Читать книгу Orchestrating Europe (Text Only) - Keith Middlemas - Страница 16

5

Maastricht and After, 1988–93

The West German Presidency in the first half of 1988, and especially the Hannover Summit in June, appears in retrospect even more significant than it did at the time. Not only did that Presidency oversee the conclusion of many of the EC’s long-running battles, such as that over the abolition of exchange controls by France, Italy and Spain, but it witnessed what Arthur Cockfield called ‘the irreversible acceptance’ by member states of the single market. It also settled the budget saga for the succeeding four years, after one of the most prolonged and divisive crisis in the EC’s history, which had ramified into the CAP, now that France had become a net payer; and this, despite protests by the Länder governments and German farmers that Germany was already paying too much, and would pay more once ‘cohesion’ had been incorporated by the coming Inter-Governmental Conference (IGC).¹

The Hannover Summit confirmed Delors’s second term of office from 1989–93, with British approval (Helmut Kohl having failed to put forward Martin Bangemann’s name, despite its being ‘Germany’s turn’, because of a political trade-off with the Free Democrats in Bonn). Delors would also chair the Central Bankers Committee which was to recommend rules for operating the future European Bank. Coming after a number of minor but irritating disputes over the CAP and the purity of beer, these achievements suggested that the Franco-German understanding had been enhanced. Insofar as there remained arguments, these were internal: the first being between Chancellor Kohl and Foreign Secretary Genscher about how to react to the Gorbachev reforms in Russia, and the second between the Bundesbank and the Bonn government over EMU.

But Hannover also demonstrated how consistently Germany (shortly to be reunited) would react when external events forced it to engage in the international domain. Whatever the different approaches to Ost- and Westpolitik advocated by Kohl and Genscher, Germany’s political elite was still agreed that ‘the coming Germany’ had to be embodied and understood in its European dimension, that is, within a European political union. From the 1985 IGC to the next, at Maastricht in 1991, this basic line did not change.

What did change was firstly that Germany’s advocacy of political union acquired a novel assertiveness, which tended to undermine French certainty of how the dual understanding would operate in future. Secondly the grounds on which the French, led strongly after an initial period of reluctance by Mitterrand, would seek to redefine the partnership also changed. It is perhaps necessary to emphasize the French government’s increasingly urgent search for monetary union, even more than the German desire for political union. The Mitterrand-Kohl agreement to balance the two, in order to retain their informal parity, despite Germany’s increase in size and status as a result of reunification, and to bind this new Germany firmly into a deeper, as well as larger Community, was to be the single most important phenomenon between the two IGCs. Neither that nor Maastricht would have happened without French fears of what a united Germany would otherwise become.

The price, on France’s side, was political union; on Germany’s it was monetary union. After Kohl’s about-turn on EMU to meet French demands in 1988, the German government (though not the Bundesbank) showed itself positive about the common currency even though it would involve losing the deutschmark – that is, so long as the new one was based solely on principles of economic stability and was managed only by the new Central Bank. Fluctuations in their relations continued, of course, at diplomatic levels: however these were repaired by the Kohl-Mitterrand proposal to have a second IGC on political union, made in April 1990 before the Dublin Summit, and strengthened during that IGC where foreign and security policy, and later European defence, were concerned. Much less consensus was obtained about EC institutions’ power, for elite German opinion valued an increase in the European Parliament’s democratic functioning so highly that the government tied it to its consent to EMU, as the only way to defuse domestic hostility to the impact of Monetary Union on the deutschmark.

From the French point of view, these attempts to tie EMU to Bundesbank management criteria, and to strengthen the Parliament, could be made acceptable if Germany were induced to accept a fixed schedule of progress leading from the ERM to complete monetary union on France’s terms. The French government also hoped that the Common Foreign and Security Policy (CFSP) could be extended to cover defence but on French, rather than NATO, terms: Mitterrand wisely gave instructions not to raise this question too early on. A substantial reordering of France’s domestic priorities would be involved in approaching the question of political union, but not of a size to require major or public changes in the machinery of French government.

All this contrasted sharply with the British case. Margaret Thatcher’s last two years were increasingly overshadowed by her belief that a grand conspiracy had come into existence, manoeuvred by Christian Democrats, renegade Socialists and the Commission led by Delors, with the aim of imposing Brussels’ sovereignty on a permanently embattled offshore island. But whatever her forays may have gained tactically in 1988 and 1989–90, they were mostly pyrrhic victories ending in acquiescence, for lack of allies. Meanwhile, on the domestic front, she was gradually manoeuvred towards acceptance that Britain should join the ERM by an entente between her chancellor, Nigel Lawson, and the foreign secretary, Geoffrey Howe, which, for lack of a true cabinet majority, she was unable to rupture.

On top of this came German reunification which she vigorously, and probably unwisely, attempted to delay by enlisting Mitterrand’s support during his period of uncertainty of how to react – as if a French president with his personal background had not been aware of its implications. Such tensions had already showed themselves in her speech at Bruges on 20 September 1988 – which became celebrated in retrospect for the tone of its delivery and its reception by the Conservative Eurosceptics rather than its actual content – accepting ‘Britain’s destiny is in Europe as part of the EC’ (but an EC that was imagined as a commonwealth of free independent nations working in harmony together, with a free trade policy covering the whole of Europe.) The text represented a modification of what she had herself accepted in 1985–6 but was consistent with a more general ‘Anglo-Saxon’ view that the EC was essentially an economic vehicle.

