felt that it “gave grounds for confidence”. One point was quickly settled. In exchange for her agreement to Delors becoming Commission President, Thatcher had secured Mitterrand’s agreement that, on the imminent retirement of Emile Noel, the Frenchman who had been Secretary General of the Commission since 1967, his successor should be a Briton. David Williamson, the official whom Thatcher most admired—along with Michael Butler—was the Prime Minister’s choice, and Delors said that he would welcome his appointment. The PM replied that Williamson was outstanding. She would be loath to lose him but she recognised the importance of the Secretary General’s post. The Prime Minister set out to Delors her views on what she called “a moment of opportunity” for the Community. She was anxious, she said, to take that opportunity. But it was necessary to be practical. There was a tendency to talk in terms of concepts rather than action. For instance, there were constant references

298 Thatcherism on a European Scale to European Union, something which would never come about. Talking about it simply gave a false impression. It was no less worthy to set the aim of working together as nation states for the common good. Delors was wise enough not to engage in argument on the subject. He had, he replied, detected two distinct trends in the Community: those who wanted to concentrate on practical improvements in the running of the Community and those who aspired to a new treaty. For Thatcher, “it was absurd to talk of a new Treaty. A great deal of the existing treaty had not yet been put into practice. Grand schemes were almost invariably a substitute for action to deal with real problems.” The main such real problem, to which the PM hoped the Commission would give a high priority, was the internal market. It needed to be completed urgently and it could be done without significant additional expenditure. Delors agreed that this must be one of his priorities. It should be done with the minimum harmonisation of rules.28 The Prime Minister had a similar conversation with Mitterrand at the Anglo-French summit in Paris at the end of November 1984. She had been briefed by Powell that the most difficult issue at the summit was likely to be the future of the Community, including European Union, where the French seemed ready to go along with the German wish for a new treaty covering both political cooperation and additional areas of cooperation among the Ten. From Paris, Fretwell agreed: Mitterrand might well display some disappointment that the Dooge Committee was not progressing faster in the direction he professed to favour, and might claim that a majority supported Franco-German ideas on European Union.29 None of this deterred Mrs Thatcher from a vigorous exposition of her views. The ideas which were being discussed for consultation between the European Parliament and the Council, for example, would in her view make it quite impossible for the Council to take any decisions at all. She feared that discussion in the Dooge Committee would get out of hand. Mitterrand observed that many of the ideas that the PM had mentioned were a very long way from being realised. Thatcher commented that there was a basic difference of approach between her and the President. He was very patient and prepared to let things evolve. She preferred to get things clear at the outset, ruling out this or that and identifying areas where practical progress could be made. Mitterrand said he did not know which method was better. He favoured a stronger European structure. As it was, the way in which the European Parliament was behaving was complicating matters badly and could end up seriously weakening Europe. It had behaved irresponsibility, especially in simply putting to one side all the hard work done at Fontainebleau. Mitterrand agreed with the Prime Minister’s observation that the European Assembly was a body without gravitas, a debating chamber, not a decision making body. In his view, with a combination of an irresponsible Parliament and a weak Commission—and the existing Commission had been very weak —all problems landed on the shoulders of the Member States. He was not

Thatcherism on a European Scale 299 looking for miracles, though he was in principle in favour of moving towards greater powers for the Parliament and more majority voting. He also noted that France’s open frontier arrangements with Germany were working well and that Italy now wanted the same, though there were problems to be overcome with migrant workers from outside the Community. Mrs Thatcher said that she wanted to see recommendations for practical improvement emerge from both committees. But she did not want the Community to waste time on rhetoric which sounded well but only created, rather than solved, problems. Mitterrand said that he was prepared to consider the extension of majority voting in some areas, and that the Luxembourg Compromise was invoked too often. This seemed to be, he suggested, an area of genuine difference between France and Britain. The PM said that she suspected that the difference was greater in theory than in practice: when France or Britain had a fundamental interest at stake they would both insist on unanimity to defend it. She was, however, prepared to envisage a requirement to explain in writing the reasons for invoking the Luxembourg Compromise. Mitterrand argued that the problem was that use of the Luxembourg Compromise had become the rule rather than the exception. The Treaty of Rome laid down certain matters on which unanimity was required and others where majority voting was the rule. But, the Prime Minister interjected, France had invented the Luxembourg Compromise. “Yes”, said Mitterrand, but he personally had opposed it. Other countries had made too many concessions to France at that time. General de Gaulle had been “rather British”. The Prime Minister doubted whether Churchill would have agreed with that. The only point she was making was that where strong national interests existed there had to be a mechanism that allowed them to be defended. Si monumentum requiris . . .30 At the later plenary session, the Prime Minister observed that “the most obviously exciting thing” that Britain and France were doing together was the Channel fixed link project. It was important to have something visible to show.31 The interim report of the Dooge Committee was due to be discussed at a meeting of the European Council in Dublin at the beginning of December. One of its recommendations was that there should be an Intergovernmental Conference to consider Treaty change. The German Government supported the proposal: in Kohl’s view the favourable attitude of Mitterrand, and the perceived need for action before the enlargement of the Community, presented a window of opportunity. Moreover, Kohl was impatient to see progress. He was determined, so the Bonn Embassy were told on good authority, that the western orientation of the Federal Republic should be further strengthened, not least because voices might otherwise be raised in parts of public opinion for “different options”. As a result, Kohl was looking for a substantive and qualitative move forward in the direction of European Union. A merely declaratory act would not suffice. He wished to see the use of majority voting and the powers of the European Parliament both increased. This would require treaty amendment.32

300 Thatcherism on a European Scale Thus was the stage set for a four-way dynamic. Thatcher was the champion of economic liberalisation and the creation of a genuine single market, one of the first—but so far uncompleted—objectives of the Treaty of Rome. Kohl, and to a lesser extent Mitterrand, shared her view. So, with even greater conviction did Delors, the new Commission President. But, for all three continental politicians, achievement of the objective coincided with a more fundamental political view of how Europe should evolve towards something which, however ill-defined, would be recognisably a Union. This motivation led them to support treaty change to move from unanimity to majority voting for certain treaty articles. If their political motives were debatable, their practical logic was irrefutable: unanimity was a constant block to adoption of the measures needed at European Community level to remove the barriers to trade in both goods and services. But, for Thatcher, there was both an ideological and a practical objection to treaty change. The ideological objection was the instinctive British aversion to new powers being accorded to the EEC institutions at the expense of the House of Commons. The practical objection flowed from that: getting such a measure through the House of Commons would be controversial. The result was that Mrs Thatcher and her Government were to find themselves in a position where they were willing the ends (the creation of a single market in the European Community) but were averse to agreeing the means. The British position became one of arguing passionately both for change and against the means of achieving it. In the British view, it could all be done under the existing Treaties provided the political will was there. This dilemma was set out candidly and vividly some months later in an internal FCO minute by Malcolm Rifkind, the Europe Minister, in which he argued that the fundamental question the Government had to face was whether the UK wanted to improve decision-taking or not. If the answer to that question was, for political reasons “no” then, as with Britain’s position on not extending the powers of the European Parliament, what the British Government would be doing was seeking “the positive presentation of a determination not to budge on the real questions at issue”. Rifkind concluded that on the question of decision-taking, the British Government did not want change. But without such change, and especially after enlargement, decisions in the Community were going to become harder and harder to take at all.33 Thatcher herself had set out her view in characteristically forthright terms in an interview for the Sunday Express in October. “They all [i.e. Britain’s European partners] talk about political union and people like me say ‘well now, what do you mean by political union?’ That’s as far as we get. I believe in a Europe of separate countries, each with their distinctive character and identity, cooperating together in a common market. We haven’t yet got a common market . . . and we’re a very long way from it . . . I do not believe in a federal Europe . . . They talk about things like a two-speed Europe and people like me say: all right; if you mean a two-speed Europe, let me tell you what I mean: those who pay more are in the top group and those who pay less are not. It is absolutely ridiculous to expect a change in the Treaty.”34

Thatcherism on a European Scale 301 In the event, there was relatively little discussion of the Dooge Committee report at the December 1984 European Council and, despite Howe’s warning to Thatcher ahead of an Anglo-German summit in January 1985 that “over the past few months we have been finding the Germans quite difficult partners in the Community”, the summit itself was, according to Bullard, “an especially harmonious one”, which Kohl himself had described as being like a joint Cabinet meeting. Kohl had repeated his suggestion of a new treaty, but only as an idea that the Community should consider seriously. The German Press caught the mood, with Die Welt attributing to Mrs Thatcher “a pragmatism which borders on vision and a realism which can claim to be akin to idealism”. The No. 10 copy of the telegram proclaiming these attributes has, besides this passage, a large exclamation mark in the Prime Minister’s own hand.35 By March 1985, the Dooge Committee had completed its work. Rifkind reported to Thatcher on the outcome. On the key issue of how decisions were to be taken in the European Community, the majority had supported the establishment of majority voting as a general principle, with unanimity maintained only for a few Treaty articles still to be determined; and with the implicit rejection of the Luxembourg Compromise as a veto. A minority (the UK, Greece, Denmark and, to an extent, Ireland) supported an option calling for more majority voting where it was provided for under the Treaties with, in return, explicit acceptance of the Luxembourg Compromise “veto”. The report of the Committee presented these ideas as options and Rifkind doubted whether, in practice, the majority option would prove as alarming as it might seem. It reflected, he believed, the wishful thinking of some representatives on the committee, rather than the political realities. For example, Mitterrand’s representative on the committee, former French Prime Minister, Edgar Faure, had taken a more advanced position than that of the French Government. According to Rifkind, a similar trend was evident in the Committee’s conclusions on the European Parliament, where the majority had run way ahead of Governments. The emerging text was “unattractive”, calling, as it did, for joint decision-taking by the Council and Parliament and for revenue raising powers for the Parliament as well. Rifkind had entered a reserve on the entire section of the report and did not think there was much danger from that quarter. At Rifkind’s suggestion, the Committee had called for the completion of the single market by the end of the decade. To achieve this, the majority wanted an Intergovernmental conference (IGC) to negotiate a new Treaty. Rifkind had given no undertaking whatsoever that the British Government would agree. In general, he believed that the French and German Governments wanted something to emerge from the whole exercise that the UK would accept.36 David Williamson had been the Prime Minister’s representative on the official-level committee which had focussed on measures to make the European Community relevant and attractive to its citizens. In his report, Williamson, who knew his audience (namely the Prime Minister, whom he habitually referred to in private as “her indoors”) focussed his report on the

302 Thatcherism on a European Scale practical, rather than the symbolic, measures which the members had discussed. He had sought to make as much ground as possible on a practical programme. Examples were: A higher travellers’ allowance for tax-paid goods so that more travellers would go through the green channel at ports and airports and have less to declare; A change in the rules governing cross-border coach tours. These coaches were stopped at the frontier of each Member State in order to be assessed for VAT for their journey through that Member State. This was both costly and annoying for holiday makers. Williamson had argued that the right course was to assess the tour for VAT at the point of departure for the whole journey. This proposal had been accepted; Abolition of the practice of some Member States who stopped buses at the frontier in order to measure the amount of fuel in their tanks and to put a charge on it. The Committee had agreed to recommend doing away with the practice. Williamson hoped to persuade the Committee to do the same in respect of lorries. Williamson believed that some Heads of Government, particularly Mitterrand, might take the view that the Committee should have concentrated on grander schemes for improving the identity of the Community. The British, by contrast, had wanted to get some practical things done for the benefit of ordinary citizens. So, for the most part, Williamson had been pressing for action. But on two issues, he had successfully defended the UK position. On frontier formalities, the report drew a helpful distinction between action at land frontiers and action at seaports and airports. It argued for speeding up movement through ports and airports but did not recommend the ending of systematic checks on Community citizens entering through ports and airports. This could be helpful, Williamson believed, in discussions of separate Commission proposals which were directly contrary to UK practice. On the rights of residence of Community citizens in different Member States, the UK had, Williamson wrote, always taken the view that the right to reside had to be linked to the citizen concerned having adequate resources. This view had been under challenge, and the fact that the report made the linkage to which the UK attached importance should be helpful to the Government in further discussion in Brussels or in further action in the UK to deal with the case of the so-called “spaghetti scroungers”.37 When the European Council met in Brussels from 29–30 March 1985, under Italian chairmanship, it was agreed that the Dooge Committee would be wound up and that consultations would be held between Governments prior to a substantive discussion of the issues at the European Council in Milan in June. Geoffrey Howe, minuting the Prime Minister in mid-April 1985, believed there was much for the UK to play for. The UK had succeeded thus far in the discussions because the Government had clearer ideas than others about where they wanted the Community to go. It was Howe’s strong impression that the German Government wanted to work out something to which the UK could agree. As to the French, he and the PM had both been wondering what

Thatcherism on a European Scale 303 Mitterrand’s rumoured “surprise” initiative would be. According to Mitterrand’s staff, the President had yet to decide what precise form it would take. There was an element of theatre in Mitterrand’s approach, but both he and Kohl were genuinely concerned about the functioning of the enlarged Community. Neither, so Howe believed, was yet fully committed to the idea of an IGC—something which he and the PM would prefer to avoid. It would, Howe thought, quickly turn into a propaganda exercise, with others trying to demonstrate how “European” they could be—at least in terms of rhetoric. It was known, Howe continued, that Kohl attached great importance to a new agreement which would formalise the hitherto informal arrangements for Political Cooperation (POCO): the concertation of foreign policy positions among the Member States. Whoever put forward ideas first would oblige the others to work on that basis. So the UK should aim to produce its own draft agreement on POCO. Howe was already looking at a text. If the Prime Minister was content with it, she might give it privately to Kohl when she met him at Chequers in mid-May. Depending on his reaction, the text could subsequently be passed to one or two other Heads of Government. Howe was at pains to stress that his text was for an intergovernmental agreement. There was no question of bringing POCO under the Treaty of Rome. As to the rest of the agenda, the UK must also work out how to advance her objectives on the internal market, so as to give effect to the conclusions which the UK had secured at the Brussels European Council affirming the need to achieve a common market by 1992. Delors was strongly committed to making progress and would (with Lord Cockfield, whose portfolio within the Commission this was) be producing a detailed timetable for action. This would no doubt include some proposals that would give the UK difficulty. The two key issues, Howe suggested, were decision taking and the European Parliament. On the first, the French Government’s idea was that the number of Treaty articles requiring unanimity might be reduced, though this would always be subject to the right of a Member State to invoke a vital national interest (the Luxembourg Compromise). This French idea would, Howe advised, have a much greater attraction for the UK if it were accompanied by the formalisation of the Luxembourg Compromise in the Treaty itself. As regards the European Parliament, the French did not want any real increase in the European Parliament’s powers. In their (and Howe’s) view, the Parliament should make more use of its right to put forward proposals for consideration by the Council. This could be done within the existing Treaty. There could be no question of extending the powers of the Parliament. “I think”, Howe concluded, “it most important that we should not sit back and let others come to us with their ideas.”38 The Prime Minister agreed with this approach and, when she and Kohl met at Chequers on 18 May 1985, the discussions went well and Powell reported to the FCO that Kohl had seemed well content. The Prime Minister had handed over the British text on POCO and another on the timetable for

304 Thatcherism on a European Scale completing the internal market. Kohl had said he thought he could agree broadly with them, and he and Thatcher agreed that there should be early discussions between senior officials from both countries. Kohl had appeared keen to work up proposals which the FRG and the UK could sponsor jointly at the Milan summit, preferably also drawing in the French. Kohl had never once referred either to European Union or to a new Treaty. Bullard, who travelled back to Bonn on the Chancellor’s aircraft, found Kohl “in excellent spirits, rhapsodising about Chequers and talking mostly about 19th century European history”. Kohl obviously felt that he had had a good day and that he had agreed with Mrs Thatcher about most of the points discussed—with the exception of the European Parliament.39 The British Government probably also took heart from German behaviour at the Agriculture Council in Brussels in the same week. At that meeting, the Germans invoked the Luxembourg Compromise to prevent an agreement on cereals to which they objected. The Federal Government spokesman sought to convince the Press that Germany had not cast a veto but had merely insisted, as foreseen in the Luxembourg Compromise, that discussion continue until agreement could be reached. German vital interests had not yet been met. This was scarcely convincing for, as the FCO informed No. 10, “the Germans have always insisted that, if agreement cannot be reached in the Council, then the Presidency ‘must have recourse to voting where the Treaties so provide’. By blocking a vote on cereals, the Germans have acknowledged what we have been saying for months, namely that no Government will allow itself to be voted down where it considers very important national interests to be at stake.”40 At the end of May, Howe suggested to the Prime Minister that as Bettino Craxi (the Italian Prime Minister) had a more realistic view on some of the issues than Giulio Andreotti (the Foreign Minister), he should be invited to London for a discussion before the Milan European Council at the end of June 1985. The Prime Minister’s response was brisk: “No. No time.” This reluctance was to prove to have been a mistake.41 Nevertheless, the British felt confident. At an informal meeting of Community Foreign Ministers at Stresa on 8/9 June 1985, the Italian Presidency argued that there should be an Intergovernmental Conference to conclude a new treaty on progress towards European union, a juridical basis for POCO, completion of the common market, changes on decision taking, greater involvement for the European Parliament and an extension of Community competence. But only Belgium and Luxembourg gave explicit approval to these ideas and support from France and Germany had, so the Cabinet Secretary told the PM, been “noticeably more muted”.42 The Foreign Secretary came away from Stresa convinced that no other Member State had as clearly worked out a position as the British on the future development of the Community. The Italian draft mandate for an IGC having gained only limited support, the Italian Presidency would, according to the FCO, now prepare options, including the central British thesis that there was

