Britain and Europe: A Political History Since 1918 by N. J. Crowson

Author:N. J. Crowson [Crowson, N. J.]
Language: eng
Format: azw3
Tags: Humanities
Publisher: Taylor and Francis
Published: 2010-10-18T04:00:00+00:00

Towards monetary union

The EEC had been working towards monetary union (EMU) since agreeing to it at the Hague summit in 1969. Luxembourg’s prime minister Pierre Werner was charged with developing the plan. The Werner report published in October 1970 aimed to establish a system of Community central banks and central authority for economic decision making. The concept was an ambitious one and was welcomed by Germany, yet initially it looked prone to failure, not least because France objected to its supranational nature. The initial mechanism for achieving EMU was a system nicknamed the ‘Snake’, which tried to hold exchange rates between currencies in narrow fluctuation bands, which varied against the value of the dollar. However, uncertainty on the world economic markets between 1972 and 1974, as the Bretton Woods system collapsed in March 1973 and then global oil prices soared following the outbreak of the Yom Kippur War, irreparably damaged the credibility of the system and one by one member currencies, including the pound in 1972, the franc and lira in 1973, were forced out of the system. Althoughthe Tindemans report proposed continuing with the Snake by 1977 it had in effect become a Deutschmark zone.

The European Monetary System (EMS) was a Franco–German proposal offered by Helmut Schmidt and Valery Giscard d’Estaing in 1978 to tie together the exchange rates of the EEC member states in an Exchange Rate Mechanism (ERM), thereby formalising economic co-operation with the long-term objective of achieving economic convergence. It also included plans for a European Currency Unit (ECU), a weighted average of all EMS currencies, which was suggested could ultimately become the single currency of the EEC. The Callaghan Labour government ruled Britain out of participating, suspecting that its motives were primarily political and aimed to enhance the momentum for political union, and that the whole proposal would only serve German interests.9 Certainly the Germans, as the main protagonists, were seeking to provide a European solution to dampen inflationary pressures on their economy and minimise the impact of the world recession. In rejecting British participation, Callaghan was looking to the Americans and a global solution, believing that through stimulating growth recession could be climbed out of whilst believing existing international structures, like the International Monetary Fund, offered the means for currency stabilisation.10 The Conservatives, after lengthy consideration of EMS, decided to play party politics and pledged in their European manifesto of 1979 that ‘we shall look for ways in which Britain can take her rightful place within it’.11 Once more, the Conservatives were using Europe as a tool of political opportunism, in a manner similar to the Churchill opposition in the years before 1951. On assuming power in 1979 the Conservative cabinet’s enthusiasm immediately waned as Treasury advice argued that the conditions were not yet suited to British entry into the EMS. As Nigel Lawson confessed it was ‘a hideously complex and awkward issue, both economically and (more importantly) politically’.12 Yet despite the lack of British participation the EMS could be judged a success, and

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