Like so many of Margaret Thatcher’s deep-rooted beliefs, these fears rested on a basis of evidence which was inevitably heightened and distorted by her personal perceptions, now ingrained in a long-running administration.² She encountered other EC heads of government only at summits, and had become isolated, largely because she no longer listened to the complex skeins of Whitehall advice. She was aware of this isolation, aware also of the strength of the EC majority, how her tactics often united them against her, and perhaps of how much less Britain counted with the United States under President Bush than it had done with Ronald Reagan. Yet she seemed unwilling or incapable of acting otherwise than Napoleon in his last campaign of 1814, winning many of the tactical battles but sliding to long, remorseless retreat. She was unwilling above all to examine her lifelong preconception about what ‘Germany’ really was.³

No such inhibitions restrained the Commission after Delors’s second term began, though he was to be dogged, in the press of several nations, by his assertion that by the year 1998, thanks to the Single Act, 80% of economic, and possibly fiscal and social, legislation would emanate from Brussels. This claim seemed to be heightened by Delors’s address to the Trade Union Conference in September 1988, which Thatcher used to justify her neo-Gaullist defence of national sovereignty – so long at least until the rest should have considered more carefully where all this would lead.⁴ The Commission, of course, had considered carefully, as the whole edifice built on the 1985 White Paper demonstrated. But it could not control how its proposals to the Council would be interpreted outside, in the press and on television in the twelve member states. British politicians could argue that in implementing the single market programme, the Commission often acted by stealth or resorted to rarely used powers such as Article 90, to force member states to open their telecoms markets to other EC competitors.

Views like this derived from evidence of various kinds: Commission documents such as the internal guide on how to infiltrate the mass of single market legislation through Coreper and the Council of Ministers; or the steadily increasing agenda of items contingent on the internal market. Delors’s campaign to represent the EC, not only at G7 meetings but at all functions dealing with external trade and GATT, appeared to aggrandize the Commission vis-à-vis member states. Indeed the Greek Presidency’s rather presumptuous initiation of direct talks with the Soviet Union in 1988, as if ‘representing the EC’, can be seen as a small state’s rejoinder; one that was reiterated by the Spanish Presidency early in 1989 over trade with Japan. That the Commission did retract, as it had done often in the past, on some of its more contentious positions in order to take a more emollient line, was less often remarked.

For example, concessions made by Delors and Christiane Scrivener, the Commissioner responsible for taxation, on VAT harmonization, which the British in particular had resisted, appeared in any case to accrue to the member state holding the Presidency, or to the European Parliament. In strategic terms, a grand design clearly did exist by 1989, on which the Hannover Summit’s accord allowed the Commission two priceless years to expand. But this might have happened in any case, without the Commission’s driving force, since preoccupation with Euro-sclerosis did not automatically vanish in 1988. It was certainly accelerated by the entry of financial institutions as significant players, and employers’ determination Europe-wide to use the internal market’s four freedoms firmly to re-establish managerial rights and enforce further deregulation of wages, security of employment and conditions of work, to the inevitable detriment and dismay of trades unions.

The Commission, led very strongly by Delors during the period 1988–91, provided a focus for what might otherwise have been diverse activities. Delors’s speeches and the agenda he outlined each January to the Parliament increasingly embodied a particular view of the inexorable unity of economic and social spheres; put simply, that EMU and the Social Charter should run in tandem. The argument that the EC needed a new deal (with undertones of Roosevelt’s New Deal) to safeguard concertation (as long as that had genuine economic content) and to give some hope of a return to full employment, required the Community to examine training and education, technology and structural cohesion, together with redress for unemployment and support for the areas of late 1980s industrial devastation.⁵

The embryo of an EC-wide supply side policy contained a built-in presumption that, while post-War neo-Keynesianism may have been misguided, the answers that Keynes had provided were not.⁶ Whether interpreted as a compromise between the requirements of financial and industrial capital or as an innovative response to the EC’s uncompetitiveness, the Commission set out a strategy in which industry, trade and social policies complemented each other in the search for adjustment in a guided, not a wholly open, market. Some of its manifestations are discussed later: industrial policy and trade, competition, and state aids, monetary union (which depended on member states reforming their public finances according to selected convergence criteria) and the Social Chapter.

The existence of such a massive agenda, unprecedented in the EC’s history, represented a drawing together of many disparate strands of policy-making within different Commission Directorates, by an unusually powerful and comprehensive direction. Given a second term of office as President, for the first time since Hallstein, Delors made clear what he intended in his speech in January 1989 to the European Parliament: ‘History’, he declared, was ‘knocking at the door … it will not be enough to create a large frontier-free market nor … a vast economic area. It is for us, in advance of 1993, to put some flesh on the Community’s bones and to give it a little more soul.’

Naturally enough, each Directorate strove for a greater role in this grand design,⁷ which in turn contributed to demands for greater competence by the Commission, and also by the Parliament. The appearance, as much as the reality, affected member states’ perceptions, so that ‘Delors II’ became for some a synonym for aggrandizement.

Answers to the question whether Delors did in reality overstate the grand design in the second Presidency, depend on when the estimate is made. At the time of Hannover, the build-up was incomplete. But in 1990–91, the run-up to Maastricht paralleled the final run-in of the single market programme, together with the waves of legislation from the Single Act itself, then going through every member state’s parliament. The popular press and public opinion in member states only woke up to this concatenation in 1991–2, and there was a very widespread reaction which fed through during the process of ratifying Maastricht and EMU (which was itself a follow-up to the SEA).

But for the political elites in each member state, and the Brussels milieu, the Delors peak came a year earlier; the factor which merited blame was that the IGC was ill-conceived, badly prepared and badly conducted, not on EMU, but on the political side. There was, for example, no central EU body like the Spaak Committee and no think-tank to prepare what actually went on at Maastricht; ministers went into the negotiating chambers often without full texts, in a changing set of circumstances. But the fault lay not only with the Commission’s excess of zeal to get everything included: ministers were equally over-ambitious, for instance in their desire to merge CFSP and defence.