Thatcherism on a European Scale 305 no desirable decision that required treaty change: what was needed was the will of the Heads of Government to take the necessary decisions and to do so at the Milan summit. Even Delors had said at the meeting that, while the Commission wanted to see some Treaty articles amended to help completion of the common market, the British approach was a valid alternative. At the meeting, Howe had circulated the British draft agreement on POCO, which Thatcher had given to Kohl and which had subsequently also been given to Mitterrand. Howe believed that the UK had put forward more precise proposals than any other Member State for strengthening the Community in practical ways: internally, through a precise timetable for completion of the single market in goods and services by 1990, and by suggestions for practical improvements in decision-taking; and externally by strengthening and developing political cooperation, in which Britain had always played a leading role. In particular, the UK had proposed that Member States should agree formally to consult on all major foreign policy issues, including the political and economic aspects of security. On decision-taking, there was, so Howe had argued, no need to amend the Treaties. The unanimity rule need not be an obstacle to completion of the single market. Where it was agreed that a specific objective should be achieved, it might also be agreed that Member States would aim not to impede progress by invoking the unanimity rule in relation to measures necessary for its implementation.43 The promised detailed official-level discussions between Britain and Germany on the UK’s POCO text did not materialise. The first sign that all was not well, though it was not so perceived at the time, was a rather patronising letter from Kohl to Thatcher of 19 June. He had, he wrote, taken the British paper into account “in our deliberations for Milan”. The British draft provided a good foundation. Kohl particularly welcomed the British proposals for formalising the obligation to enter into prior consultations, for establishing a secretariat to assist the Presidency, for intensified cooperation in international organisations and for closer cooperation among the Ten in third countries. “In my opinion, however”, the Chancellor concluded, “we should go a step further and seek to give European Political Cooperation the firm foundation of a Treaty”. The treaty should, Kohl argued, also make explicit the goal of establishing European Union. “At the moment, we are considering how we can link these aims with your proposal.” Mrs Thatcher replied on 24 June 1985, hoping that “we can work closely together to secure agreement on this and Milan”. On the following morning Bullard, at breakfast with Kohl’s closest adviser, Teltschik, said to him that, if all that stood between Germany and the UK were the words “treaty” and “union”, the two sides were not so far apart. The UK had invested a lot of effort in its proposal on POCO and would not want to see it brought to nothing.44 In a minute of 25 June to the Prime Minister, Powell warned her that the British Press (presumably so briefed by Ingham) had suggested that she was going to score a spectacular victory at Milan. In Powell’s eyes, this was unrealistic and

306 Thatcherism on a European Scale could prove counter-productive, since the discussion was in practice likely to be messy and the results ambiguous. The Italians, in particular, still harboured exaggerated expectations, the French would probably come up with some unexpected idea and the Germans would be “all over the shop”. Powell thought that Britain’s ideas would eventually prevail because they were the only sensible ones, but the others might not be ready to recognise this yet. The procedural outcome would be crucial. Powell went on to inform the PM that the Foreign Secretary’s advice was that “while we should strongly oppose Treaty amendment, we could, in the last resort, agree to study the possibility of amending certain articles without commitment”. This, Powell thought, was a mistake: the first step on a downward path. The UK had a firm position against Treaty amendment and should stick to it. On the European Assembly (Powell having adopted the PM’s refusal to call it a Parliament, on which point she was legally correct), the Prime Minister would want to consider whether the Foreign Secretary’s suggestions for enhancing its role without increasing its powers were compatible with her own strong views on the very limited role that the Assembly should play. The Prime Minister’s view was clearly not as adamant as Powell had implied. For, on the following day, he reported to Williamson that she was “not entirely happy” with the proposed line on the Assembly. In particular, she did not like the idea that the Commission should be obliged to take account of the Parliament’s [sic] views in drawing up their definitive proposals for action by the Council of Ministers, since this would allow the Parliament to impose a form of censorship over the Commission’s communications to the Council. The Prime Minister was more accommodating on POCO. She recognised, Powell said, that other Member States would probably want to call the formal agreement, as proposed by the UK, a Treaty. “Although she will not want to use this term herself”, Powell continued, “she will not object to its use by others (and may be prepared to indicate privately to Kohl that she can accept this)”. The Prime Minister was, however, “firmly opposed to any suggestion that we would be ready to contemplate Treaty amendment”. The Prime Minister would not go along with the Foreign Secretary’s suggestion that the UK could agree without commitment to look into the possibility of amending some of the Treaty articles bearing on completion of the Common Market.45 A day later came the bombshell. “As we walked across Downing Street to attend the usual meeting with the Prime Minister in London on the eve of the Milan European Council”, Renwick wrote later, “we were told that the French and Germans had circulated to the other Member States a brand new Treaty of European Union. This consisted, verbatim, of the text we had given them, plus a caption stating that this, together with the existing treaties, constituted European Union. As Margaret Thatcher observed, it was the kind of behaviour that would have got you thrown out of any London club.”46 In a telephone conversation with Teltschik, Powell told him that German and French behaviour was shabby, and that the Prime Minister would justifiably feel that Kohl had failed to reciprocate the confidence which she

Thatcherism on a European Scale 307 had placed in him. It was, Powell said, a black day in Anglo-German cooperation.47 “Words almost fail me”, Bullard added from Bonn. “All this implies that the Germans and the French had been in touch for some time without a word to us . . . Kohl has chosen rhetoric in tandem with France in preference to substance in tandem with Britain, perhaps because he thinks it will go down better domestically.”48 In reality, there was more to it than that. The lack of any controversy at Kohl’s meeting with Thatcher at Chequers seems to have reflected, not lack of ambition for Milan on his part, but a conclusion that an argument with the Prime Minister was best avoided. According to the record of a meeting between Kohl and Mitterrand after the Chequers meeting, Kohl told Mitterrand that he had not come away from Chequers with a good impression and that Thatcher was “moving away from Europe”.49 The French and German decision to work together, and with the Italian Presidency, to the exclusion of the British dates from that point. The British were not the only ones to have been in the dark. The Dutch knew nothing of the Franco-German draft until they received a copy as Prime Minister Lubbers was about to board his aeroplane to Milan. In addition to wanting to produce an exclusively Franco-German rabbit out of the hat, the two Governments maybe feared the reaction which their draft in fact received from the more Community-minded member Governments of the Community. The other member Governments had, after all, been given the British draft. It was readily apparent to all of them that the Franco-German draft was the British text dressed up: it was not really a treaty of European Union in anything but name. But it showed that France and Germany were in the driving seat. As the German Ambassador in The Hague commented to his British counterpart: “It was politically impossible for Germany to be seen accepting Britain as wresting the leadership of Europe from France and Germany.”50 Was this just a spat like so many others in the European Community? Geoffrey Howe’s memoirs, written nearly ten years after the event, suggest otherwise. Howe recalled that, in giving Kohl the British paper on POCO, the Prime Minister had said: “I am putting it to you personally like this, Helmut, because I want it to be a genuinely joint endeavour between the two of us. It will be a useful partnership—and, anyway, it’s a good idea”. It is hard to reconcile this very obviously European overture by Thatcher, and Kohl’s evident pleasure at the meeting as described by Bullard, with Kohl’s later statement to Mitterrand that the Prime Minister was moving away from Europe. The more cynical interpretation given by the German Ambassador in The Hague is probably closer to the truth: Franco-German leadership trumped Anglo-German friendship. Howe was not a man given to anger, but both he and the Prime Minister were “furious” at French and German behaviour and, all those years later, as he wrote his memoirs, it clearly rankled with Howe that neither he nor Thatcher had ever “received a word of regret or explanation from Helmut Kohl or

308 Thatcherism on a European Scale anyone on his behalf”. The only satisfaction Howe could draw from the incident was that even the French Press saw the Franco-German initiative as “a device for patching up relations” and as “an attempted last minute coup”.51 At Milan itself, the British delegation was comprehensively out-manoeuvred. An Intergovernmental Conference to negotiate treaty change was provided for in the Treaty of Rome. Any change in the treaties would require the unanimous agreement of the member Governments and the consent of their national Parliaments. The procedure for calling an IGC was different. It provided for the Council of Ministers to “deliver an opinion in favour of calling a conference”. Under the treaties, majority voting was the norm for procedural matters. But was the European Council a Council of Ministers in the terms of the Treaties? It was accepted as the EEC’s top decision-making body, but it did not take legislative action as the specialist Councils did and it did not vote. It operated by consensus. So what actually happened when Craxi in the chair, called a vote on the holding of an IGC, took everyone in the British delegation totally by surprise. There was, in retrospect, a hint of what was in his mind when he met Mrs Thatcher on 28 June 1985, the first day of the Milan European Council. He had, he told the Prime Minister, been informed of the Foreign Secretary’s proposal that the European Council should be transformed into an IGC for the purpose of taking decisions. This was, he thought, a neat solution. But time was needed to allow negotiations to take place between Governments at Foreign Minister level and to find reasonable and balanced solutions. A European Council, convened as an IGC, could then put its stamp on the agreements reached. So the procedure he envisaged was a general exchange of ideas, followed by the launching of a negotiation with decisions reached at a future IGC. Everything would of course be decided by unanimity. The PM replied that she was rather disappointed by this approach. She had come to Milan ready to take decisions. She saw no possibility of amending the Treaties, particularly while much of the existing Treaty remained to be put into effect. The UK had circulated a draft formal agreement on POCO. The text circulated the previous day by France and Germany bore “an astonishing similarity” to the British text, although it was rather weaker on some points. So her view was that the European Council in Milan should take some decisions and prepare the ground for others at the next European Council. Craxi said that he had not invented the idea of an IGC. But the proposal had been launched and expectations created.52 Since the negotiation of the original Treaty of Rome there had been no amendments to it, other than to take account of the accession of new Member States. It is therefore not surprising if both Howe and Craxi were, judging by this record, somewhat confused about what was involved in an IGC. Some Member States wanted an IGC. The British did not, and wanted the substantive decisions to be taken on the spot. The suggestion attributed to Howe of transforming the European Council there and then into an instant IGC may have looked to Howe like a neat way of squaring the circle.

Thatcherism on a European Scale 309 But it may have led Craxi to think that the notion of an IGC was not in itself unacceptable to the British. Craxi himself does not seem to have had a very clear idea of the procedure either, implying that the IGC would be the culmination of negotiations rather than the vehicle through which they would be conducted. Howe found the European Council, when it met, both long and increasingly bad-tempered. Craxi, he commented, made no effort to seek consensus, while the Prime Minister “with more excuse for tetchiness than usual, contrived to get us emotionally aligned with Papandreou at his worst”. Italy was one of the most prominent Member States pressing for treaty change and for political union. Craxi clearly wanted his European Council to be a landmark. He knew there was a majority (with only the UK, Greece and Denmark dissenting) for an IGC. When it became clear that, procedurally, he was entitled to have the decision taken by a simple majority he must have calculated that a decision which, on substance, was supported by seven Member States and the Commission was unlikely to be questioned, even if the procedure was a novel one for a European Council. Moreover, as Howe saw it, “the temptation for him to behave in such a fashion was building up steadily as a reaction above all to the sharp tone of British leadership”.53 The rest of the Community had been out-manoeuvred by Mrs Thatcher on the rebate. They were not going to repeat the experience. In her memoirs, Thatcher criticised Howe for being willing to concede the IGC rather than to go down fighting. Officials would have agreed with Howe that, once it was clear that an IGC could not be stopped, it would have been better to rally to the majority rather than to be so obviously defeated. But that was never Thatcher’s way. As she strode to give her Press Conference at the end of the meeting, officials urged the Prime Minister not to rule out any treaty change in public. She made no reply, but to the Press she said: “The other view prevailed and we must go to that IGC. My view of it is this. It will try to tackle amendments to the Treaty. We do not believe you need amendments. We do not believe it is necessary. We British have occasion to be very European . . . We believe that Europe could play a far larger, more significant, more influential part in the affairs of the world than she is playing now . . . We shall continue steadily with our objectives: to make Europe more influential, to make Europe more prosperous, to make Europe important technologically, to make Europe have a higher standard of living and create more jobs.” Asked whether she was very irritated by the failure to make progress at Milan, Thatcher replied: “No. I am not particularly irritated. It was just a lost opportunity. I think that is a pity; but you know how practical we women are.” But in an interview with Paul Reynolds of the BBC that same evening, Thatcher showed more irritation and came closer to ruling out treaty change: “I do not think there is any need for amendments to the treaty. We have not yet got this treaty working. There are many clauses of it which have never been brought into operation. We shall go to the IGC. You can only get a

310 Thatcherism on a European Scale treaty amendment by unanimous agreement of all national Parliaments. I think, therefore, the IGC will fail.” Reynolds went on to ask whether there was a significant difference of approach between Britain, Denmark and Greece, who believed in a Community based on the nation state, and others who were willing to give up more national sovereignty. And now, Thatcher did give vent to her irritation: “No, others . . . Just look. It is all very well. This is what sticks in my gullet. We are perfectly frank. Yes, I do invoke my national interest. So do Germany but they act as if they were above it. They are not, believe me. Recently, at Dublin, Germany invoked her national interest on adding sugar to wine—a matter as small as that. I cannot stand people who get involved in a terrific amount of grandiose schemes and talk.”54 The atmosphere was not helped by media interpretation (misinterpretation in his view) of one of Ingham’s Press briefings which led to a report in The Times alleging that the PM “has but one emotion: fury. The Richter scale ceases to operate when applied to her. It is not irritation to the PM. It is total volcanic eruption. Krakatoa has nothing on it.”55 If Thatcher was irritated, by Kohl in particular, the feeling was mutual. At a Press Conference in Bonn on 4 July 1985, Kohl said that he found criticism and counter-criticism across the English Channel unhelpful. Anyone who claimed that the joint initiative of France and Germany had damaged the Community was wrong. Germany would remain at the leading edge of those who wanted to take Europe forward. He was at one with Mitterrand on this. Asked how he reacted to the Prime Minister’s charge of hypocrisy over the agricultural piece fixing, Kohl claimed not to understand it. The line the FRG had taken was necessary for German farmers. What Germany had done was possible under the EC Treaty. In any case, the British had availed themselves of the right of veto “as a matter of course”.56 Kohl’s comments were factually inaccurate: there was no provision for the Luxembourg Compromise in the EC Treaty. The suggestion that there should be had been consistently opposed by the German Government, who had also denied the validity of the Luxembourg Compromise as an acceptable tool of decision taking. As to the British record, the UK had in fact invoked the Luxembourg Compromise only once. Kohl concluded by claiming that he and Mitterrand were the motors. No one could say at present what European Union would look like. But the mission of the founding fathers had been slowly to dismantle national sovereignty. He could envisage a future model on the pattern of the FRG and the Länder. At the end, a European federal state could arise. If that did not happen, developments in Europe would outgrow themselves in 20 to 30 years. In the House of Commons on 2 July 1985, the Prime Minister was collected and methodical, dealing coolly with the taunt of the Leader of the Opposition, Neil Kinnock, that she had “got the whole approach to the Milan summit so spectacularly wrong”. She was “disappointed” at the outcome, but she noted that “the proposals on the internal market, and the priorities which

Thatcherism on a European Scale 311 the European Council decided upon, were those that we put forward to the European Council and which it accepted . . . The proposals for closer political cooperation are those that we put forward and circulated . . . That is really not a bad start”. She did not feel humiliated. She had noticed from that day’s Le Monde the comment that “the stubbornness of the federalist plan has left a divided Community. They have chosen the very moment when Britain feels itself more European to block her.” She probably took some comfort from the observation of Roy Jenkins (the leader of the SDP) that she should not be incensed that the Franco-German paper had taken over so many of the ideas of the British Government. “Surely”, said Jenkins, “it is generally highly desirable that other parties should put forward one’s own ideas, believing them to be theirs?”57 “The Foreign Office”, Robin Renwick, then the senior official in the FCO dealing with European matters, wrote in later years, “had a near-pathological fear of being left out of European construction.”58 That fear arose in part from the belief, widely held, that Britain had made a historic mistake by not shaping and joining the European Community at the outset. But it was also rooted in a strong instinct, itself rooted in British history, that the United Kingdom, for reasons of hard self-interest as well as prestige, could not allow the European Community to be dominated by France and Germany. The desire to get alongside both those countries was not based on a desire to see Union Jack icing on a cake baked in Paris and Bonn, but to shape the European agenda in ways which served the UK national interest. The British paper on POCO was in part designed to demonstrate Britain’s ability to think creatively, but it also reflected the desire of Britain, for self-interested reasons, to shape European foreign policy making and to sugar the pill of British initiatives on the single market which then ran against the grain of much continental thinking. It was for this reason that Butler, Renwick (and Williamson in the key role in the Cabinet Office) all believed that Britain had lost ground to France and Germany at Milan and had to recoup by playing a positive but canny role in the IGC. They therefore sought from the Prime Minister, and were granted, authority to explore with other Member States whether there might be treaty changes acceptable to the UK. The Prime Minister had one important proviso: “Please bear in mind”, she said, “that when you come back, I may disavow you.”59 The Foreign Secretary had already given the Prime Minister his advice in a minute of 1 July 1985. The French and Germans had, he wrote, made a ludicrous attempt to take over the British proposals on POCO. By entitling the document “European Union”, they had brought out the worst in the Benelux countries, who had become the more determined to turn the rhetoric into reality by pressing for Treaty amendment. The key role had been played by the Italian Presidency who, in Howe’s judgement, had worked throughout for disagreement, rather than agreement. But this they had only been able to do because Kohl in the end had given them strong backing. Moreover, after