Spain’s entry in 1986 also introduced a novel element, for Spain rapidly became not only a major beneficiary but an increasingly adept player. The Gonzalez government focused on a narrow set of aims, clearly intending to take its place alongside the existing big four⁸ – an outcome which seemed to have taken place after Spain joined the ERM in 1989, but above all in the triumphal year 1992 of Expo-Seville, Madrid’s tenure as Europe’s cultural capital, and the Barcelona Olympic Games.

The Spanish phenomenon also highlighted what was initially a less obvious part of the grand design: the extension of regional funding from a policy of subsidizing poor areas, such as Italy’s Mezzogiorno and most of Greece (often without tangible returns), to one by DG16 intended to raise the standards of infrastructure, production, investment and commerce to those of the rich core. This gave the well-organized, politically articulate regional governments in Catalonia and northern Italy their cue to ask for political as well as financial recognition when the IGCs began work.

Member states’ consent for the agenda and the Delors II agenda budget which was to pay for it depended on resolving a string of apparently unrelated issues in the two years before Maastricht. This was the harder to deliver since the Twelve no longer grouped in broad agreement, as they had on the Single Act, but divided into aggregations, northern or Mediterranean, large and small, rich and poor, those with great bargaining skills and those with less. Generally in this period it suited the ‘northern’ members to appease Mediterranean demands – in short for Germany to pay. Delors’s appointment of three liberal-minded Commissioners to the principal jobs in January 1989 (Leon Brittan to DG4, Martin Bangemann to DG3, Frans Andriessen to DG1, while keeping the protectionists Manuel Marin (Spain) at Fisheries, and Vasso Papandreou (Greece) at Social Affairs) may have encouraged them to do so.

The two principal issues need to be treated separately: monetary union first, then ‘political cooperation’ (foreign policy and defence), together with the whole area of the ‘interior ministry matters’ – policing of borders, cooperation on crime, terrorism, drugs and illegal immigration – which came together as a result of much wider developments in Europe and ‘near-Europe’. All were, of course, contingent on achievement of the single market. But the Commission could integrate the agenda and take a leading role only on the first of these; the other two touched on member states’ sovereignty far more directly and had to be argued out by ministers and heads of government in the context of a Europe that was changing, after the collapse of Soviet power, more rapidly than at any time since establishment of the ‘Peoples’ Democracies’ had cut old Europe in two in the late 1940s. Even France and Germany could not agree on the details of so wide a range.

On both aspects, the Commission lacked the force to recreate the coherent agenda that had been given it earlier by industrial and financial organizations in Brussels and member state’s capitals during the single market negotiations. These players did not lack interest, but they tended to dispute the agenda among themselves, with those expecting advantages in the internal market facing up to the still-protected national champions, secure for the present in their state aids and government procurement contracts. On the question of Japanese car imports for example, the old peak organization actually broke up, to reform itself under a new title and without one of France’s leading producers (see chapter 10). Apart from these relatively novel rivalries, firms and financial institutions were already deeply engaged in preparing for 1992’s consequences – to which monetary union seemed a remote adjunct; main boards were more concerned with the wave of mergers and acquisitions which reached its apogee in 1988–90.⁹

Organizations such as ERT and the European Committee of AmCham still argued the industrial point of view, especially on monetary union, but managements across Europe did not seek direct inputs to the IGC and appear not to have followed their course in detail. They reacted to the post-Maastricht crisis as if the world had changed little since the Single Act. The ERT, which did succeed in getting some of its ideas into the Maastricht texts, continued to publish pamphlets such as ‘Rebuilding confidence, an action plan for Europe’ (December 1992), which prescribed neo-Keynesian remedies for revival and employment, with talk of ‘concerted action’ and ‘strong leadership’ by governments in partnership with industry, as if the 1988–90 harmony between member states still existed.¹⁰

The agenda for the IGC was very much more complex than in 1985 because of the range of issues it had to consider, and the diversity – often incompatibility – of outlooks among member state governments. Heads of government and the Commission, often as rivals, therefore developed the agenda at one remove from the corporate players (who restricted themselves to monetary union and its consequences), and at several removes from national parliaments, media and the public. As a result, the long-running process was shaped by bargains, trade-offs and concessions which were different in kind from those of the internal market IGC in 1985. This may not have been intended to be an evasion of public debate, for many of the issues genuinely appeared too complex to explain in straightforward language, or were too confidential. But what, in retrospect, seems a clear failure of all those in the negotiations to educate their publics, meant that the new treaties, launched in 1992 in very altered circumstances, would shock public opinion – notably in Denmark, France and Britain.

There is no need to re-tell in any detail the Soviet Union’s collapse, the failure of former People’s Democracies (which began when Hungary opened its border with Austria to East Germans fleeing to the West and ended with the collapse of Communist authority in Prague and breach of the Berlin Wall on 9 November 1989), nor the reunification of the two Germanies. But all three events conditioned everything that happened in Europe thereafter. They affected EFTA, as Sweden and Finland reacted both to the removal of a forty-year-long threat and to the new-found independence of the Baltic States and Austria, with the return of growing normality, to what had once been Habsburg dominions. Above all they affected former West Germany and France, the EC’s central nexus, because the implications of a united Germany encompassed all the other eleven. The break-up of Yugoslavia, the collapse of Christian Democracy in Italy, and the undermining of the political right in Britain can be traced to the same origin, as can the growth of largely refugee immigration through east and south east Europe’s porous borders, with its direct consequences of racism and xenophobic nationalism.

In the years 1989–93, many of the vestiges of post-War settlements, in welfare programmes, industrial relations and state benefits, also died. Each country described its own parabola of declension: the new – or perhaps nineteenth-century Liberal – thought, first enunciated by the new right in Britain and the United States, passed through a sort of contagion, causing questioning, then fiscal and moral panics, and finally a scaling down of promises and expectations. The true fiscal crisis of European states, heralded in academic literature in the early 1980s, burst a decade later. Coinciding with disillusion after Maastricht, it had a corrosive effect on what remained of late-1980s’ aspirations.

Four Summit meetings stand out as markers on the road from Hannover to Maastricht. The first, in Madrid in June 1989, brought together the Delors Committee’s report on Monetary Union and the first draft of the Social Charter. The meeting was noted for Nigel Lawson’s attempt (speaking for a divided leadership) to be explicit about the terms for Britain to enter the ERM, though his government opposed both EMU at any point beyond stage I and the Social Charter. Defeated on the question of whether to have an IGC, and reduced to near-isolation by the accommodations between the Spanish Presidency, Germany and France (which had been made explicit in the Kohl-Mitterrand letter in favour of political union) Britain had to accept not only the IGC but EMU stage I in July 1990.

At the next Summit in Strasbourg in September 1989, with overwhelming support from the Parliament and smaller states such as Belgium, the French version of monetary union was accepted, with a date for that IGC (but not for the one on political union) after the West German elections and under the Italian Presidency at the end of 1990. Mitterrand had won his second seven-year term in 1988, and although his narrow Socialist majority forced him to govern with centrist approval, he had the firm support of his finance minister, Pierre Bérégovoy, in a period of stability, growth and falling unemployment – which he used to get the European Bank for Recovery and Development (EBRD) off the ground, with his protégé Jacques Attali as head. By then, the Commissioner for Social Affairs, Vasso Papandreou, had seventeen draft directives ready on all the aspects of industrial relations and conditions of work which had been stultified since the early 1970s.

The third meeting, in Dublin in June 1990, took place very much in the shadow of the Franco-German commitments to common foreign and security policy and to a second IGC on political union set out jointly by Kohl and Mitterand in April. The Irish prime minister Charles Haughey capitalized shrewdly on Ireland’s affinity with France, which was seeking to strengthen the European Council, extend QMV and inhibit the pretensions of the Commission and the Parliament. This also suited Helmut Kohl, whose government was prepared to pay the price so long as political union could be kept in tandem with its monetary counterpart.

Once again, the British Cabinet hesitated on the margins, its prime minister profoundly uneasy at the implications of the Kohl-Mitterrand agreement which had been made without consultation with either NATO or their EC partners. That lack of consultation had offended other governments as well: however the weight of the Franco-German entente lay heavy on them all, and was on the basis of this declaration that EC foreign ministers prepared for Dublin and its sequel, the summit in Rome, which to a large extent set the IGC’s agendas. All Thatcher could do, given Britain’s eleven to one minority, was – sensibly enough – to veto a Franco-German proposal for a large dollar loan intended to prop up the collapsing Soviet Union.

Italy took over the Presidency in July, before the Conference on Security and Cooperation in Europe (CSCE) meetings with the Soviet Union. Soon after, Giulio Andreotti became prime minister (Craxi having destroyed de Mita’s liberalizing government of 1989, together with the DC’s reformist programme which, in retrospect, was Christian Democracy’s last chance to save itself from shameful eclipse). Under his direction, the principle of two concurrent IGC’s for monetary and political union was established. After careful consultation with the German and French governments, Andreotti proposed a special ‘informal’ Council, to meet in Rome in October: his intention being to agree a target date for EMU stage II in 1994, with a further wide-ranging IGC the following year.

So hot was this pace that the Italian leader’s motives need analysis. It has been argued that, with the help of his own MEPs and other Christian Democratic parties, Andreotti set a truly Florentine trap for Margaret Thatcher, while her attention was diverted by the July G7 meeting in Houston and by GATT negotiations, so that she went largely unprepared into the October special Council.¹¹ Certainly her political nemesis was welcomed widely across the EC – in what one French diplomat described as a mood of soulagement. Yet there is no evidence among member states, whose policies were much more finely balanced than their leaders’ statements usually allowed to appear, of a desire to marginalize Britain. Concessions on stage II, and even some consideration of the chancellor of the exchequer John Major’s ‘hard ecu scheme’ had not been ruled out. But the Italian coalition was committed to transferring power to the Parliament. Andreotti may also genuinely have been concerned that the agenda for December was too vast for one meeting, since he attempted to agree much of it in advance at bilateral meetings and in the encounters of Christian Democratic parties in the late autumn. The German government had agreed not to bring forward the subject of the next set of GATT negotiations, hoping thereby to avoid antagonizing France (whose farming lobby passionately opposed the Blair House Agreement), while helping Andreotti’s fragile pentapartito administration. The German government’s concession of a firm date for EMU stage II, made during the October special Council, certainly strengthened France’s tentative acceptance that the two IGCs on monetary and political union should coincide.

Some of this can be ascribed to German and French governments’ calling in of past favours to Italy. But Italy also provided a skilful chairmanship which falsefooted British and Danish opposition. There was no discussion of GATT. Instead, proposals on political union and EMU stage II for January 1994 were confirmed, in advance of the IGCs. Thatcher had failed to seek alliances for her point of view and found no support except from Ruud Lubbers of the Netherlands.