312 Thatcherism on a European Scale being obliged to give way to the UK on the budget, Kohl and Mitterrand had been determined to show themselves ready to go further than the UK and not to have themselves portrayed once again as having been obliged to fall in with British plans. Howe went on to express what was the fear of Williamson and other officials: that the original Six might try to go for ambitious proposals which they would know had no chance of being accepted by the UK, including the extension of Community competence to new areas of policy and law. When those proposals failed to secure agreement they might aim to sign a new treaty among themselves, although such a treaty could not directly affect the operation of the existing treaties. The British position on the existing treaties was, Howe said, fully protected by the fact that treaty change required unanimity among the member Governments. The UK should carry out its obligations of participation under Article 236 of the Treaty. But the UK should oblige others to come up with precise proposals of their own which had some prospect of being agreed. By participating fully in the work of the IGC on this basis, the UK could also draw attention to the many areas in which the performance of other Member States, and of the Community generally, was very far from matching even the existing provisions of the Treaties: insurance services, transport, banking, shipping etc. The UK might, in addition, need to consider proposals of her own which would be difficult for others to accept, e.g. on the free movement of capital. The UK should also suggest that, since the IGC was discussing changing the rules of the Community, there should also be some discussion of their observance. Those Member States which had an above average number of infraction proceedings should be asked why, and to say what they were doing to rectify the situation.60 On the question of Treaty amendment, Howe thought it would be wise to avoid saying an absolute ‘’never’. In the Conservative Party manifesto for the European elections, what the Government had insisted on was the maintenance of the Luxembourg Compromise. The manifesto had argued against attempts to force the pace of institutional reform in ways that would not command the necessary degree of common agreement. Howe predicted, and in this he was entirely correct, that the Luxembourg Government, who had just taken over the Presidency of the Community, would want to play a more constructive role than the Italians.61 In his biography of Thatcher, Charles Moore suggests, quoting Teltschik, that “from summit to summit . . . there was a common strategy to isolate her [Thatcher]”, and that the Germans felt emboldened in this because “we knew the Foreign Office didn’t agree with her. We knew this from Genscher, who knew it from Howe.”62 Part of this perception undoubtedly stemmed from the huge differences in temperament between the two politicians. Thatcher hacked her way, armed with a machete, through the European jungle. She had been prepared to be isolated over the British claim to a budget rebate and had turned that “one against the rest” situation to her advantage when “the rest” required her agreement to increase the

Thatcherism on a European Scale 313 resources available to the European Community. It was undoubtedly true that other European Leaders were determined not to allow her to repeat that success at their expense. Howe was also a stalwart defender of the British interest, but believed in sugaring the vinegar with honey. He believed that the UK needed to convince her partners that her European goals, if not the same as theirs, were at least compatible. The backroom story of the rebate negotiations shows Thatcher sticking to uncompromising positions until forced to back away from them. In much of that negotiation, largely conducted by Carrington and Gilmour, and then by Pym, Howe too could afford to be hard line: it did not fall to him as Chancellor to navigate those negotiations to a successful conclusion. Now, as Foreign Secretary, the conduct of the IGC negotiation did fall to him, and his aim was to get a result with which the UK could live and to avoid a breakdown in relations with Britain’s European partners. It may well be that the softer line which Howe adopted as Foreign Secretary (for example, on ERM membership) reflected in part the pro-European sentiment of the FCO, a sentiment which was less in evidence in the Treasury. But it also reflected an instinctively different way of achieving what at this period, was undoubtedly a common goal as between the Prime Minister and her Foreign Secretary. Against this background, it is not surprising that Powell reported to Thatcher in mid-July that, at a meeting of the Conservative backbench Foreign Affairs Committee the previous day, it had been suggested that the Prime Minister and Foreign Secretary held different views on amendment to the Treaty of Rome. It was felt, Powell reported, that while the Foreign Secretary had carefully not closed the door to amendment, the Prime Minister had comprehensively ruled it out. “You have certainly said in the House”, Powell continued, that you do not see a need to amend the Treaty . . . You have also spoken against specific proposals for amendment . . . But I cannot find any record of you having absolutely excluded amendment.” Powell went on to agree, by implication, with Howe’s reported position: “We do not want”, he wrote, “to go into an IGC with our hands completely tied . . . One could envisage, for instance, amending Article 100 so as to preserve unanimity for one or more categories of issue on which directives could be made (e.g. those vital to our industries) while allowing majority voting for some others, or to preserve unanimity for the basic decisions of principle while introducing QMV for implementing decisions . . . It would be helpful to have confirmation that your view is that we see no present need for Treaty amendment and do not support the rather sweeping amendments to some Treaty articles made at Milan. But we are ready to examine any proposals which may be put forward in future on their merits.” The Prime Minister offered no comment. “Were you content with this?” Powell enquired. “More or less” was the reply.63 Howe was later to be described by Thatcher in her memoirs as “quiet, gentle —but deeply ambitious”.64 That she saw him as a potential rival is implicit in her reaction to a speech on Europe which the Foreign Secretary

314 Thatcherism on a European Scale gave in Bonn in the autumn of 1985. The speech was described by the Foreign Office, in guidance to its European posts, as an attempt to define European Union on British terms as per the Stuttgart Declaration. Union was, Howe said “a continuing process . . . In that sense—the sum total of the ever closer relationship between us—such a Union exists now, today. It is a reality as well as an aspiration . . . European Union can be the goal of politicians: it can only be made reality by the people of the Community themselves. We owe it to the people of Europe to make a reality of the vision which Churchill, Monnet, Adenauer and Hallstein saw so clearly.” In submitting this text to the Prime Minister, Powell commented: “all words used before, but the Press may contrast them with your known aversion to ‘union’.” “It is a deliberate attempt to do so”, the Prime Minister wrote in reply, also observing that “Churchill did not want us to join”.65 The implication of Thatcher’s comment was that Howe was deliberately distancing himself from her positions. That was not the impression he gave to officials working for him on European issues at the time. His style was different, by temperament and instinct. His approach was to seek common ground. But the words which Howe quoted from the Stuttgart Declaration were words to which the Prime Minister, had quite explicitly and after deliberation, assented as the price of her agreement to the text. Howe was attempting to convince what would have been a sceptical German audience that the gap between the UK and German Governments was not unbridgeable. He was following Government policy, admittedly using language which was more conciliatory than the more combative Thatcher would have thought appropriate. Howe’s prediction that the Luxembourg Presidency would prove more consensual than the Italian was quickly demonstrated. In August, Williamson and Renwick travelled to Luxembourg to meet the Luxembourg Prime Minister, Jacques Santer, and the official, Jean Dondelinger, who was chairing the official-level group responsible for preparing the IGC. Santer told his visitors that he had been impressed by some of the practical ideas put forward by the UK before and at the Milan meeting, including the text on POCO. During his summer holidays, he had been reading the paper prepared by Cockfield, the Commissioner responsible for the single market, and could see that amendment to the Treaty to introduce QMV for some articles might be necessary if the common market was to be achieved on the timescale proposed. Williamson and Renwick stressed that the UK would play a constructive role in the IGC in order to see whether an agreement acceptable to all could be achieved. The UK would judge results by the shape of the overall package, not necessarily by individual proposals as they emerged. There should be a deadline, with no last minute papers as had happened before Milan, where important documents had only been available in capitals after some leaders had already left for the meeting. Dondelinger commented that the Commission were still intent on incorporating the proposed new POCO agreement into the existing Treaty. Delors

Thatcherism on a European Scale 315 would press for this at the first meeting of the IGC. The Presidency had strongly advised Delors against this course of action, which was doomed to failure.66 At the heart of the British approach to the negotiations was a tactic of saying very little about the substance of British positions beyond those set out before Milan. The aim was to flush the French and Germans from deep cover, but the tactic was an agonising one for the Whitehall machine. From the earliest days of British membership of the European Community every Commission proposal had been discussed at birth in cross-departmental meetings of Whitehall officials. Recommendations were then made to Ministers and, where differences persisted that could not be ironed out by officials, they were resolved in a ministerial Cabinet sub-committee chaired by the Foreign Secretary. The result was that British negotiators in Brussels had clear policy instructions on every issue. Ministers all spoke to a common brief. The system was widely admired in the rest of Europe for its efficiency, even if its counterpart was an inflexibility that allowed little room for negotiating manoeuvre. So, for the British to sit on their hands, as officials did in the early days of September 1985 as negotiations got under way, was agonising. But, as Armstrong reported to Thatcher before Cabinet on 12 September, the tactic was producing satisfactory results. Differences were already emerging between the maximalist Benelux countries, on the one hand, and the French and Germans on the other, the French, in particular, being particularly cautious on substance. Howe noted separately that German ideas for significantly increased power for the European Parliament were being resisted by the French.67 As weekly meetings of the preparatory group on the IGC became a regular feature of the autumn calendar, Michael Butler retired from the Diplomatic Service, to be replaced in Brussels by David Hannay, who had huge experience of European issues. Williamson, Hannay and Renwick were to be the key officials in the negotiations. In his farewell despatch, Butler commented that long exposure to the European Community tended to breed cynicism. He cited the boredom of hanging around; the hypocrisy of the games Governments played when trying to blame others for lack of progress; the failure of Ministers such as Genscher to learn enough about the subject matter to negotiate seriously; the monotonous regularity and irrelevance of major exercises about the Community (Tindemans, Dooge, the IGC) as a substitute for urgent and difficult action to reform the CAP or to complete the internal market; the mediocrity of the content of communautaire effusions. It was too easy to think that was all there was to it. But Butler was convinced that it was all worthwhile. “Why?”, he asked: “Because the democratic countries of Western Europe need unity if they are to protect and promote their interests in the modern world . . . In the last two or three years an enormous range of decisions have been taken: the Common Fisheries Policy, curbing CAP surpluses, budget discipline, settlement of the British budget problem and enlargement . . . Yet those who yearn for qualitative leaps, or push for IGCs, reflect a genuine malaise. There is a widespread feeling that the European ideal has lost impetus. Even if it is true that

316 Thatcherism on a European Scale historians in 100 years will find the pace of European integration in the 1980s to have been rather rapid, the man or woman in the street does not see it today. Perhaps the most deep-rooted and worrying cause is that so few people in any of our countries have a clear picture of what the Community is now about. If the ordinary intelligent member of the public looks at the list of subjects to be dealt with in order to complete the internal market, he is bound to ask himself whether this is really necessary in order to have a united Europe. The answer is that it is.” In Butler’s view, there were no magical prescriptions. It was in the British interest, he argued, to convince the other member Governments that the British Government and the British people were with them on the voyage, “for, in the eyes of our partners . . . it is a common enterprise to unite a continent”.68 When Butler called on the Prime Minister at the end of October 1985 to take his farewell, the PM told him that she wanted to try to reach agreement on the IGC outcome at the December meeting of the European Council in Luxembourg, since the longer the conference dragged on, the greater the risk of other Governments trying to do more. For the time being, she said, the UK should continue to keep its cards close to its chest and go on grinding down the unrealistic aims of other Member States and the Commission. Nearer the time, officials might need to become more closely involved in drafting elements of an acceptable package. Officials should continue to make clear that they did not know what she would or would not be able to accept when it came to the European Council itself.69 Armstrong sought to assure the Prime Minister at about the same time that discussions in the IGC at both official and Ministerial level were proving more realistic than had been feared. Most Member States were indicating that they wanted a modest and negotiable package. There was little common ground on the European Parliament but the Presidency had said that they saw no common desire to change the fundamental balance between the Community institutions beyond giving the European Parliament more direct involvement in decision taking. The Presidency had told the Parliament that their request to have the right to approve or amend the outcome of the IGC was not acceptable. This had not gone down well. Not surprisingly, the Prime Minister was not likely to be easily assuaged. Powell told Williamson that he had noted from Cabinet committee meetings that officials were contemplating the possibility of accepting amendment of at least four Treaty articles, as well as the addition of new articles on freedom of movement, technology and the environment. “I don’t think”, Powell wrote, “that the PM realises, even following her talk with Michael Butler and you, that we contemplate changing the Treaty to this degree. I should be careful about getting too far down this road, at least without further discussion.” “I am grateful for your warning”, Williamson replied. “We have consistently made clear in the IGC that we are not committed to any amendments. We are continuing the policy of correction of bad proposals but we have never indicated that we would accept anything”.70

Thatcherism on a European Scale 317 But Williamson, of course, knew that matters could not rest there and, in a minute to Powell in mid-November, he sought to open the Prime Minister’s mind to the idea that some changes to the Treaty could be to British advantage. “The fact that we did not write the Treaty of Rome”, Williamson minuted, “is very evident from the present division between those areas where QMV applies—and unanimity. The most important sectors subject to QMV are the budget and agriculture, giving us a reduced chance to block decisions we do not want to take. On the internal market, unanimity is the rule, thus allowing others to block some of the decisions on free movement of goods, and on a wider market for services, which we do want to be taken”. Williamson went on to say that the main proposals before the IGC were to make changes to Article 100 (the internal market article, presently requiring unanimity) and to Article 57 (2) (covering the professions and services) which presently was covered in part by unanimity and in part by QMV. In typical Williamson fashion, he avoided asking the PM outright to agree that a move should be made to QMV on those articles but implied as much by inviting her to agree on those articles where it was essential to protect British interests by maintaining unanimity. These were taxation and “social engineering”. There was, Williamson reported, a large gulf between the UK political approach and the philosophy of the Commission on legislation related to the service and conditions of workers e.g. on parental leave, worker participation, composition of company boards etc. The UK could not stop the Commission making some proposals for action but the UK must not accept a change from unanimity. A third difficulty arose over the movement of persons. The UK must not agree to an amendment of the Treaty that extended the definition of persons for the purposes of free movement. To do so could open up the prospect of more social proposals and could put pressure on the British method of systematic controls at the frontier. On issues such as these the UK tended to be in the minority, but must not agree to extend Community competence. On the environment, Williamson advised, decisions could be taken only under the catch-all Article 235 which, as Armstrong had already pointed out to the PM, was very widely and generally drafted with no criteria at all. There would be some advantage in a specific, more restricted, Treaty base for environmental measures, provided unanimity was the rule. Unanimity should be maintained for Article 235 itself. Similar arguments applied to technology. On R&D, the UK would want unanimity on the overall purpose, on the financing and on the principal elements of any subsidiary programme. But, beyond those criteria, some implementing measures could be decided by QMV. The Prime Minister appeared to accept this advice, writing at the bottom of Williamson’s minute: “Thank you. Put in French folder.”71 Hannay contributed his own assessment from Brussels. “Until the end of October”, he wrote, “confusion was almost total. The Conference table became quite literally piled high with a plethora of different proposals. The

318 Thatcherism on a European Scale most ambitious, and the least realistic, came from the Italians (on the European Parliament), from the Commission (on the Internal Market, on their own powers and on monetary affairs) and from the Greeks (on more money for themselves, also known as Cohesion). They are all now gathering dust and are not genuine runners. Indeed, the Luxembourg Presidency has begun substituting more modest texts . . . moving steadily closer to positions which protect the substance of our interests . . . We have had to forgo tabling texts ourselves, and thus directly shaping the outcome, and we have had to take some hard words from the Press about dragging our feet. But we have flushed the French and Germans out from their traditional posture of sheltering behind our objections to Commission proposals. Banquo’s ghost, in the form of the need to get our eventual consent to any Treaty change, has been ever present and has helped us to achieve considerable indirect influence on the texts as they have evolved . . . The joker in the pack is the Franco/German relationship. Up till now, it has been working in our favour.” The risk, as Hannay saw it, lay in the capacity of Mitterrand and Kohl to ignore all their officials’ advice, and the views and interests of their partners, if they thought their own interests would be well served by doing so. Right up to end, the UK risked being left holding the short straw. Therefore, the more intensive the UK’s contacts with both the French and Germans at every level over the remaining weeks of the Conference—and the more actively the UK could actually negotiate with them—the better the chance of avoiding being put in that position. “Is there any chance”, Hannay asked, “of amicably reaching the conclusion that the IGC game has not been worth the candle? I fear not, even though many of those involved now more than half regret the decision to go for treaty amendment. But, although the water has turned out to be colder and more turbulent than they expected, the majority remain determined to struggle to the other side rather than humiliatingly climbing up the near bank. So, if we were to conclude that we could not go along with a package that seems likely to emerge from this process, there would be damage both to our ability to shape Community policies in future and to ensure that we remain a core member of the enlarged Community”.72 Part of the impetus on all sides to get the job done quickly was indeed to have in place a new set of arrangements by the time Spain and Portugal joined the Community. Earlier in the year, the Foreign Office had prepared, at the Prime Minister’s request, an analysis of the implications of enlargement for British interests. There were three aspects of enlargement to which the PM attached particular importance: the political implications of the creation of a socialist crescent running from France through Spain (and Portugal) to Italy and Greece; the effect of enlargement on the geographical balance within the Community e.g. reflected in a Mediterranean bias and in a greater interest in Latin America; and the implication of these changes for British interests in the Community. What was the case for an informal French/German/British directorate?

Thatcherism on a European Scale 319 The Foreign Office agreed that the accession of two more countries with socialist Governments could have some unwelcome implications. They might add their voices to those already seeking stronger Community-wide social legislation and a more interventionist tone on economic policy. But it was the Foreign Secretary’s view that the socialist crescent was unlikely to be a very homogeneous or potent force. French economic policy was shifting. The Governments of Spain and Portugal were moderate and Atlanticist. Italy had a socialist Prime Minister, but he led a centre-right Government. None of those Governments felt any very close kinship with the non-aligned and anticapitalist posturing of Papandreou. Enlargement, the FCO informed the PM, would add 35% to the Community’s land mass and 17% to its population, but less than 8% to its GDP. In economic terms, there would be a north-south split, with only Ireland as the one northern country in the bottom five places. Spain and Portugal would both be eligible for support from the Structural Funds. They would also add their weight to the campaign for increased support for Mediterranean agricultural products and for smaller producers generally. Support for Mediterranean agriculture already accounted for 25% of CAP spending. As a result, France was no longer a net beneficiary from the FEOGA support part of the CAP budget. Indeed, the French calculated that, within two years, they would overtake the UK as net contributors to the Community budget. The earlier French policy of expanding the Community southwards to increase French influence had backfired. More generally, the need to control agricultural spending on northern products remained. European Community spending on all Mediterranean products was still less than that on milk production alone, which continued to account for 20% of the total Community budget. In German policy, there were some fundamental contradictions—with protestations of concern to achieve budgetary control being offset by strong pressure for price increases to placate German farmers in areas such as milk and cereals, where the European Community already had enormous surpluses which it could not dispose of. Nevertheless, the emergence of the UK, Germany and France into the same camp, as net contributors, had created an important general commonality of interest. All the existing Member States were, the FCO believed, worried about the consequences of enlargement for their interests. But all had accepted it because of the need to anchor Spain and Portugal firmly in the west European democratic camp. There remained some nostalgia on the part of the original Six for the smaller Community which was alleged to have been more cohesive and which had, in fact, had a much greater degree of economic convergence. The French were thinking of ways of permitting the emergence of a group of core countries. It was clear from the talks the Prime Minister had had in Bonn, and from conversations between Howe and Dumas, that the French and Germans were anxious that the UK should participate with them in this process. Unless the UK, so the FCO argued, was able to form an effective alliance with the French and Germans, there was a risk that the enlarged Community

320 Thatcherism on a European Scale could become unmanageable. It was to be expected that some smaller and more cohesive grouping would emerge—with different partners cooperating in different areas. The UK needed to be able to exercise effective influence, and prior agreement between the UK, France and Germany would be the only way to get things done. This would have to be achieved discreetly and mainly through bilateral contacts. Trilateral meetings should be avoided but there should be scope for establishing an informal alliance. That in turn meant continuing to ensure that the UK did not allow the Franco-German partnership a monopoly in their pretensions to leadership in the Community. They had developed an intensive pattern of consultation and were ever ready to make use of language depicting themselves as more European than in fact they were. The conclusions the Prime Minister drew from the Foreign Office paper, as reported by Powell, were: “(i) we must intensify our efforts to bring the CAP under control in the enlarged Community. We should not resist a shift towards more national financing; (ii) we must steer Community R & D work firmly towards cooperation between companies and away from Community-funded programmes; (iii) while decision-taking may well become more difficult in the enlarged Community, the importance of being able to insist on unanimity on matters of vital national interest would increase (because there are more likely to be costly initiatives which we shall have to oppose). Nothing must be done to weaken the Luxembourg Compromise; (iv) we should exploit . . . divisions between France and Germany and be ready to work with each of them as suits the issue; (v) we should de-dramatize the concept of ‘variable geometry’ because it will probably suit our interests in the enlarged Community for there to be smaller groupings. We shall probably not want to participate in everything; it may sometimes be the most effective way to get things done, and it will counter movement towards ‘union’. What we must avoid, though, is the appearance of a two-tier Community with us in the second division. The PM likes the concentric circles analogy; (vi) finally, the PM agrees that we should do more to encourage British exporters to exploit the larger market which will be offered by a Community of twelve.”73 It is striking that, in response to the Foreign Office’s suggestion of an informal triumvirate between the UK, France and Germany, the Prime Minister spoke instead of a policy of divide and rule and of ad hoc collaboration issue by issue. Nevertheless, the Prime Minister did not reject the advice. Yet her ambivalence, and the difficulty of ever achieving the kind of triumvirate which the FCO had recommended, seeps through every sentence of the record of her meeting with the French Prime Minister, Laurent Fabius, in Downing Street in August 1985. Fabius, in conciliatory, if slightly patronising, vein, told the Prime Minister that Mitterrand had asked him to explain to her that France wanted to work with Britain. Some problems had arisen at Milan; and, of course, France enjoyed a particularly close relationship with Germany. But this did not mean that she wanted to put Britain aside. Mitterrand had noted with approval the efforts which Britain had made to secure the better

Thatcherism on a European Scale 321 functioning of the Community. The President regretted that a vote had been taken at Milan, though, of course, France had had to vote with Germany as co-authors of the key text. Britain’s proposals were “interesting—if rather limited”. The Prime Minister responded tartly. Milan had been a bad meeting. The British side had been astonished when a rival text, scarcely different from, though rather less communautaire, than the British one, had been presented without consultation. Britain, for her part, would now wait to see what others were in practice willing to do. The UK would table no more ideas. Others could take the lead and the British Government would decide their position in the light of what they proposed. But she wanted President Mitterrand to be clear on one important point. She was sorry to see Europe dissolve into the petty squabbles, manoeuvres and drafting exercises which had characterised the Milan European Council. Heads of Government had to take a broader view. The British could not accept that the future course of Europe should be dictated by a Franco-German axis. Of course, Germany had to be kept firmly linked with Europe, although she herself was watching political developments in Germany with considerable anxiety. A Franco-German axis would not be good for Europe. But she was ready to work with France and Germany as a threesome.74 British officials had learned from experience that, while German officials were friendly and approachable, it was in practice difficult to make common cause. The French were less obviously amenable but, as the final negotiations on the budget rebate had shown, willing to do a hard-headed deal. In the margins of the IGC itself, Williamson and Renwick sought to make common cause with the French to prevent any significant extension of the powers of the European Parliament, a body for which Mitterrand (in private, at least) shared Margaret Thatcher’s disapproval. Meanwhile, France’s disagreement with Germany over extending the powers of the Parliament remained. As the date of the Luxembourg European Council drew nearer, positions converged. When Bullard called on Kohl on 18 November 1985, in preparation for the Anglo-German summit in Britain a week later, Kohl, as usual, did most of the talking “this time mainly about a new biography of himself”. Kohl gave the impression of agreeing with the British reluctance to see new treaty provisions on monetary cooperation (dear to Delors), commenting that the real need was to liberalise capital markets. The two sides were close on POCO and security cooperation. Bullard “thought it wise to mention the European Parliament and the need, in British eyes, to ensure that the Council had the last word”. Kohl emphatically endorsed this last point. The main purpose of the Anglo-German summit, Powell advised Thatcher, was “to let Kohl out of the penalty box for his behaviour at the Milan European Council, but to play on his guilty feelings (so far as anyone so thick skinned has them) and to induce him to pay particular attention to your points of view this time round”. When Kohl arrived at No.10 on 27 November, the Prime Minister, determined to get things off to a good start, congratulated Kohl on the new

322 Thatcherism on a European Scale biography of him. Kohl beamed. The book, he said, was a best seller and making a lot of money; indeed, a film was being made of it. The Prime Minister noted that Britain and Germany agreed that there was no need to amend the Treaty on monetary matters. This was not an issue for the Community to play with. Delors took a different view but that should not sway the outcome. Kohl agreed that the UK and Germany were “more or less in agreement” on this point. The Community had not yet fulfilled the requirements of the existing Treaty on monetary matters. There was, for example, no free movement of capital. Secondly, there was no convergence of economic policies. Italy’s economic policy was far removed from that of the FRG. It was essential to have greater convergence in place before attempts were made to deal with monetary matters in the Treaty. He was very much in favour of completing the internal market. German insurance companies were screaming their heads off, but he was determined to press ahead. But Germany did not want to adopt the lowest common denominator of southern European standards. Others should be encouraged to raise their standards to northern European levels. The Prime Minister agreed. She thought that the whole nature of the Community would change with Spanish and Portuguese accession. The majority voting system would give less protection than before to the northern European countries. Kohl said he was not afraid: Britain and France could achieve a lot together by discreet cooperation. The Prime Minister said that she was very much opposed to the Commission’s proposals for harmonising taxation. Kohl said that this was the most difficult issue of all and had to be left to the end. It was vital to preserve unanimity in this field. On the main area of disagreement between the two Governments, the European Parliament, Kohl said that he could understand the PM’s position as things stood at present. But matters could not rest there indefinitely. Continental European countries had a less developed Parliamentary tradition than the UK and attached greater importance to the European Parliament. However, he was prepared to accept a compromise put forward by the Presidency for the present as being the most that could be agreed. “The Prime Minister”, Powell recorded, “gave an account of her views on the European Assembly in familiar and robust terms”.75 If Community member Governments were prepared to compromise, the same did not appear to be true of the Commission President. On 25 November 1985, Delors, at lunch with the Permanent Representatives of the Member States, announced that the Commission would take no further part in the work of the IGC. The Commission, he observed, were not members of the IGC. From now on, he would neither intervene, nor uphold a view. The compromise package under discussion would not meet the needs of the Community for the next 20 years. He would dissociate himself from the conclusions of the IGC. He was, he said, greatly upset by the British and German attitudes to his monetary proposals and took particular exception to what he described as a German Press campaign against him. But his decision

Thatcherism on a European Scale 323 stemmed from broader considerations. In reporting this outburst to London, Hannay noted that Delors’ announcement had not prevented him from taking an active part in the discussion of the internal market and cohesion that had followed the lunch. Two days later, at another lunch with Community Permanent Representatives, Delors made “frequent emotional appeals for more far reaching changes”, arguing that the emerging package was no good. It would have to be improved at the so-called conclave of Foreign Ministers designed to finalise the draft, or at the European Council itself, if it was to be worth anything at all. The idea of an area without frontiers was one of the two great dreams he had for Europe, “money” being the other. The text on the table, festooned with exceptions, would not achieve its declared goals. Hannay rehearsed the arguments against a reference in the Treaty to the monetary issue. The UK was simply not prepared to give treaty force to a concept like Economic and Monetary Union which no one was capable of defining and which appeared to imply a fundamental shift in the relationship between the Member States and the Community. The Danish Secretary General of the Council, Niels Ersboll, later told Hannay that the Presidency and the Council Secretariat were preparing texts more or less on their own, with little help from the Commission, whose officials were hampered by Delors’ attitude. From Paris, Fretwell gave Delors’ outburst little regard. He had, according to Fretwell, been well known in Paris for his repeated threats to resign and for his tendency to histrionics. Fretwell thought that Delors’ threats would not be taken very seriously in France and that Delors was unlikely, especially in the presence of Mitterrand, to sit and sulk through the European Council.76 Briefing the Prime Minister two days later about the state of the negotiations, Powell advised her that, in Luxembourg, there would be strong pressure for agreement in principle to amend the Treaty in a number of minor respects. Several important Member States (particularly France) did not want the IGC hanging around any longer. Most of those involved recognised that postponement of decisions was likely to lead to more disagreement rather than a better chance of agreement. The first outcome (agreement) would be “less hassle if we can secure it on reasonable terms”. Powell did not think the Prime Minister would have any difficulty in justifying an outcome involving limited Treaty amendments. And he went on to list the UK’s basis requirements. In doing so, Powell was not simply giving a personal opinion. He did not hesitate to give his views, knowing well the mind of the Prime Minister, but he also had constant telephone contact with Williamson and Renwick so that they always knew the position of the Prime Minister and Powell was always up to date on the state and mood of the negotiations. The UK’s “basic requirements’, as Powell listed them, were: Internal Market: To maintain unanimity on matters affecting the rights and interests of employees (“social engineering”), and on measures affecting human, animal and plant health; to avoid amendment of Article 99 (indirect taxation) or

324 Thatcherism on a European Scale at the least to preserve unanimity on any matter affecting it; to ensure that the agreed definition of the Internal Market did not widen the existing rights of persons or interfere with UK immigration control; to limit the list of Treaty articles to which QMV was extended to Article 100 and perhaps Article 57 (2), the two key articles under which measures necessary for the completion of the single market would be taken. European Assembly: To ensure that the Council could always overrule the Assembly. Technology: To agree a new Article to allow for action in the sector provided that unanimity was preserved for all key decisions. Environment: To agree a new Treaty article provided unanimity was preserved on all important issues. Monetary issues: To resist Treaty amendment altogether. Act of European Union: The French had tabled a text. The FCO would want the PM to accept. Powell thought that the PM might feel that it would cause unnecessary political trouble. For instance: the title, Act of European Union, had in the UK a particular connotation (the Act of Union between England and Scotland) that would raise unnecessary suspicions. Other problematic proposals were those for renaming the European Council, the “Council of the European Union;” for defining European Union as the existing Treaties plus POCO (though this would, Powell thought, “put the whole issue of Union to bed;”) and for creating a separate secretariat for the European Council, which Powell thought absurd.77 Missing from Powell’s note was any mention of human, animal and plant health, but Williamson (with his expert background in agriculture) had already briefed Thatcher that the UK must be able to protect its high standards i.e. “no rabies, no foot and mouth disease, no Colorado beetle etc”.78 At Cabinet on 28 November 1985, a week before the Summit, Howe gave an upbeat assessment. France and Germany were continuing to support a position close to that of the UK. Some Member States, however, notably Italy, were still looking for a larger package and were receiving some support from the Commission. Presidency texts had not been finalised but in most respects represented a position that was tolerable to the UK. He would be seeing Jacques Santer, who would chair the European Council, the following day. The recent discussion between the PM and Kohl had shown that the German Chancellor was, thus far, taking a firm line against the Commission’s proposals on monetary issues. In the ensuing discussion, it was again stressed that the UK needed to ensure that the form of the reference to “persons” within the internal market did not extend the definition of persons beyond what was already in the EC Treaty, and did not adversely affect the UK’s own position on the admission of third country nationals. These points had been clearly registered in discussion thus far. It was also essential that the UK should maintain protection for its regimes on human, animal and plant health. It would be important not to forfeit the advantage that accrued from being an island, not only in maintaining a high

Thatcherism on a European Scale 325 standard of health within the UK but also in making possible animal and plant exports dependent on health status. It was also agreed that the UK should not accept proposals intended to whittle away the requirement for unanimity on tax matters (Article 99). On this question it was thought that the German Government was also taking a strong line.79 The Chancellor, Nigel Lawson, underlined his opposition to any movement on Article 99 in a letter later that day from his Private Secretary to her opposite number in Howe’s office, copied to No. 10. The Chancellor was “very much opposed” to any amendment of Article 99. It would give the European Parliament, for the first time in the Treaty, a role in discussion on indirect tax matters [MT: “No. Pledged not to in election campaign”]. It implied a commitment to the principle of harmonisation [MT: “No”]. Once the possibility of moving to QMV was written into the Treaty, pressure would be applied to persuade the UK to agree to a move to QMV in some areas. It was very difficult to identify any areas of indirect tax which did not potentially have large revenue, compliance or manpower costs. The Chancellor did not see how the UK could agree to this proposal.80 If Lawson’s letter had been prompted by fears that the Foreign Secretary might be less than robust on the issue, those fears would have been confirmed by the reply which Howe’s Private Secretary, Len Appleyard, sent to the Treasury the following day. The Foreign Secretary had, the letter explained, made clear in the IGC that the UK regarded changes to Article 99 as unnecessary. But the Foreign Secretary had “doubts whether the proposed amendment to Article 99 amounts to significant change”. The intention of a reference to the European Parliament was merely a codification of existing practice and did not give the Parliament any new role in decision making. Decision taking by the Council on the basis of unanimity was clearly maintained: only a unanimous decision by the Council could lead to QMV. Whatever pressure the UK might come under, there was no reason why the UK should submit to it, any more than the UK had in the past. [MT: “Then why are we succumbing now?”]. The letter concluded that the Foreign Secretary did not believe that the UK should refuse the amendment if all others could accept it. In submitting the letter to Thatcher, Powell observed: “A prime example of how one can always think of a hundred reasons why to give something away in a negotiation, but hardly any why to defend it. The fact is that an amendment to Article 99 would be a political signal of willingness to move towards tax harmonisation.” The Prime Minister agreed: “No amendment to this article”, she wrote.81 One further issue remained unresolved for the British Government. The text on POCO which was to be submitted to European Heads of Government for approval was, in essence, the original British draft. As such, the Prime Minister supported it. But she jibbed at the proposal that the text should enshrine the aim of political cooperation as being “the joint formulation and implementation of a European foreign policy”. For once, Powell was in