France and Italy emerged with their governments’ main aims agreed. The real winner was Helmut Kohl who had been hoping for an uncontroversial reunification after the successful East German elections in March, and before public opinion during the West German elections began to question the terms. At the year’s end, Germany in effect paid for USSR approval of reunification and the new Germany’s continuing NATO membership with a massive hard currency sum to cover the withdrawal of Soviet troops from the former East Germany. In the same month, the five new Länder were absorbed in the enlarged Federal Republic, under Article 23 of the 1949 Basic Law; and once Kohl belatedly acknowledged the existing Polish border (cutting off the original pre-1914 East Germany for ever), the Soviet Union was excluded from central Europe for the first time since 1944.¹²

The fact that the two IGCs which began after the Rome meeting were to be concurrent, starting under the Luxembourg Presidency and ending under the Dutch one at Maastricht a year later, did not imply that they would resemble each other. The one on political union and Interior Ministry questions remained very largely a matter for inter-governmental negotiations. The question of monetary union involved the Commission to a far greater extent, and its influence permeated many of the texts. But the two were intimately linked, as Andreotti had argued; at the same time, the agenda was complicated by the issue of the reform of EC institutions, and by cohesion and the budget cycle after 1992 (which was essential for future cohesion funds), together with the Social Chapter, to which both were closely related.

I. EMU

The EMU IGC’s history is inextricably linked to that of the ERM.¹³ Even though the Single European Act stated the goal of eventual monetary union, nothing precise had been set down or accepted on the detailed matter of how transition to a single currency would take place, or when, or the shape and rules of the eventual European Central Bank which would administer it. The devil lay in precisely this detail, for which the ERM provided the only non-theoretical guide. Yet the ERM was the product of a very different conception, and had been disputed during its ten-year course between France and West Germany. The conclusions on which EMU’s architects would build were to become further confused by the entry of Spain and Britain.

The EMS had been created by decisions of the Council. But the ERM was formally an agreement between central banks (and therefore not part of the Community). Yet it had always had a high political content, whatever its economic effect on the economies of participants; and in that sense was to be compared not with the Gold Standard, as it had operated in Europe in the four decades up to 1914, but with the Gold Standard as governments rather than central banks had manipulated it in the 1920s.

Having been affected principally by movements of the French franc during the frequent realignments of the early 1980s, the ERM had been mistrusted by the Bundesbank for reasons expressed during Otmar Emminger’s tenure of office. But in the years after the French economic grand tournant of 1983, the ERM became a DM zone. Mitterrand and Delors, as his finance minister, took a decision which was politically strategic, as well as economic – a decision followed in due course by the Belgian and Danish governments and rather later by Italy and Ireland. For four years, in what can be seen as its ‘classic period’, the ERM rested on the Bundesbank’s credibility, together with West Germany’s willingness to behave as if the DM were indeed the anchor currency; and it achieved a generally accepted and widely welcomed reduction of inflation and state borrowing among members. It thus served as the monetary agency for what were becoming accepted concepts of prudence and discipline, necessary components of economic restructuring. Whether or not causation actually worked in this sequence is another matter: the gains appeared, at a time of rapid growth, to justify the sacrifices in output and employment that accompanied it.

France’s January 1987 devaluation however, which was forced on an unwilling government by the international markets as the American dollar fell steadily, altered this benign pattern.¹⁴ As Bernard Connolly observes, ‘the ERM had become an inescapable symbol of attachment to sound policies. But lack of complete credibility made it economically costly.’ French acceptance of the price for hard currency status was overtaken by a desire not to peg the franc to the DM, like the guilder or krone, which would have been politically unacceptable to French public opinion, but to fence the DM inside an increasingly rigid ERM structure which would lead logically and remorselessly to monetary union and a single currency – and thus to the disappearance of deutschmark primacy. French ministers evidently believed that this could be done, despite the global development of money markets where billions could flow across the exchanges in a matter of hours. They assumed continuation of the climate of opinion that had seen the G7 arrange the Louvre Accord in February 1987, in order to stabilize the dollar and yen against European currencies, whilst promoting world economic growth.

But the Bundesbank objected because of the implications for West Germany, and its criticisms carried great weight so long as the Reagan administration did nothing to remedy the dollar’s fall and the American budget imbalance. Having been pressed by Bonn to loosen its monetary stance, the Bundesbank reacted instead by raising interest rates in early October 1987, an action which helped to precipitate the New York Stock Exchange crash on ‘Black Monday’. The clash between Bonn and Frankfurt did not diminish until Hannover in July 1988, when the heads of government agreed on progressive reduction of interest rates. But this added new pressures to currencies in the ERM, since it had been agreed that capital would become fully mobile in France and Italy by 1990; so that it would cost their governments and central banks more and more, in each year before EMU took effect, to resist currency flows and speculation, particularly by the vast American ‘hedge funds’. Strengthening the ERM’s operations failed to limit these accumulating risks.¹⁵

Edouard Balladur had already proposed, in conjunction with Giscard, during the period of cohabitation, that a prototype of the European Central Bank (ECB) should start work before the final move to monetary union; and to plan it, the Committee of Central Bankers, under Delors’s chairmanship, was to be appointed at Hannover. But in the shorter term, two years of overshoot in West German money supply, together with signs of a speculative bubble in Japan, rapid overheating in Britain, and the Netherlands’ government’s unease about shadowing the deutschmark, presaged trouble which the G7’s pardonable overreaction on ‘Black Monday’ did nothing to allay.

With the Bundesbank apparently sulking on the fringe of a political vortex, stubbornly pushing up German and therefore ERM interest rates, the ERM’s deflationary classic phase ended in recrimination between Bonn and Frankfurt, and growing signs of inflation in Britain and Spain. (Denmark, isolated in its own peculiar cycle, experienced both inflation and stagnation, with repercussions on public opinion which were to be of great significance in 1992).

Meanwhile, the Committee of Central Bank governors, chaired by Delors, met between autumn 1988 and April 1989. They took part already having much common ground, both as professionals of a high order with a common discipline and as believers in the ERM’s proven effects on inflation, as well as the likely benefits of lower transaction costs and risks to be gained from monetary union. It is inherently unlikely that they ignored the political effects of a future ECB on members’ national sovereignty; but the possibility of national divergencies was offset by a measure of theoretical agreement: the conceptual ground had been well prepared in economic terms by the Padoa-Schioppa Report.¹⁶ This highlighted a basic inconsistency: following the completion of the internal market after 1992, which would be accompanied by full capital mobility and a more or less fixed exchange rates in the ERM, member states would still retain monetary autonomy in their national spheres.