326 Thatcherism on a European Scale sympathy with the Foreign Secretary, who found himself isolated in opposing this formulation. Powell asked the Prime Minister to think again. He absolutely agreed, he said, with the Prime Minister that it was not possible to have a foreign policy without a defence policy. And, in practice, there would not be a common foreign policy. The question was really one of “Euro-speak”. Could the UK agree to refer to the goal of a European foreign policy, even though it was a distant, probably unrealisable, objective? Powell pointed out that the Government had already gone quite a way in that direction. The conclusions of the Milan European Council had spoken of convening a conference to work out “a Treaty on common foreign and security policy on the basis of the Franco-German and UK drafts”. The Solemn Declaration of Stuttgart had spoken of “joint action on all main foreign policy questions”. Could the Prime Minister authorise Howe to say that the UK would be ready to discuss this point in the context of an overall package at Luxembourg? The reality, Powell concluded, would not change: there would be no binding obligations on the UK in the foreign policy field. A day later, Powell was able to explain the Prime Minister’s position to the Foreign Office. “The PM’s starting point”, Powell wrote, “is that the notion of a European foreign policy to which, for example, the UK and the Republic of Ireland could both subscribe, is bizarre and bears no relation to reality. She takes the view that European foreign policy makes no sense, even as a concept, without a European defence policy. She also sees a significant difference between talking about ‘strengthened cooperation on foreign policy’ or of ‘the possibilities of joint action in the field of foreign policy’, on the one hand, and a ‘European foreign policy’, on the other. “Against this”, Powell continued, “the PM acknowledges that we are dealing with Euro-speak; with an ultimate, and no doubt distant, aim; and a statement to which no binding legal obligations are attached.” Powell said that the PM would prefer to achieve some watering down of the relevant part of the text and he outlined a number of possible variants: to put the aim of a common foreign policy in the preamble; to insert the word “ultimate” before “aim”; to omit the words ‘and implementation’. The Prime Minister, Powell said, would like a further serious effort to be made to secure an amendment on the lines of one of these suggested changes, or something having equivalent effect. Perhaps as an added incentive to the Foreign Office to make the “further serious effort” for which the PM was calling, Powell informed them that “depending on this, the PM would be ready herself to discuss the precise formula at the European Council”.82 Mrs Thatcher arrived in Luxembourg on the morning of 2 December 1985 for what Hannay later described as “a gruelling marathon of a European Council over 27 hours”. Renwick had given the Prime Minister a list of twelve important issues for the UK, among which were the British determination to avoid any commitment to an eventual monetary union or a commitment to abolish frontier controls after which some, including Delors, still hankered.83

Thatcherism on a European Scale 327 On virtually all points, the Prime Minister secured her objectives. Strengthened cooperation on foreign policy, based on the British text, was swiftly agreed, under the heading: ‘European Co-operation in the Sphere of Foreign Policy’. Article 99 on tax policy stayed unchanged. The UK agreed that there should be greater use of majority voting on a number of treaty articles dealing with goods and services. But unanimity was retained for all decisions on taxation, the free movement of persons and the rights and interests of employees. On the issue of animal and plant health, the patience of the Council wore thin as other Heads of Government had, according to Renwick, “heard more than enough about our anti-rabies regime”. Back in London, officials had worked out a possible formula to bridge the gap. It was passed to Howe, who duly proposed it to the meeting. Did anyone object, Santer asked? Only one Head of Government did so: Mrs Thatcher. “The others did not know whether to laugh or cry”, according to Renwick, but the Prime Minister was eventually persuaded to accept the formula. More serious in substance was what Howe called a tough battle on economic and monetary union. The goal had long been enshrined as a European Community goal, and the preamble to the document (the draft Single European Act) before Heads of Government noted that “at their Conference in Paris from 19 to 21 October 1972, the Heads of State or of Government approved the objective of the progressive realisation of Economic and Monetary Union”.84 The British Prime Minister, Edward Heath, attending the Paris conference on the eve of British accession, had put his name to the document. Harold Wilson, in the renegotiation of 1974-75 had explicitly reaffirmed the commitment.85 Mrs Thatcher could scarcely disown it. But she wished to go no further. As Howe later recorded: “Most of our partners were now anxious to establish [the commitment] as a formal Treaty objective . . . We did not want this . . . On this firm position, we understood that we had the support of the German Government. But, we had equally been led to understand, their support might be less than rock solid . . . There was thus one harrowing break in the proceedings when Helmut Kohl, Margaret Thatcher and I caballed in one of the corridors. He was torn between pressure from his coalition partner, Foreign Minister Genscher, on the one hand, and, on the other, his near commitment to his own Bundesbank as well as to ourselves. In the result, he cracked, but only a little.”86 The “only a little” was to allow a new title in the Treaty: Co-operation in Economic and Monetary Policy (Economic and Monetary Union). The Prime Minister allowed herself to be persuaded by Kohl’s argument that he was firmly opposed to EMU and that the text was harmless and meaningless. Indeed, he said, by making it clear that further treaty change would be needed, the text was a barrier against “creeping EMU”.87 In practice, the text gave Delors the foot in the door he needed and, as Thatcher acknowledged in her autobiography, “this formulation delayed M. Delors’ drive

328 Thatcherism on a European Scale to monetary union only briefly”.88 The received wisdom at the time, however, was that expressed by Hannay in his telegram commenting on the Luxembourg summit: “Once Kohl had collapsed on the monetary issue, the choice was between fighting on alone and very probably breaking up the Conference in a way which would have been deeply damaging to us, or going for the minimum we could achieve. I am sure the right choice was made and the vestigial text finally agreed in this field reflected an acceptable outcome.”89 To the British Press in Luxembourg, Mrs Thatcher described the outcome as “a modest success”. She resisted the suggestion from one journalist that the agreement was “rather like a Cheshire cheese, full of holes”. “A Cheshire cheese is not full of holes”, Mrs Thatcher rejoined, “that is Gruyère. A Cheshire cheese has got no holes in it. It is British.”90 From the British standpoint, however, the whole IGC, culminating in the Luxembourg summit, had been a success despite the inauspicious and humiliating start at Milan earlier in the year. The major achievement was to agree a Single European Act, without which there would have been no single market and to have done so without significant concessions. When, on 5 December 1985, Mrs Thatcher was reminded in the House of Commons by one of her own backbenchers (Jonathan Aitken) that she and the Foreign Secretary had “reiterated time and again that in their view there was no need for any changes in the Treaty of Rome”, and was asked how she now justified a change of policy which “presumably, need not have happened”, her reply was a polite put-down. “If one belongs to a Community”, she told Aitken, “one has to take into account other people’s views, particularly if one wants some of the changes that are being made to enable some of our own people to establish themselves in the Community, which they cannot now do. We wanted something from our European partners, and they wanted something from us. It seemed a reasonable compromise.” When Tony Benn asked her to “clarify her views about the long-term objective of political union within a fully federated United States of Europe, about which a great deal is regularly said in the Commission and elsewhere”, the Prime Minister’s reply was a succinct summary of both her policy and her instincts: “I do not believe in the concept of a United States of Europe, nor do I believe that it would ever be attainable. The whole history is completely different . . . I am constantly saying that I wish they would talk less about European and political union. The terms are not understood in this country. Insofar as they are understood over there, they mean a good deal less than some people over here think they mean”. “Looking back”, Thatcher wrote later, “I was wrong to think that.”91 At Cabinet on 5 December 1985, Howe described the outcome of the IGC as “very satisfactory”. The UK had secured all its main objectives. The agreement included changes which were desirable for the completion of the Community’s internal market. A target date, 31 December 1992, was set. There would be amendments of the Treaty article to provide for majority voting on

Thatcherism on a European Scale 329 goods and services. Unanimity would be retained for taxation and the free movement of persons and matters relating to the rights and interests of employees. In addition, if decisions were taken by majority voting, there would be a right to take national action in the fields of public, animal and plant health. National competence on frontier controls against terrorism, crime, drugs and immigration from outside the Community was not affected. The Luxembourg Compromise had not been challenged or changed. Many of the elements in the package, e.g. on technology, the environment and the Regional Fund would consolidate into the Treaty what was broadly the present practice. The monetary provisions also followed existing arrangements. There would be changes in the procedures by which the European Parliament made its views known to the Council on some Community legislation, but the last word on such legislation rested with the Council. There would, Howe believed, be difficulties with the European Parliament, which considered that the agreement did not go far enough. The results of the IGC were, Howe reported, subject to one specific reserve by the UK on voting arrangements in relation to the working environment, because of the need to avoid burdens on small and medium businesses.92 Howe was pleased at one particular initiative from the UK that had been accepted. The Commission had informed the European Council that they would henceforth be assessing all new proposals for their effect on business and on job creation, would be re-examining the more important existing regulations and would be ensuring that a central unit regularly monitored the progress of deregulation. On the basis of Howe’s report, Cabinet drew satisfaction from the fact that, despite their rhetoric at Milan, most Member States had recognised reality and had shown themselves to be in favour of a modest package.93 On the continent, only the Italian Press were unanimous in their disappointment at the modesty of the results. In reporting to the Bundestag, Kohl described the outcome as having taken the political and institutional development of the Community a decisive step forward. A difficult decision had had to be taken on monetary policy. The European Monetary System was a halfway station on the way to European Union, not a final goal in itself. A perspective had been opened up. But the legal framework in the Member States had been protected, and national Parliaments would have to be involved before there were any institutional changes. Kohl’s message “to his friends in the European Parliament” was that as much as was feasible had been obtained. He personally identified himself with the decision, which was wise at the present time. He added, to applause, that a signal had, however, been given for the future. Foreign policy cooperation, Kohl continued, had always been an aim of the Federal Government. Accordingly, together with France, the German Government had tabled a draft treaty on political cooperation at Milan. The IGC had, said Kohl, held intensive discussions of this initiative and “of the draft text tabled simultaneously by the British”. This last observation, in particular the

330 Thatcherism on a European Scale implicit denial of the fact that the Franco-German text had been cribbed almost word for word from the prior British text, produced a large Thatcher exclamation mark in the margin of the telegram from the Bonn Embassy reporting Kohl’s speech. True to the linkage in his mind between European integration and the future possibility of a united Germany, Kohl concluded his report to the Bundestag by saying that the aim of European integration was to overcome the division between East and West. Every step forward was a step into a better Europe.94 In the aftermath of the agreement on the Single European Act (SEA), Delors, while bemoaning its lack of ambition, soon instructed Commission officials to take maximum advantage of its provisions. From Margaret Thatcher’s later perspective, it was Delors’ push to economic and monetary union that she most resented, and there is no doubt that the SEA gave him a foothold for furthering those ambitions. But he could not have progressed down that road without the support of the other Member States, France and Germany in particular. That particular pass, as the British saw it, had been sold even before Britain joined the Community. The seeds of the language Kohl had persuaded Mrs Thatcher to accept had been sown in one of the decisions taken by the Heads of Government of the original Six at the summit in The Hague in December 1969, when they also opened the door to a renewed negotiation with Britain on her accession to the Community. At that meeting, the leaders of the Six had proclaimed the goal of converting the European Economic Community into an economic and monetary union.95 The language of the SEA on monetary issues gave impetus to that project, as did the single market project itself: for most European leaders in 1985, a single currency was a logical feature of a single market. In December 1985, no one in Government in London expected the single currency project to gather pace as fast as it did, and to confront Britain, at Maastricht in 1991, with an existential choice. In December 1985, as the Prime Minister had implied in her reply to Aitken, the necessary compromises in Luxembourg were seen for what they were: essential to securing, after twelve years of membership, a European Community that Britain at last could shape in her own national commercial interest. These single market commitments were ones that sat at the heart of the Treaty of Rome, but had lain virtually dormant from 1957 until Mrs Thatcher, on the back of the revolution she was leading in the UK, carried the cause onto the European battlefield, as she would have seen it. Charles Moore, in his biography of Mrs Thatcher, points out that she never, even in later life, disowned the officials for the advice they had given her in the IGC.96 Nonetheless, in two significant respects, the implementation of the SEA broke through the safeguards that the UK had sought to put in place. Article 8a of the SEA defined the internal market as “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of this Treaty”. The “provisions of this Treaty”, in the opinion of British lawyers, meant that the requirement to abolish “any discrimination based on nationality between

Thatcherism on a European Scale 331 workers of the Member States” meant just that. To bolster that view, the UK had secured a General Declaration, appended to the SEA, which asserted that “nothing in these provisions shall affect the right of Member States to take such measures as they consider necessary for the purpose of controlling immigration from third countries . . . ” The Commission, and a majority of other Member States, did not endorse the British view and, over time, the findings of the European Court of Justice favoured their alternative interpretation, which was that the European Community was a genuinely frontier-free travel zone, without passport controls, open to EU citizens and to the citizens of third countries once they had satisfied the entry requirements at the first Community border they crossed. The UK was eventually able, in the Amsterdam Treaty of 1997, to protect its system of frontier controls. Large-scale immigration from other Community countries was not then controversial because it was simply not an issue. In 1985, there was some anxiety in London that, on the accession of Spain and Portugal, there would be an influx of low skilled workers from those countries. But those anxieties proved to be misplaced. With the countries of East and Central Europe locked in the despotic grip of the Soviet Union, the possibility of large-scale immigration from that quarter was not on anyone’s radar. The second area where British precautions proved ineffective was that of Social Policy. The Treaty of Rome empowered the Commission to promote “close cooperation between Member States in the social field” on matters such as labour law and working conditions, prevention of occupational accidents and the right of association. But it contained no powers for the Commission beyond those of making studies, delivering opinions and arranging consultations. The SEA gave the Commission the right to propose legislation at European level to achieve the objectives of “encouraging improvements, especially in the working environment, as regards the health and safety of workers”. At British insistence, this new right was qualified. Any directives which were to be adopted by QMV should, the new Treaty article stipulated, “avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings”. Moreover, such directives were required to have “regard to the conditions and technical rules obtaining in each of the Member States”. A Declaration, appended to the SEA at British insistence, was also designed to safeguard small and medium enterprises from burdensome legislation. It is a measure of the Prime Minister’s unhappiness about these provisions that she simply did not mention them in listing to the House of Commons the main achievements of the IGC. She had reluctantly accepted the advice of officials that the new article was limited to health and safety issues. But, in practice, “health and safety” gave the Commission considerable latitude for interpretation. The Commission found majority support in the Council for such measures as the Working Time Directive (controversial for both the Major and Blair Governments), on the not unreasonable basis that hours worked were directly related both to the health and safety of those concerned.

332 Thatcherism on a European Scale The British argument that these were matters that should be left to national discretion could not stand up in the face of the new Treaty provisions. “Looking back”, Margaret Thatcher wrote in her autobiography, “I still believe that it was right to sign the Single European Act, because we wanted a Single European Market”.97 More than thirty years after the Single European Act, it, and the enlargement of the Community to newly liberated nation states, are arguably the principal successes of the European Community/Union. On both issues, Margaret Thatcher was in the vanguard. She pressed the case for economic liberalisation at a time when it was a pioneering and controversial policy. And when, in Bruges in 1988, she said that “we shall always look on Warsaw, Prague and Budapest as great European cities” she was prefiguring a policy on enlargement of which her successors, Major and Blair, were both to be champions.

Notes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

PREM 19/123, and CC (84) 28th Conclusions, 26 July 1984, CAB 128/79, TNA. PREM 19/1230, TNA. PREM 19/1220, TNA. CC (84) 27th Conclusions, 19 July 1984, CAB 128/79, TNA. PREM 19/1220, TNA PREM 19/1220, TNA. PREM 19/1220, TNA. CC (84) 30th Conclusions, 13 September 1984, CAB 128/79, TNA. PREM 19/1220, TNA. Thatcher, Downing Street Years, p. 547. PREM 19/1244, TNA. Some things still have not changed. The 2017 Bayreuth production of The Ring had the Rhine Maidens as call girls in an American 1950s diner. PREM 19/1765, TNA. PREM 19/1764, TNA. PREM 19/1765, TNA. Ibid. PREM 19/1231, TNA. Ibid. Ibid. PREM 19/1231. PREM 19/1478, TNA. PREM 19/1478, TNA. Ibid. Punch cartoon of 1895. Bishop: “I’m afraid you’ve got a bad egg, Mr Jones”. Curate: “Oh, no, my Lord, I assure you that parts of it are excellent”. PREM 19/1478, TNA. Ibid. CC (84) 32nd Conclusions, 4 October 1984, CAB 128/79, TNA, and PREM 19/ 1231, TNA. PREM 19/1220, TNA. PREM 19/1243, TNA. Si monumentum requiris, circumspice; ‘if you seek his monument, look around’, Sir Christopher Wren’s epitaph in St Paul’s Cathedral.