Put simply, Padoa-Schioppa argued that it would not be in the interests of weaker economies to conform and bear the pain; instead they would act as backsliders or deviants, forcing the stronger partners to react, and thus prejudicing the whole. Prudent central bankers, inherently suspicious of what politicians would do to appease their electorates after the experience of the fifteen years since 1974, rated the collective good higher than national sovereignty. The fact that Karl-Otto Pöhl chaired the technical group and both he and Robin Leigh-Pemberton, governor of the Bank of England, signed the Delors Report seemed to indicate that unanimity had been achieved.¹⁷

To a large extent it had: all the governors accepted that a prototype ECB should start work, in order to begin the process of inducing equality of discipline and practice in reducing inflation as soon as possible. All could reasonably expect their governments to have accepted by then that no one country could bear the costs of doing this alone especially when taken together with contingent problems, such as wages and other labour market rigidities, and that if collective action were not initiated, at the next recession the EC might lapse into another sauve qui peut like 1974. The differences between them related mainly to highly technical problems. But the political issues of whether this new single currency, provisionally styled the ecu, would be too soft (as the Bundesbank feared) or too hard, as the British government suspected, and whether it would eventually be intended to stand up against the dollar and yen as an equivalent world currency, were not and probably could not be argued out.

The one fundamental disagreement in the Delors Committee concerned the mode of transition to EMU. It was finally concerted between Pohl and de Larosière (Banque de France) with some mediation from Carlo Ciampi, governor of the Banca d’ltalia, and help from the Netherlands and Spanish central banks, in time for Delors to present his report on 19 April 1989, in advance of the Madrid Summit. At that stage, it was sufficiently uncontentious to convince ‘respectable financial opinion’ in the EC, which in Britain included both The Economist and the CBI. But when Delors introduced it later that month to Ecofin, he added a timetable: there should be three stages, the first to begin as soon as possible. All twelve currencies should move within the ERM’s narrow bands by 1 January 1993, the date for completing the internal market. In stage two, exchange rates in the ERM should become almost rigid, and all central banks should be given the same degree of independence as the Bundesbank. Finally, in stage three, exchange rates would be permanently fixed, under an ECB entirely responsible for the monetary policy of the single currency. There would then be binding conventions on member states’ budgetary deficits, modulated – for example in the Spanish, Portuguese or Greek cases – by new EC cohesion funds.

Little debate took place in Ecofin, which had rarely been a forum for technical monetary matters, and the Spanish Presidency pushed ahead to start stage one on 1 July 1990. The governments of France, Germany, Spain, Italy and Belgium concurred in this timetable (though the Bundesbank held strong reservations); those of Italy, Greece and Portugal were appeased with cohesion promises. Finance ministers from Denmark, Netherlands and Luxembourg argued only over the detailed schedule. British delegates again were isolated. At Madrid, the whole package went through in the wake of Spain’s ERM entry within the 6% bands, (at a surprisingly low rate because Carlos Solchaga, the finance minister, had previously ‘talked the peseta down’). Meanwhile, as Lawson told in his autobiography, he and Howe jointly forced Margaret Thatcher to set out the conditions for British entry, despite her protests up to the last moment of arriving in Madrid.¹⁸ The Bundesbank gloomily went its way, raising West German interest rates further to contain domestic inflation.

Then the Berlin Wall came down. Very large numbers of East Germans had already escaped, mainly through Hungary’s unofficially opened border, raising the spectre of mass migration from East to West Germany. The situation could be compared with the strong, demand-led inflation experience before the Wall had been built in 1960–61. Bonn poured huge funds into East Germany to forestall such a threat to the DM, and later promised to exchange one deutschmark for each individual’s now almost worthless ostmark at a rate of one to one, a burden on West Germany which ensured high domestic interest rates for the foreseeable future.

Neither of the logical consequences, an ERM realignment or revaluation against the DM, or very high interest rates for all other member currencies, actually occurred. The first broke on French objections, since the franc fort policy had not yet acquired complete credibility, the second on German political reality. Karl-Otto Pöhl’s outspoken protests against the currency swap were ignored, being politically inconvenient before the crucial autumn elections. He was, in fact, threatened with constitutional revision of the Bank’s statutes if he did not give in. As a direct result, the DM’s credibility was impaired.

ERM partners in 1990, however, concerned themselves more with the effect of rising German interest rates on their own borrowing and their domestic economies, for while the German government expected to bear 80% of unification costs, it was not willing to internalize the consequences for other Community members. The result, if the Bundesbank held to its primary duty of monetary stability, could only be a steady rise in German rates to which the rest would have to adjust. Yet the British government – or rather its chancellor, John Major, fearful of losing the chance should Thatcher change her mind – chose this moment finally to enter the ERM in the narrow bands, on 5 October 1990. It was a bad time, with the dollar still falling and the ERM now nearly rigid, and a worse choice of parity. Yet the British chose not to take the advice of other member states which the ERM’s informal conventions prescribed – and which might perhaps have counselled caution.¹⁹

Meanwhile, despite these huge potential sources of tension, member governments concerned above all with passage to EMU went ahead, like Captain McWhirr in Conrad’s Typhoon, hoping to win through the storm to the hypothetical calm beyond. The German government’s price for accepting the principle of EMU in such conditions was to be France’s overt support for reunification and rapid progress to political union, so that the new, larger Germany could cement itself firmly into the Community. This can be read as the second stage of the Franco-German bargain made in 1987.