Thatcherism on a European Scale 333 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81

PREM 19/1243, TNA. PREM 19/1223, TNA. Stephen Wall, A Stranger in Europe, pp. 51–2. Ibid, p. 46 PREM 19/1765, TNA. PREM 19/1490/1, TNA. PREM 19/1490/1, TNA. PREM 19/1507, TNA. Ibid. PREM 19/1507, TNA. PREM 19/1491, TNA. PREM 19/1480, TNA. PREM 19/1480, TNA. PREM 19/1491, TNA. PREM 19/1491, TNA. Renwick, A Journey with Margaret Thatcher, p. 102 PREM 19/1491, TNA. Ibid. Moore, Margaret Thatcher, Volume Two, pp. 397–98. PREM 19/1492, TNA. Howe, Conflict of Loyalty, p. 409. PREM 19/1491, TNA. Howe, Conflict of Loyalty, p. 409. PREM 19/1492, TNA. PREM 19/1492, TNA. Ibid. Parl. Debs., H. of C., 6th ser., vol. 82, cols. 185–89, 2 July 1985. Renwick, A Journey with Margaret Thatcher, p. 106 Ibid The UK at the time was one of the most compliant Member States. PREM 19/1492, TNA. Moore, Margaret Thatcher, Volume Two, p. 401. PREM 19/1480, TNA. Thatcher, Downing Street Years, p. 712. PREM 19/1480. PREM 19/1480, TNA. PREM 19/1480, TNA. PREM 19/1480, TNA. Ibid. PREM 19/1480, TNA. PREM 19/1480, TNA. PREM 19/1480, TNA. PREM 19/1486, TNA. PREM 19/1760, TNA. PREM 19/1491, TNA. PREM 19/1752, TNA. Delors made a similar threat to resign in a conversation with John Major about the GATT trade negotiations during the British Presidency of 1992. When Major agreed to accept the resignation, Delors rapidly withdrew it. PREM 19/1752, TNA. PREM 19/1480, TNA. CC (85) 34th Conclusions, 28 November 1985, CAB 128/81, TNA> PREM 19/1480, TNA. PREM 19/1480, TNA.

334 Thatcherism on a European Scale 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97

PREM 19/1480, TNA. Renwick, A Journey with Margaret Thatcher, p. 104 See Wall, Official History of Britain and the European Community, Vol. II, pp. 449–52. ibid., Chapter 10. Howe, Conflict of Loyalty, pp. 455–56. Wall, A Stranger in Europe, p. 69. Thatcher, Downing Street Years, p. 555. PREM 19/1752, TNA. Ibid. Parl. Debs, H. of C., 6th ser., vol. 88, cols. 429–33, 5 December 1985; Thatcher, Downing Street Years, pp. 556–57. This reserve was dealt with by a Declaration of the Conference stating that the Community “does not intend . . . to discriminate in a manner unjustified by the circumstances against employees in small and medium-sized undertakings.” CC (85) 35th Conclusions, 5 December 1985, CAB 128/81, TNA. PREM 19/1752, TNA. European Monetary Integration: Report by the Federal Trust for Education and Research, January 1972; Wall, Official History of Britain and the European Community, Vol. II, pp. 344–48. Moore, Margaret Thatcher, Volume Two, p. 408. Thatcher, Downing Street Years, p. 557.

Conclusion

Late in life, Sir Nicholas Henderson, reflecting on a long career which had included being successively Britain’s Ambassador in Warsaw, Bonn and Paris, came to the conclusion that the key ingredient in the United Kingdom’s often fraught relationship with her European partners was the personality and policies of Margaret Thatcher.1 Henderson was a convinced European. But he had been Thatcher’s choice as British Ambassador in Washington when she came to power in 1979, had advanced her policies strenuously and skilfully during the Falklands War, and had considerable respect for her abilities. So, his conclusion is worth considering. Charles Moore, in his biography of Margaret Thatcher, quotes Charles Powell, probably her closest official aide, as saying that “in relation to the EEC, she had different periods . . . The first period was the budget row; the second was that of the SEA; the third—the violent stage—came on with the rising power of Delors and the issue of EMU.”2 In two of the three phases the common element is that of combat. Margaret Thatcher was a member of the Cabinet which took Britain into the European Community in 1973. As the new Leader of the Opposition, she campaigned publicly and, thanks to her EEC flag-emblazoned t-shirt, memorably, in the referendum on EEC membership in 1975. During what remained of the Wilson Government, and then during the two years of Callaghan’s Premiership, she maintained the stance of the Conservative Party as the pro-European Party. It was on that basis that she fought the General Elections of 1979 and 1983. But she was undoubtedly a European of the head rather than the heart. Having been a teenager during World War II, she carried the innate suspicions of Germany which endured across the political spectrum for some years after the war. She came to power in 1979 having had relatively little exposure to European Community meetings or policy-making, and with no hinterland of continental friends or trusted colleagues. Even if the European scene had been, in 1979, favourable from the British perspective, Thatcher would have brought to it the same forthright, nononsense, sometimes peremptory, style of policy making that she brought to domestic politics.

336 Conclusion But Mrs Thatcher did not inherit a favourable European situation. She inherited one whose origins stretched from post-war Britain right through to 1979—almost 25 years during which European Community membership had been a nationally controversial issue. In particular, she was the leader of one of the largest Member States, confronted with two key European Community policies: the EEC budget and the Common Agricultural Policy, which were deeply flawed from the British perspective. The United Kingdom would have benefitted from a single market in goods and services. Such a market should, according to the Treaty of Rome, have been created at the outset of the Community. In reality, twenty years later, it barely existed. How had this happened? There will always be debate about whether Mrs Thatcher’s uncompromising temperament and combative behaviour were an aid or a hindrance to securing British objectives. Her successor, John Major, demonstrated in his European negotiations that it was possible to be intransigent without being confrontational. Her reluctance to speak the language of European unity, and tendency to scorn the ambitions of other Europeans, undoubtedly created animosity. Nonetheless, the record shows, I believe, that, had Thatcher relied on the good will of other European Governments, she would never have achieved more than inadequate, ad hoc and temporary agreements to deal with Britain’s budget problem. And had that problem not been dealt with, it is arguable that Britain’s continued membership of the European Community would quickly have become untenable in domestic politics. Thatcher’s significant achievement was to secure a lasting agreement, which has endured from 1984, with some changes but no interruption. Margaret Thatcher was not the sole author of the single market project, but she was a reformist leader at a time when the main driver of European policy on the continent was institutional rather than practical. As she wrought an economic revolution at home, in particular by liberalisation, so she argued the case within the Community. The summary in this book of the protectionist practices against which David Williamson argued in the Committee on a People’s Europe, today makes scarcely credible reading. The Treaty of Rome ordained a single market. Other than in agriculture, very little was done, in the ensuing thirty years, to bring it into being. That it was brought into being, and remains the bedrock of today’s European Union, is in large part down to Thatcher’s conviction and influence. So too, on agriculture. At the inception of the European Community, the Common Agricultural Policy, a mechanism (understandable in the immediate post-war years) for the subsidy of otherwise uneconomic farming, accounted for 90% of spending under the Community budget. The figure was still around 75% when Britain joined. A succession of Labour and Conservative Governments argued the case for reform. The eventual switch from subsidy of production to support for the rural economy owes much to British efforts.

Conclusion 337 There is one common thread which runs through the two volumes of Official History covering the period 1963 to 1985. It is striking that every one of Britain’s Prime Ministers, from Macmillan to Thatcher believed, essentially, in an intergovernmental European Community. Macmillan was the first to spell out the argument in his 1962 pamphlet, designed to convince the British public of the case for membership. “The form which political unity of the Community should take”, Macmillan wrote, “is now under active discussion in Europe, where opinions on it are strongly divided. There is a school which ardently believes in the unitary concept of a European federation, a new European state. I myself believe that the bulk of public opinion is firmly against the extinction of separate national identities and would choose a Europe which preserved and harmonised all that is best in our different national traditions. We would, I think, favour a more gradual approach worked out by experience.” That view would have been echoed by each of Macmillan’s successors. Even Edward Heath, the most “European” of Britain’s Prime Ministers, believed during his time in office in a Community led by France, Germany and the United Kingdom in which the key institutions, the European Commission and Parliament, had subordinate roles that were less than those implied by the European treaties to which Britain was party. To an extent, therefore, British policy and politics were out of step with those of most other Member States. For France, a close embrace with Germany was an essential basis for European policy under all the Presidents covered in this history. For Germany, and for Kohl in particular, progress towards something called “Union” was a vital condition, as he saw it, of Germany’s ability to take her place in the family of democratic Western nations and, as such, both to resist the siren calls to neutrality coming from the Soviet Union and to embrace German reunification as a goal which would be accepted by Germany’s apprehensive neighbours and partners. The tension in today’s Europe, between a monetary union and the political evolution that implies, on the one hand, and the continued strength of national identity on the other, is the present-day manifestation of the tension —the calculated but unpredictable—tension inherent in the Treaty of Rome and in the evolution of the European project ever since. In the 1980s, Margaret Thatcher appeared to stand, almost alone, on one side of a divide. In her 1988 Bruges speech, where she pitted liberalisation against the encroaching power of a centralised bureaucracy, she appeared to her critics, and supporters, to be mounting an all-out attack on the European edifice. Today, much of her speech reads like a commonplace of European consensus.3 The evolution of Thatcher’s views on Europe at the end of her Premiership and beyond, when she set herself up in public opposition to the European policies of her successor, are outside the scope of this book. During the period covered by this volume, her rhetoric was more confrontational than that of her predecessors, and her manner more combative, but her policies and her view

338 Conclusion of the kind of Europe Britain wanted the Community to be, were in a direct line of continuity from Macmillan, Wilson, Heath and Callaghan, through to her own hour upon the stage.

Notes 1 Conversation with the author 2 Moore, Margaret Thatcher, Volume Two, p. 408. 3 20 September 1988: https://www.margaretthatcher.org/document/107332

Appendix 1

Appendix 2

Bibliography

Beesley, Ian: The Official History of the Cabinet Secretaries (Routledge 2017) Butler, Michael: Europe: More than a Continent (Heinemann 1986) Callaghan, James: Time and Chance (Collins 1987) Carrington, Peter: Reflect on Things Past (William Collins 1988) Donoughue, Bernard: Downing Street Diary: With Harold Wilson in No. 10 (Jonathan Cape 2005) FCO: Documents on British Policy Overseas (DBPO) Series III, Volume X, The Polish Crisis and Relations with Eastern Europe, 1979–1982 (Routledge 2017) FCO Histories: Locarno 1925: The Treaty, The Spirit and The Suite (FCO, 1991) Gilmour, Ian: Dancing with Dogma: Britain under Thatcherism (Simon and Schuster 1992) Hannay, David: Britain’s Quest for a Role (I.B Taurus 2013) Healey, Denis: The Time of My Life (Michael Joseph 1989) Howe, Geoffrey: Conflict of Loyalty (Macmillan, 1984) Jenkins, Roy: European Diary 1977–1981 (William Collins 1989) Ludlow, Piers: Roy Jenkins and the European Commission Presidency, 1976–1980 (Palgrave Macmillan, 2016) Milward, Alan S: The United Kingdom and the European Community Volume I: The Rise and Fall of a National Strategy (Routledge 2002) Morgan, Kenneth O: Callaghan, A Life (OUP 1997) Moore, Charles: Margaret Thatcher the Authorized Biography, Volume One, Not for Turning (Penguin Books 2013) Moore, Charles: Margaret Thatcher the Authorized Biography, Volume Two, Everything She Wants (Penguin Random House 2015) Owen, David: Personally Speaking to Kenneth Harris (Weidenfeld & Nicolson, 1987) Owen, David: Time to Declare (Michael Joseph ) Pym Francis: The Politics of Consent (Hamish Hamilton 1984) Renwick, Robin: A Journey with Margaret Thatcher: Foreign Policy Under the Iron Lady (Biteback Publishing 2013) Thatcher, Margaret: The Downing Street Years (Harper Collins 1993) Wall, Stephen: A Stranger in Europe: Britain and the EU from Thatcher to Blair (OUP 2008) Wall, Stephen: The Official History of Britain and the European Community Volume II: From Rejection to Referendum, 1963–1975 (Routledge 2013)

Index

Acland, Antony 238, 252–53 Act of European Union 324 Agt, Dries van 106 Aitken, Jonathan 328, 330 Andreotti, Giulio 127, 144, 304 Anglo-American relations 60, 96, 100, 180–81, 183, 214 Anglo-French relations 45, 106, 158–59, 185, 187, 188, 193–94, 199, 215, 217–18, 228, 269–272; Armstrong and Wahl discuss 183–84; British concerns over building good 159, 179, 180; Carrington on 188–89, 198–99; chair arrangements 156; French views on Callaghan’s letter to Hayward 100–101; Fretwell’s analysis of Mitterrand and friction in 271–72; Giscard and Thatcher discuss 142; Giscard’s view of 48–49, 50, 183; Henderson’s advice on 49, 50, 95–96, 100–101; Hibbert and Wahl discuss Franco-German and 181; Hibbert reflects on 186, 198; Le Monde editorial 106; meeting between François-Poncet and Palliser 187–88; Mitterrand and Thatcher discuss 263–64; Thatcher on Anglo-German and 181; Thatcher’s Bordeaux speech 181–83 Anglo-German relations 27, 45, 241, 301, 306–7, 321; British concerns over building good 179, 180; and fishing dispute 107–8, 191, 193; Kohl and prospect of closer 237, 248–250; Schmidt and 27–28, 29–30, 191, 195; Thatcher on Anglo-French and 181; Wright on 58, 91–92 animal: and plant health 324–25, 327; welfare standards 42

Armstrong, Robert 14, 156–57, 161, 163, 167–68, 180, 183, 204–5, 220, 230, 271, 281–82, 315, 316 Attali, Jacques 220, 271, 281, 285 Barre, Raymond 128, 181, 183 Benn, Tony 6, 30, 53, 85, 86, 87, 126, 328 budget, net contributions to: Armstrong briefs Thatcher on 156–57, 167–68; Athens Council meeting 262–64; background to British 3–4, 174; British linking agreement on agriculture and 169, 215, 217, 219, 221–22, 223, 241–42, 246; British negotiating position in March 1981 218–19; budget correcting mechanism 4, 52, 109; Callaghan seeks to address 4, 109–10, 129–130, 131, 132; concerns over bad Press at home and abroad over 166; Dublin Council meeting 163–64; Dublin Council meeting, preparations ahead of 156–58, 159–162; French and British efforts to find a solution ahead of elections to European Parliament 269–271, 280–81; French link agreement on agricultural prices to agreement on reform of 215; German 202, 203, 204, 205, 218, 220; Giscard and Thatcher discuss principle of juste retour 201–2; Giscard’s view of issue with British 158–59; government looks for a compromise after Dublin Council 165, 166, 167; Howe’s scheme 201, 204–6; Jenkins and Thatcher discuss negotiation strategies 151–52; Luxembourg Council, 1980 168–171; May 30th Agreement 172–74, 187, 201, 207, 225, 226, 230, 233; Pym in negotiations at Foreign Affairs Council

Index 363 meetings 221–22, 223, 225–26, 230; and receipts from budget 109, 146, 165, 168, 217, 219, 220, 266, 268; risk sharing formula 230; safety net proposal 215, 260, 262, 263, 265–66, 269, 271; Schmidt and Thatcher discuss 138–140, 152–54, 171, 219–220, 230; Schmidt tells Wright his views on British negotiations 147; Schmidt’s offer to British on 170, 171; Thatcher gets to grips with problem 137–38; Thatcher’s response to FCO draft statement on 143–44; Thatcher’s view of acceptable 170, 219; ticket modérateur idea 268, 270; VAT share/expenditure share gap 268, 269–270, 270–71, 280–81, 282; withholding considered in negotiations on 159, 162, 166–67, 224–25, 232–34, 244–46, 247 budget rebate, UK: Armstrong advises on 167–68; Armstrong and Attali talks on 220; assessing Thatcher’s achievement on 174, 285, 336; British disagreement on realistic expectations over 5 years 234; British offering a gesture on ‘overpayments’ 222, 230, 233; British tactics for reaching agreement on 1983 241–43; Brussels Council and failure to agree 1984 271, 273, 274; degressive proposals 207, 209, 217, 219; differences in style between Howe and Thatcher over negotiating 312–13; Dumas’ proposal 281–82; European Parliament block agreements on 245, 289, 297; FAC meeting, March 1984 274–75; Falklands War a factor in softening of British position on 222; Fontainebleau Council negotiations 282–84; Foreign Ministers meeting December 1981 209; French refuse to agree to 25 May agreement on 236; German stance a concern in Whitehall 241; Hancock advises on 228; informal suggestion of a two-thirds of unadjusted net contribution 218; March 1983 European Council agree on 247–48; Mitterrand blocks authorisation of 271–72, 273; proposals not acceptable to Thatcher 163, 170, 222; Pym and Thatcher discuss 234; Pym unsatisfied with German undertaking to find a solution 250–51; responses to settlement

on 284–85; Schmidt and Thatcher discuss 216–17; Stuttgart Council agreement on 1983 refund 254; Thatcher decides to settle 283, 284; Thatcher determined ‘to get her money back’ 163, 164, 285; Tindemans and Thorn’s new formula 220, 223, 225–26; VAT share/expenditure share gap scheme and 280–81, 282; Williamson optimistic for agreement at Fontainebleau Council 280–81 Bullard, Julian 293–94, 301, 304, 305, 307, 321 Bush, George H.W. 31 Butler, Michael 18–19, 123, 125; considered for post of second British Commissioner 291; farewell despatch 315–16; reflects on failure of Brussels European Council 272–73; as UK Permanent Representative 155, 163, 167, 231, 232, 234, 243, 245, 272–73, 282, 283, 311 Callaghan, James: accepts Silkin’s refusal to go to Berlin fisheries meeting 105; appointment of second Commissioner 54–56; appoints Owen as Foreign Secretary 65; approves speaking note for Healey 118; bringing Eden home 65–66; CAP intervention 131–32; in charge of renegotiation of terms of British EEC membership 3–4; Commission attendance at G7 summit 70–75; decides not to join ERM 126, 127, 128, 133; direct elections to European Parliament 32, 75–84; election as leader of Labour party 7, 30, 31, 34–35; EMS, decision on 124–27, 128, 129, 133; EMS discussion with Couzens 112–13, 114–15, 116; EMS discussion with Jenkins 110–11; EMS discussion with Owen 123; EMS, reports to Parliament on 120–21, 128; EMS, views on 113, 114, 115, 116–17, 122, 125–26, 127, 129; European Council, views on 37–38; European passport design 39; on Genscher 100; Joint European Torus (JET) 43–44, 56–57, 84–87, 107; Karamanlis meeting 104; letter to Ford 59–60; letter to Hayward 99–101; Lib-Lab pact 75–76, 79; Lord Mayor’s Banquet speech 1978 130; meeting with Tindemans, London

364 Index June 1975 7–9; nomination of a British candidate for Presidency of EEC 14–18; one-day special Cabinet on European policy 51–52; relations with Schmidt and Giscard 45; review of time as Prime Minister 133; Schmidt, dinner at Chequers with 115; Schmidt meeting in Bonn 108–10; Schmidt, telephone conversations with 38, 58–59; seeks to address net contributions to budget 109–10, 129–130, 131, 132; Soares meeting 68–69; on Spain 10; speech in Hamburg 1976 27; on Summer Time harmonization 40, 70; telephone diplomacy 38, 45, 58–59 Carrington, Peter 159, 165, 178, 217, 221; on Anglo-French relations 188–89, 198–99; on joining EMS 150; meeting with Claude Cheysson 199; minute to Thatcher on CFP proposal 141; negotiating a deal on budget 143, 158, 162–63, 168, 170–71, 172–74, 201, 203, 205, 206, 207–8, 209, 217, 219; telephone conversation with Thatcher following French election 196–97; withholding discussion with Thatcher 166–67 Carstens, Karl 186, 293 Carter, Jimmy 59, 60, 71, 108, 111, 121 Cartledge, Bryan 88, 101, 106, 109–10, 144 Chandernagor, André 217–18 Cheysson, Claude 199, 221, 224, 236, 265, 275, 276, 282, 283, 290 Churchill, Winston 65, 66 Cockfield, Arthur 291, 292 Commissioners: appointing British 53–56, 291–92; Tugendhat on job of 290–91 Common Agricultural Policy (CAP) 85, 169–170, 171, 187, 188, 189, 215, 219, 223, 226, 260, 274, 304, 336; agricultural overspending 289, 319; agricultural spending proposals 261, 262, 263; Britain is helpful to France on 189–190, 191, 193; British decide to block agreement on pricing 219, 223, 231; British linking agreement on, and budgetary reform 169, 215, 217, 219, 221–22, 223, 241–42, 246; Cabinet Office note to Thatcher on 140; Callaghan’s intervention on 131–32;

effect on UK 160; financing MCAs 61; French demands on MCAs 128, 130–31; French reporting on agreement on pricing 193–94; Germans invoke Luxembourg Compromise 304; guideline for agricultural spending 262, 263; Labour Party policy on 88–89; Mediterranean agriculture 11, 60, 68, 319; milk 169, 187, 208, 209, 216, 273, 319; Mitterrand and Thatcher discuss 202; New Zealand butter 51, 188, 189, 190; overturning of Luxembourg Compromise in majority vote on 1982 agricultural package 223–24, 226–29, 230, 231, 232; Schmidt and Thatcher discuss 138, 171; Schmidt tells Wright his views on reform of 148; sheepmeat 158, 166, 167, 168, 170; significant defeat for Britain on 231; Silkin refuses to attend Berlin meeting 104–5; Thatcher’s view of 151 Common Fisheries Policy (CFP) see fisheries Communism and West European Social Democracy 9–10 confederation 97–98, 101 Couzens, Ken 109, 111–12, 113, 114–15, 116, 118, 119, 129 Craxi, Bettino 308, 309 Crosland, Anthony 39, 49, 53–54, 55–56, 65, 66, 67 Davies, John 54, 55 Davignon, Etienne 277–78, 290 de Gaulle, Charles 2–3, 34, 232 Delors, Jacques: as French Minister of Finance 206, 263, 264; as President of European Commission 297–98, 300, 303, 305, 314–15, 322–23, 327–28, 330; Thatcher on 290 Denman, Roy 20, 28, 39, 40, 42–43, 50–51, 73–74 Denmark 127, 223, 224, 240, 244 Die Welt 200, 285, 297, 301 direct elections to European Assembly see European Assembly, direct elections to Donoughue, Bernard 18 Dooge Committee 292–93, 294–95, 297, 298, 301; FCO report on work of 295–96; Rifkind’s report 301; Williamson’s report 301–2 Dumas, Roland 265, 268, 272, 273, 275, 280, 281, 283, 290

Index 365 Economic and Monetary Union (EMU) 20, 21, 22, 24, 31, 62, 101, 323, 327–28, 330; Jenkins speech, October 1977 101–3; Tindemans and Wilson discuss 8 Economic Summit: Bonn, 1978 108, 114, 117, 121; London, 1977 70–75 Eden, death of Anthony 65–66 enlargement: Cabinet members’ desire for a study of 28–29; Cabinet policy under Callaghan 52, 60; Callaghan on, in a letter to Hayward 100, 101; Foreign Office paper on 318–320; Gilmour’s speech to House of Commons 194; motivations of French government on 67–68; and need for adjustment of financial situation 234, 238, 241; number of Commissioners after 282; opportunity for changes on decisionmaking before 299, 300; Owen advocates continued support for 97; see also Greece; Portugal; Spain environment 317, 324 Ertl, Josef 105, 138, 227–28 Europe – The Future 286–87, 295 European Assembly 7, 24, 245, 247, 297; blocking of UK refund 245, 289, 297; cooperation between like-minded groups in 277, 280; disagreement between British and Germans on reform 295, 322; Dooge report on 301; French views on 298–99, 303, 315, 321; IGC discussions on 316; powers of 32, 82–83, 291, 295, 297, 298–99, 303, 306, 315, 316; Thatcher’s ‘end-of-term’ address to 209–11; Thatcher’s views on 306, 325; UK’s basic requirement on 324 European Assembly, direct elections to 7, 8–9, 13, 31–33, 43, 53; allocation of seats 29, 32, 50; elections, 1984 280; free vote on Bill in UK Parliament 78–79, 80, 81, 83–84; Giscard’s stance on 31–32; legislation in UK 75–84; PLP opinion on 32, 76, 77, 79; setting a date 76; voting methods 78, 79–80 European Council 24, 37–38; Athens, 1983 262–65, 267–68; Bremen, 1978 113, 119–120, 120–21; Brussels, 1984 271–74; Copenhagen, 1978 111, 112–13; Copenhagen, 1982 244; Dublin 1979, and run-up to 159–164; Fontainebleau, 1984 280–84, 292;

Hague, 1976 61–62; Hamburg, 1976 33; London, 1977 86, 88; London, 1981 207–8, 208–9, 215; Luxembourg, 1976 31–32; Luxembourg, 1980, and run-up to 164–171; Luxembourg, 1981 199–200; Luxembourg, 1985 326–28; Milan, 1985 305, 308–12, 326; Rome, 1975 12–14; Rome, 1977 72, 73, 74, 75; Strasbourg, 1979 141–42, 145; Stuttgart, 1983 252, 253–55, 274, 314; Venice, 1980 172, 178, 200 European Industrial Development Fund 22–23 European Monetary System (EMS) 108–29; British positions on 124–27, 128, 129, 133, 149–151, 203–4; Callaghan and Couzens discuss 112–13, 114–15, 116; Callaghan and Jenkins discuss 110–11; Callaghan and Owen discuss 123; Callaghan reports to House of Commons on 120–21, 128; Callaghan’s views on 113, 114, 115, 116–17, 122, 125–26, 127, 129; a Franco-German plan 117, 118–19, 122; Franklin advises Callaghan on 124–25; Giscard’s response to 112, 113, 118–19; Healey optimistic on 121, 125, 126; Howe advises Thatcher on 203–4; Maitland advises Owen 122–23; Thatcher and Schmidt discuss 139; Thatcher’s views on 137, 150–51, 160; Walters advises on 204; Wright advises on 148, 149 European Union: Act of 324; Cabinet Office paper discusses move to 21–22; Callaghan’s view 133; French and Germans circulate a Treaty of 306–8, 311–12; French support Germans 285, 298; French views on 279–280; Fretwell assesses Mitterrand’s speech referring to 279–280; Henderson and Soutou discuss 100–101; Howe’s speech in Bonn on 313–14; Kohl a strong advocate for 249–250, 279, 293, 296, 299, 305; Stuttgart Declaration 255, 314, 326; Thatcher accepts progress towards 255, 286; Thatcher and Delors discuss 297–98; Thatcher and Mitterrand discuss 298–99; Thatcher replies to Benn on 328; Tindemans Report 7, 18–19, 24, 29, 43, 50, 61 European Unit of Account (EUA) 108, 112–13, 115

366 Index Exchange Rate Mechanism (ERM) 123–24, 133, 149–150, 190, 216; Callaghan decides not to join 125, 126, 127, 128, 133; French and Germans propose a 103–4; French refuse to allow start 128, 130–31; help for Italy and Ireland in joining 123, 124, 127, 128; Howe and Stoltenberg discuss 240; Howe as Chancellor advises Thatcher on 145, 203–4, 216; Howe’s view as Foreign Secretary on 259–260, 313; Owen and Jenkins discuss 124; Thatcher’s views on 150–51, 160, 184, 216 Fabius, Laurent 320–21 Falklands War 221, 222–23, 224–25, 229, 230, 231, 235 federalism 97 Fergusson, Ewen 54 Financial Times 115–16 fisheries 104–7; Anglo-German disagreements 104–6, 188, 190–93; Britain wanting revision of CFP 43, 44, 72; Cabinet Office note to Thatcher 141; Callaghan’s government agree policy on 104; Carrington minute to Thatcher on his discussion with Walker 141; Danes unable to accept deal 244; French position 187, 188, 191, 192; meeting between Thatcher and ministers 144; press coverage 106; Thatcher’s views on 137, 141, 144 Fitzgerald, Garrett 15, 16, 273 five-point plan 108, 113, 114 food and drink standards, harmonisation of 41–42 Foot, Michael 12, 30, 79, 83, 89 Ford, Gerald 59–60 foreign policy, European 296, 303–8, 311–12, 314–15, 324, 325–26, 327, 329 Fraga Iribarne, Manuel 10–11 Franco-German relations 2–3, 27, 33, 44, 193, 198, 232, 285–86, 290, 320, 321; Cheysson and Carrington discuss 199; drawing up of draft Treaty 306–7; Giscard’s view of 48; Henderson on 95–96; Hibbert and Wahl discuss Anglo-French and 181; under Kohl and Mitterrand 239, 248–49, 258; leaving little space for UK 179, 180, 181; Maitland reflects on 154; on monetary cooperation 117, 119, 120

François-Poncet, Jean 187, 188 Franklin, Michael 105, 124, 129, 145–46, 172, 190 free circulation of goods and free offer of services 186, 251, 261–62, 295, 317 free movement of people 12, 295, 302, 317, 324, 329, 330–31 French Presidential election 1981 191, 194, 195–96; German response to 197–98; Hibbert’s predictions on 186–87, 194, 195, 196; Thatcher and Carrington discuss result 196–97 French Press 33, 106, 120, 127, 143, 165, 171, 183, 193, 208, 221, 228, 284 Fretwell, John 105, 155, 252, 265, 271, 272, 275, 276, 279–280, 298, 323 G7 Summit: Bonn, 1978 108, 114, 117, 121; London, 1977 70–75 Garton Ash, Timothy 278–79 General Election 1983 251–52 Genscher, Hans-Dietrich 29, 56, 58, 100, 230, 237, 238, 249, 315 German elections 1976 57–59 German Press 27, 199–200, 200–201, 284–85, 301, 337 German reunification 58, 278–79, 294 German-US relations 179 Gilmour, Ian 144, 163, 165, 166, 172, 173, 194 Giscard d’Estaing, Valéry: British irritation with pre-election interview 193–95; Commission attendance at G7 summit 71–72, 73, 74, 75; concerns over economic and monetary state of Community 61–62; Henderson on 47–49, 50; Hibbert’s predictions on reelection prospects 186–87, 194, 195, 196; Jenkins advises Thatcher on 160; reaction to Wilson’s resignation 30; relations with Callaghan 45; on relationships with Germany and UK 31, 48–49, 50, 142, 183; Schmidt on 148; Schmidt on Mitterrand and 29; State Visit to London 1976 49–50; statement at Hague European Council meeting, 1977 61–62; support for a confederation 98; support for European Monetary System 112, 113, 118–19, 119–120, 121, 128; Thatcher discusses America with 185; Thatcher meetings 142–43, 155–56, 158–59; Thatcher’s relationship with 141–42

Index 367 Greece: application for EEC membership 11; British policy on accession 11–12, 23, 28–29, 68; formal Opinion on accession 28; Karamanlis and Callaghan discuss advantages of accession for 104; Schmidt and Callaghan support accession 29 Hancock, David 223, 228, 241, 243, 244, 245, 248–49 Hannay, David 14, 18, 265; as Permanent Representative 315, 317–18, 323, 328 Hayes, Brian 105–6 Healey, Dennis 53, 65, 114, 115, 117, 118, 121, 125, 126, 130 health, animal and plant 324–25, 327 Heath, Edward 3, 17, 34, 53, 327 Henderson, Nicholas 9, 31, 108, 128, 191, 335; despatch on French economy 46–47; despatch on French Socialist Party 45–46; on Franco-German relations 95–96; on French motivation regarding enlargement 67–68; on Giscard 47–49, 50; on Schmidt/Giscard line up on EMS 118–19, 128; seeks French views on Callaghan’s letter to Hayward 100–101 Hibbert, Reginald 155–56, 181, 186–87, 194, 195, 196, 198, 199, 217 Howe, Geoffrey 146, 158, 159, 189, 274; advises Thatcher on ERM, as Chancellor 145, 203–4, 216; on amendment to Article 99 325; anger over Franco-German draft Treaty 307–8, 311–12; budget compensation scheme idea 201, 204–6; budget problem 143, 201, 208, 222, 232–33, 234, 246, 250–51, 253–54, 274, 280; circulates British draft agreement on POCO 305; differences in temperament between Thatcher and 312–13; on EMS 150; ERM discussion with Stoltenberg 240; ERM views as Foreign Secretary 259–260, 313; IGC, views on 309, 312, 313; on increase in Own Resources 261; on internal market 295, 296; meetings with Dumas 268, 280; minuting Thatcher on Dooge Committee report 302–3; in new role as Foreign Secretary 258–260; speech on European Union 313–14; sums up satisfactory outcome of IGC 328–29;

Thatcher on 252, 313–14; on Treaty amendment 312, 313 Hunt, John 49, 51, 60, 80, 82, 83, 112, 129, 131, 136–37, 137–38, 144, 146, 149–150 Ingham, Bernard 161, 164, 245–46, 254, 284, 310 Intergovernmental Conference (IGC) 299, 301, 303, 304–5, 308–10, 311–13, 317, 323; agreement on Single European Act 328, 330–32; Article 57 317, 324; Article 99 323–24, 325, 327; Article 100 313, 317, 324; British tactics 314, 315, 316–17, 318, 321; culmination in Luxembourg Summit 326–28; Delors announces Commission taking no further part in 322–23; Hannay reflects on 317–18; Howe sums up satisfactory outcome of 328–29; Howe’s view on 309, 312, 313; main proposals before 317–18; Powell lists UK’s basic requirements 323–24; reactions on continent to outcomes of 329 internal market 261–62, 295, 296, 300, 301, 303, 317, 324–25, 330, 336; definition in Single European Act 330–31; Thatcher and Delors discuss 298; Thatcher and Kohl discuss 304; UK’s basic requirements on 323–24 Ireland: joining ERM 123, 124, 127, 128; Presidency of European Commission 289, 293; proposes a candidate for Commission President 15 Israel 178, 198, 200 Italy: excluded from Franco-German relationship 285; Ispra rival to Culham site 44, 56, 57; joining ERM 123, 124, 127, 128; pushing for Treaty change and political union 309, 324; Socialists and Communists in 25 Jenkins, Roy 70, 86, 119, 120, 127, 141–42, 145, 160, 311; advises Owen on ERM planning 123–24; appointment to Commission Presidency 16–17, 18, 51, 53; budget contribution meetings with Thatcher 151–52, 160–61; on Butler 155; on candidates for second Commissioner 54, 56; discusses EMS with Callaghan 110–11; first meeting with Thatcher 140;