France’s government could accept this, whatever Mitterrand’s initial doubts about reunification, and whatever the impact on French public opinion, because few wished to unleash visceral images of Germany’s past being propounded at this time by Thatcher herself and Nicholas Ridley (except, that is, in languages such as Dutch and Danish which the international press agencies did not read). On that basis, Kohl and Mitterrand agreed their highly important joint declaration of April 1990. It followed, apparently naturally, that EMU would come about via the ERM-convergence path, and according to Delors’s timetable. Franco-German clarity of aim contrasted with Britain’s disarray at the top as Margaret Thatcher fell from power in November 1990, the result of a palace coup within her own Conservative party.

All this time the Bundesbank was constrained not only by its duty to the currency but by its charter obligation to support the Bonn government’s policy in the last resort. Whatever its Directorate felt about Kohl’s pre-election promise that reunification would cost the West German electorate nothing, the bank could not oppose the chancellor’s direction outright. In due course, with the CDU/CSU triumphant in the elections, Pöhl resigned. His lonely gesture and his subsequent explanation, though cogent, had less general effect on events than the new British prime minister’s tone; for John Major’s talk of bringing Britain to a more pro-EC orientation, and signs that his Conservative party might even align with Kohl’s CDU and the European People’s party parliamentary grouping, seemed remarkable after eleven years of marching in another direction.

It was widely assumed during the IGCs that year that the ERM had become the ‘glide path to Monetary Union’.²⁰ But that this represented a political as well as an economic judgment was not clear until after Maastricht, in spite of the most unwelcome paradox that developed shortly afterwards, when the peseta went to the top of its ERM range and the French franc to the bottom – the exact reverse of what their relative stabilities indicated should happen. France encountered the greatest economic pain, for despite inflation being almost as low as in Germany, interest rates stayed higher and contributed both to slow growth and persistent high unemployment, and to the government’s repeated attempts to reduce rates rather than let the franc rise.²¹

At the heart of the problem lay the fact that with reunification of Germany costs and prices would eventually rise; unless the Bundesbank permitted higher domestic inflation, France and the other members would pay the price via the ERM. Acceptable though the arrangement might be in 1990–91 while Bérégovoy pursued the franc fort, and while Mitterrand sought to reincorporate Germany coute qui coute, its long term survival could not be taken for granted during the next three years. It also depended entirely on monetary union remaining the agreed end. Yet twelve years of ERM practice offered no precedent for resolving such tension. Any realignment at this stage – even by Britain, now locked into its initial misjudgment – would imperil the ‘glide path’ thesis. As for the Spanish paradox, the others could neither ignore the thesis nor rethink the ERM’s logic. Only the Bundesbank’s council dreamed, as they had since 1987, of a different path to EMU through gradual evolution of a cluster of low-inflation currencies such as the guilder, Belgian franc, Danish krone, and now the French franc, linked to the DM.

Governments across the EC chose to ignore protests from industry and trade unions about high interest rates, and focused primarily on the IGCs. But the French and German finance ministers did induce the Spanish government, against the advice of the Bank of Spain, to depreciate the peseta (contrary to the ERM’s presumed doctrine that the government should not manipulate the exchange rate but content itself with cutting state spending, wages and public consumption). The Spanish government conformed, fearing to antagonize Germany, its main investor, suspecting that if it did not Spain might lose access to the cohesion funds which alone could help its economy fulfil the EMU convergence criteria. The Spanish government’s version of perceived national interests triumphed over its central bank’s fiscal prudence.

In order to bring EMU to the speediest conclusion, the French government and the Banque de France argued during 1990–91 for even more than Delors had: instead of achieving convergence first, according to generally-agreed criteria, a strict timescale should be imposed, pari passu with the IGC at Luxembourg. Margaret Thatcher’s replacement by the relatively inexperienced John Major facilitated this move, which was incorporated in the Commission’s draft treaty on EMU and the ECB’s draft statutes in December 1990. Thereafter, the two IGCs ran in parallel into a maelstrom where raison d’état, economic logic and deductions from very recent history surged inextricably around two conflicting propositions: on the one hand, that EMU would produce automatic convergence and was therefore a precondition for economic union (advocated especially by Italy and Belgium which most needed the external discipline); and on the other, the contention of the Bundesbank and Chicago monetarists, that convergence and completion of the internal market were themselves the preconditions.²²

Within this grand argument lay others, such as the shape of stage two and Britain’s proposal for a ‘hard ecu’ rather than an irreversible single currency. (This proposal originated with Sir Michael Butler, and was taken up by Major when he was chancellor. Like Howe’s scheme in 1984 for a Single European Act without an IGC (see p), it had certain advantages, one of which was that it made a rigid schedule unnecessary. But, like Howe’s earlier scheme, it came too late. In any case, it would have implied a long delay in stage three. Though acceptable to Spain and possibly others, it ran into outspoken German opposition on the grounds that the ‘hard ecu’ would constitute a ‘thirteenth currency’.

Inevitably a compromise emerged, even in such a Manichean struggle: the timetable should be absolute, but so should be stage two’s move to narrow bands and the convergence criteria themselves, the assumption being that each member state would thus be forced to adjust its own inflation, budget deficits and public debt ratios. To meet British objections, the Maastricht Treaty’s EMU sections added that the Commission should monitor member states’ performance, as it was already doing in their progress towards the internal market.

Governments’ various alignments in the EMU IGC were composed by a sort of logic outside time and public opinion, far from the actual recession which was beginning to affect industrial players in the second half of 1991.²³ Stage two was set to begin on 1 January 1994, stage three in January 1997 or up to two years later, a date from which John Major obtained his celebrated opt-out clause with Kohl’s direct assistance.