368 Index passports and passport controls 38–39; proposal for postponement of budget negotiations at European Council 163–64; speech October 1977 supporting EMU 101–3; verdict on Thatcher’s acceptance of budget settlement 174 Joint European Torus (JET) 43–44, 56–57, 84–87, 107 Jopling, Michael 253, 274 Judd, Frank 107 Karamanlis, Konstantinos 12, 29, 104 Kinnock, Neil 291–92, 310 Kohl, Helmut 236–39; assessment of IGC outcomes 329–330; budget discussions with Thatcher 246, 247–48; Callaghan and Schmidt discuss meeting 38; criticises Schmidt’s relationship with UK 193; desire for progress in development of Community 296, 297, 299–300; EMU position 327–28; enthusiasm for European Union 249–250, 279, 293, 296, 299, 305; first meeting with Bullard 293; FrancoGerman relationship under Mitterrand and 239, 248–49, 258; and prospect of closer Anglo-German relations 237, 248–250; putting forward a German candidate for President of Commission 269, 277–78, 290; Pym advises Thatcher on 236–37; responds to Thatcher’s criticism after Milan summit 310; response to British text on POCO 305; role in failure of Brussels European Council 273, 274; on Schmidt 237; seeks a Treaty amendment 299–300; speech at St Anthony’s College, Oxford 278–79, 293; Thatcher meeting when leader of CDU Opposition 215–16; Thatcher meetings 237–39, 246, 247–48, 249–250, 268–69, 276–78, 303–4, 307, 321–22; Thatcher’s relationship with 238–39, 294; Wright on election campaign of 57–58 Labour Party and EEC 4, 6, 75; Callaghan’s letter to Hayward 99–101; CAP policy 88–89; defections of leading pro-Europeans 252; issue of Direct Elections 32, 70, 76, 77, 79, 80, 81, 82, 83–84; NEC papers on policy over Europe 98–99; Owen’s paper on key

political policies 96–98, 99; proposal to take Britain out of EEC 143, 166, 251; reaction to EMS membership policy 123, 126, 129; referendum, 1975 3, 4, 6, 23, 77–78, 96–97; renegotiation of Britain’s membership 3–4, 34, 49, 51, 52, 53, 78, 109, 130, 133, 143, 155 Lawson, Nigel 203–4, 253, 262–63, 325 Le Figaro 127, 143, 183, 208 Le Monde 33, 106, 119, 120, 121, 127, 165, 183, 228, 284, 311 Legras, Guy 281, 282 Lever, Harold 109, 114, 117 Levitte, Jean-David 101 Lib-Lab pact 75–76, 79 Lomax, Rachel 173 Luxembourg Compromise 303, 310; Germans invoke 304; overturning of, in majority voting on agricultural package 223–24, 226–29, 230, 231, 232; QMV and 296, 301; shift in French policy on 218; survival of 230–32; Thatcher and Mitterrand discuss use of 299 Macmillan, Harold 2, 337 Maitland, Donald 64–65, 75, 85, 122–23, 131, 150; assessment of first British Presidency 75, 89–91; Valedictory Despatch 154–55 Matthoefer, Hans 56–57, 85, 87 Maude, Angus 166 Maudling, Reginald 53–54 McMahon, Christopher 109, 111, 112 McNally, Tom 9, 10, 16, 76 Melhuish, Ramsay 214 Mitterrand, François: at Athens European Council 263–64, 264–65; British consider tactics on 275–76; debut at European Council 199–200; first meeting with Thatcher 200; FrancoGerman relationship under Kohl and 239, 248–49, 258; Fretwell on motives for blocking authorisation of UK budget refund 271–72; Henderson on 45–46; on NATO 25–26; position on budget contributions 207, 215, 217, 220, 263, 271–72, 273; questions British commitment to EEC 228; responses to election win 196–98; Schmidt on 29, 198; speech to European Parliament May 1984 279–280; and Thatcher discuss European Union and future of Community 298–99; and Thatcher

Index 369 discuss juste retour principle 201–2; Thatcher meeting, January 1984 266–68; Thatcher sends a message on agricultural package vote 226 Monetary Compensatory Amounts (MCAs) 61, 128, 130–31, 187 National Executive Committee, Labour Party 77, 98–99, 126 NATO 25–26, 238, 239, 269 net contributions to budget see budget, net contributions to Netherlands 71, 72, 73, 86, 106–7, 110, 262, 307 Nott, John 150, 158, 195 opinion polls on EEC membership 96, 184 Ortoli, François-Xavier 14–15, 40 Owen, David 65, 70, 72–73, 75, 78–79, 82, 85, 117, 124; discusses EMS idea with Callaghan 123; paper on Labour policy over Europe 96–98, 99 Own Resources system 110, 190, 242, 243–44, 266; British consider trading a Budget deal for agreeing an increase in 233, 244, 246, 259; enlargement and 238, 244; Fretwell’s assessment of UK strategy 275; government’s conditions for supporting an increase in ceiling 261, 263, 267, 268, 270, 289; Lawson gives advice over 263; Thatcher’s comments on 243–44, 246 Palliser, Michael 14, 15, 27, 163; meeting with François-Poncet 187–88; as Permanent Representative 22 Papandreou, Andreas 264, 319 Paris Match 221 passport, European Community 13–14, 38–39 A People’s Europe committee 292, 294 Permanent Representative to EEC see UK Permanent Representative to EEC pesticides 42 POCO see Political Cooperation (POCO) policy-making on Europe, British: British process of 44, 315; CPRS paper on Labour 98; Denman’s report on 42–43; Labour Cabinet Report on objectives for 19–25; meeting of Ministers 1977 98–99 Polish crisis 186, 187, 211, 214

Political Cooperation (POCO) 296, 303–8, 311–12, 314–15, 324, 325–26, 327, 329 Pompidou, Georges 3, 194, 231 Portugal 9–10, 66–67, 318, 319, 322, 331; British support for accession 66, 67, 68–69; French doubts over accession of 67, 68; left-wing parties 9, 25; Soares’ bid to join EEC 66–67, 68–69; Thatcher and Kohl discuss accession of Spain and 238 Powell, Charles 291, 294, 295–96, 305–6, 306–7, 313, 314, 316, 320, 321, 322, 325–26, 335; list of UK ‘basic requirements’ in Treaty amendments 323–24 Presidency of EEC, UK see UK Presidency of EEC, 1977 UK Presidency of EEC, 1981 President of European Commission: Delors 297–98, 300, 303, 305, 314–15, 322–23, 327–28, 330; Ortoli 14–15, 40; possible nomination of a British candidate for 14–18; Thatcher asks Kohl about putting a candidate forward 269, 277–78, 290; Thorn 219, 220, 223, 224, 225, 226, 234–36, 238, 241, 248, 282; see also Jenkins, Roy Pym, Francis 221–22, 223, 225–26, 228, 229, 230–31, 232, 233, 234, 236–37, 246, 250, 252 Qualified Majority Voting (QMV) 295, 296, 297, 300, 301, 313, 314, 317, 324, 325, 331 Reagan, Ronald 184–85, 214 rebate, UK budget see budget rebate, UK Rees, Merlyn 69, 77, 79 referendum, 1975 3, 4, 6, 23, 77–78, 96–97 renegotiation of Britain’s membership 3–4, 34, 49, 51, 52, 53, 78, 109, 130, 133, 143, 155 Renwick, Robin 266, 280, 281, 282, 306, 311, 314, 321, 326, 327 Research Council 85–86, 87, 92 Richard, Ivor 243, 292 Richardson, Gordon 114, 126 Ridley, Nicholas 159 Rifkind, Malcolm 294, 295, 297, 300, 301 Rodgers, Bill 81–82 Rutherford, Malcolm 115–16

370 Index Santer, Jacques 314 Sauvagnargues, Jean 10, 30–31 Schmidt, Helmut 22, 26, 33, 107; Anglo-German relations 27–28, 29–30, 191, 195; Callaghan discusses meeting Kohl with 38; Callaghan’s meetings with 69, 108–10, 115; Callaghan’s relationship with 45; Callaghan’s telephone conversations with 38, 58–59; Commission attendance at G7 summit 71, 72, 74; European Monetary System 108–9, 111, 112, 113, 114, 115–16, 117, 118–120, 127; on Giscard 29, 148; JET discussions with Callaghan 56, 57, 86, 87; Kohl on 237; at Luxembourg meeting, 1976 31; on Mitterrand and Giscard 29; on Mitterrand and new French government 198; on NATO 25–26; net contribution reduction offer to British 170, 171; re-election 57, 58–59, 69; reaction to Wilson’s resignation 30; sounded out on Soames for President of Commission 15, 16; Thatcher discusses budget issue with 138–140, 152–54, 171, 216–17, 219–220, 230; Thatcher meeting in May 1979 138–140; on Tindemans report 29; Wilson meeting at Chequers, 1976 27–30; Wright’s conversations with 27–28, 107, 147–49 Silkin, John 53, 85, 86, 88, 95, 104–5, 106 Single European Act 327, 328, 330–32 single market 261–62, 295, 296, 300, 301, 303, 317, 324–25, 330, 336; definition in Single European Act 330–31; Thatcher and Delors discuss 298; Thatcher and Kohl discuss 304; UK’s basic requirement on 323–24 Soames, Christopher 14–15, 16, 17–18, 53, 162 Soares, Mario 10, 66–67, 68 social policy 20, 331 Soutou, Jean-Marie 100–101 Soviet Union 9, 10, 153, 164, 186, 198, 216, 264, 267 Spain 9–11, 211, 318, 319, 322, 331; and Gibraltar 232, 244; left-wing parties 9, 10, 25; meeting between Wilson and Fraga 10–11; Thatcher and Kohl discuss accession of Portugal and 238, 239 The Spectator 278 standards, harmonisation of 41–42 Steel, David 75, 79

Stoltenberg, Jens 239–240 Stowe, Ken 55, 79, 80, 109, 112, 118 Stuttgart Declaration 255, 314, 326 Summer Time, harmonising 40, 69–70 Sunday Times 55, 217 taxation, harmonising 322, 325, 327 Taylor, Jock 195, 197, 198 technology 317; UK’s basic requirement on 324 Teltschik, Horst 293, 305, 306, 312 Thatcher, Margaret: agrees agricultural package 1984 274; Bordeaux speech 181–83; Bruges speech 182, 332, 337; budget contribution problem, response to FCO draft statement on 143–44; budget contributions, accepts Carrington’s deal on 173–74; budget contributions, decision to settle 283–84; budget discussion with Pym 234; budget discussions with Howe 201, 205–6; budget discussions with Kohl 246, 247–48; budget discussions with Schmidt 138–140, 152–54, 171, 216–17, 219–220, 230; budget issue, Armstrong advises, on 156–57, 168–69, 204–5; budget meetings with Jenkins 151–52, 160–61; Cabinet Office note ahead of Paris meeting, June 1979 140–41; Carrington discusses withholding with 166–67; on Cockfield 292; conclusions to FO paper on enlargement 320; criticises Callaghan on Europe 121; on Delors 290; Delors meeting 297–98; determined ‘to get her money back’ 163, 164, 285; differences in temperament between Howe and 312–13; at Dublin Summit 163–64; Dublin Summit preparations on budget negotiations 156–59, 159–162; “endof-term” Presidency speech 209–11; ERM, position on 150–51, 160, 184, 216; Europe – The Future 286–87; at European Council Strasbourg, 1979 145; European Union, views on 179, 255, 286, 297–98, 298–99, 328; Fabius meeting 320–21; fisheries policy 137, 141, 144; French election discussion with Carrington 196–97; Giscard discusses America with 185; Giscard meetings 141, 142–43, 155–56, 158–59; Giscard’s relationship with 141–42; on Howe 252, 313–14; impressions of

Index 371 Anglo-French Summit, November 1982 240–41; impressions of AngloGerman Summit, October 1982 239–240; interview with German television 184; irritation over Milan meeting 309–10; Jenkins’ first meeting with 140; Kohl meetings 237–39, 246, 247–48, 249–250, 268–69, 276–78, 303–4, 307, 321–22; Kohl’s relationship with 238–39, 294; letter sent in advance of London European Council meeting 207; Mitterrand meetings 200, 201–2, 263–64, 266–68, 298–99; Mitterrand’s position at Athens Council baffles 264–65; new style of Prime Ministerial discourse 141; at odds with FO on view of EEC 179–180; Own Resources, views on 243–44, 246; press conference at end of Brussels European Council 1984 272; reaction to Howe’s speech on European Union 313–14; on Reagan 184–85, 191; on relationship with Pym 221; response to European Parliament block on approval of UK 1983 refund 289–290; review of her performance 174, 285, 335–38; Schmidt meetings 138–140, 152–54, 171, 216–17, 219–220, 230; selection of second British candidate to Presidency of European Commission 54–55, 56; speech to Diplomatic and Commonwealth Writers Association 194–95; summing up a Ministers meeting on EMS 150–51; Thorn meeting 234–36; Treaty amendment, position on 298, 300, 309–10, 313, 322, 328, 330; Tugendhat meeting 189–190 Thomson, George 15, 16, 18, 53 Thorn, Gaston 219, 220, 223, 224, 225, 226, 238, 241, 248, 282; meeting with Thatcher in Downing Street 234–36 Tickell, Crispin 263, 264 Tindemans, Leo 75, 219, 220, 225–26; visit to London June 1975 7–9 Tindemans Report 7, 18–19, 24, 29, 43, 50, 61 Treaty of European Union, draft 306–7, 308, 324 Treaty of Rome amendment: British views on 305, 306, 312, 313, 316; Kohl seeks 299–300; suggestion that Thatcher and Howe hold different views on 313; Thatcher and Kohl discuss 322;

Thatcher defends her position in House of Commons 328, 330; Thatcher’s position on 298, 300, 309–10, 313, 322, 328, 330; Williamson’s minute to Powell on advantages of some 317; see also Intergovernmental Conference (IGC) triumvirate, informal 60, 95, 133, 174, 180, 181, 320 Tugendhat, Christopher 56, 91, 189–190, 223, 242; letter to Thatcher 290–91 UK Permanent Representative to EEC: Butler 155, 163, 167, 231, 232, 234, 243, 245, 272–73, 282, 283, 311; Hannay 315, 317–18, 323, 328; Maitland 64–65, 75, 85, 89–91, 122–23, 131, 150, 154–55; Palliser 22 UK Presidency of EEC, 1977 64–94; apprehension in Europe over 64; British objectives for 64–65; Cabinet discussion on approach to 60–61; damaged British reputation after 95, 122; Direct Elections to European Assembly 75–84; issue of who should attend G7 Summit 70–75; JET discussions 84–87; Maitland’s assessment of 75, 89–91; meeting of Permanent Representatives at end of 92; policy objectives, Labour Cabinet Report on 19–25; Portugal’s bid for EEC membership 66–67, 68–69; rift in Labour party over Europe reflected in British actions 75; selection of second British commissioner 53–56; Summer Time, harmonizing 69–70; Wright’s verdict on 91–92 UK Presidency of EEC, 1981 200–211; Thatcher’s “end-of-term” speech 209–11 unanimity rule 45, 229, 280, 299, 300, 301, 303, 305, 313, 317, 320, 327, 329 United States: French irritation at British relations with 96, 100; Kohl’s view of European relations with 269; relations with Britain 60, 96, 100, 180–81, 183, 214; relations with FRG 179; Thatcher and Giscard discuss 185 Venice Declaration 200 Wahl, Jacques 156, 181, 183

372 Index Walker, Peter 141, 169, 171, 189, 192–93, 217, 222, 223–24, 227–28, 229, 233, 234, 241–42, 246 Walters, Alan 204 Weights and Measures Bill 40 Wicks, Nigel 109, 113–14, 121 Williams, Shirley 12 Williamson, David 260, 264, 265–66, 280–81, 282, 283, 294, 297, 301–2, 311, 314, 316–17, 321, 323, 324 Wilson, Harold: application to EEC 2, 3; Callaghan as successor to 133; and Fraga meeting in London 10–11; on introduction of direct elections 13; nomination of a British candidate for Presidency of EEC 14–18; referendum on EEC membership 3, 4, 6; resignation

30; review of 33–34; Rome European Council meeting 1975 12–14; Schmidt meeting at Chequers 27–30; at Social Democrat leaders meeting 1976 25, 26; Tindemans’ meeting with 7–9 Wischnewski, Hans-Jürgen 9 working environment 329, 331–32 Wright, Oliver 26, 27, 30, 69, 171, 184, 191; advises on Schmidt’s views on EMS 148, 149; after dinner meeting with Schmidt 147–49; conversation with Schmidt during fish dispute 107; on Kohl, Schmidt and German elections 57–58; verdict on British Presidency 91–92 Wright, Patrick 15, 16, 17–18