Only one event disturbed the tenor of compromise, when the Netherlands Presidency introduced a proposal that the four convergence principles should be achieved before making any move to set up an ECB. This was attacked both by the French and the Commission, with support from Italy and Greece, whose governments saw the external agency which was to help them reform their public finances evaporating. Yet this was what German ministers, primed by the Bundesbank, actually wanted. It also pleased the British whom at this stage the German government wished to carry with them. The ECB was not therefore to take its final form during stage two, but only a European Monetary Institute (EMI), whose precise relationship to the existing array of central banks was far from clear. Convergence seemed assured, and in fact developed most markedly at first among the more widely divergent members like Spain, Italy, Belgium and Britain. Commentators in the United States assumed parities already to have been fixed so that ‘hedge funds’, managed by men like George Soros, had a straight gamble on whether EC governments would hold to this resolve.

The denouement came quickly, as the Bundesbank pushed rates higher to cope with German domestic inflation in the second half of 1991. For the next year Pöhl’s successor, Helmut Schlesinger, pursued the lonely path of rectitude to maintain the bank’s reputation against manifestly political pressures from Bonn and other EC capitals, all of which watched the struggle between Frankfurt and Bonn with increasing dismay.²⁴ Speculators inevitably targeted those currencies, the peseta and the lira, whose governments had most to lose from the deflationary regime and were most likely to have to devalue long before 1997.

Substantial issues affecting members’ sovereignty had been traded, as British, Dutch and Danish ministers constantly pointed out. Yet the pass had been sold with the Central Bankers’ Report. All the more scrutiny was therefore imposed on the political union IGC, at a particularly fractious time of quarrels over agriculture and GATT, and the siting of the EC’s new institutions such as the EMI. Meanwhile the Commission’s interventions brought accusations of overbearing behaviour: a proposal in May 1991 to make detailed regulations within existing laws earned the criticism that Delors sought to make it the ‘thirteenth state’. Delors himself, nearing the end of his second term, needed to keep in line not only the IGCs – the second of which was largely outside the Commission’s scope – but the future budget on which the promised cohesion funds (and thus the acquiescence above all of Spain) depended. Yet in the second IGC, the Commission had to be a broker between member states whose tolerance had already worn thin.

The first IGC did nevertheless settle the fundamental issue of where power would lie: in Michael Artis’s phrase, ‘it was the culmination of an unparalleled effort to think through the implications of monetary union and to strike realistic bargains in the interests of realizing this good.’²⁵ Whether the Commission’s powers of enforcement, or the logic of convergence and the timescale, would be adequate to reach that point was another matter, when the ERM reached its foreseeable long crisis in 1992–3.²⁶

II. Contingencies

REGIONS

Although the aim of creating ‘a more favourable business environment through the dehnition of a common industrial policy as a whole’, which was set out by the Commission in its paper on industrial policy in 1990, belongs to a distinct history, it affected the IGCs in a very broad sense, since it touched on key matters like trans-European networks for research and development, initiatives for training, liberalizing civil aviation or telecoms, the differing competences of the Directorates concerned with industry and member states, and the attempts to iron out economic and social imbalances in the Community. Since the imbalances, especially in the infrastructure, had a strong regional formation, a leading managerial and supervisory role had to be envisaged for the Commission. DG16 already had a claim to be the residuary legatee of such a role, by virtue of its responsibility for the Regional Fund.

But the more politically salient regions, above all certain West German Länder, led by Bavaria and North Rhine Westphalia, wanted a more tangible sign, outside the Commission’s competence. So great was their influence on Bonn, in the sensitive period before the East German Länder were assimilated, that an argument developed for instituting an entirely new political structure, one avidly welcomed by Spanish, Belgian and Italian regions. The Maastricht Treaty therefore embodied a new Committee of Regions, similar to the old Economic and Social Committee. At the time of signature, what this committee would become remained speculative (see chapter 9). But that it could be a useful sounding-board for the ambitions of different sorts of regions, ranging from German Länder to the partly autonomous Spanish regions was not in doubt. Hence the interest of trade union confederations, now once again linked under a regenerated central body, the ETUC, across the north-south divide in order to further the Treaty’s Social Charter.

SOCIAL CHARTER

The Charter’s roots can be traced back to the previous period of trade union influence nearly two decades earlier; more directly to the report from the Commission working group in 1979. It was also influenced by the high levels of tripartite consultation in the EFTA countries which were already requesting membership, such as Austria, displayed in the 1989 Kreisky Report. If, as the Commission forecast, these states were soon to enter the EC, then the Community’s labour market arrangements should be compatible with the conditions they already enjoyed. So argued the Netherlands, who were the leaders in this particular field. Delors and leading members of the ETUC such as Ernst Breit (DGB), Bruno Trentin (CGIL), and Nicolas Redondo of Spain’s UGT drew up the Social Charter, which was then adopted as part of the IGC agenda by eleven member states to one in December 1989. Its intention was to renew the earlier ‘social dialogue’ and compensate for the deleterious impact of the internal market and industrial restructuring, of which rising unemployment – forecast to reach 13% across the EC by 1992–3 – was the first consequence.

The Charter itself set out twelve categories of workers’ rights, based usually on the West German model of mitbestimmung, which were presumed to facilitate the emergence of a single European labour market, more flexible and endowed with higher skills.²⁷ The Charter embodied the Vredeling directive under another, non-compulsory form, and was likely to arouse opposition from UNICE and the European Committee members of AmCham because of employers’ predictable fears about higher costs, restrictions on the rights of management to hire and fire, and the imposition of standard contracts of employment. Indeed Delors told one British chief executive that the Charter was meant to be ‘the instrument for levelling the (labour) field’.

In spite of a proposed directive linking progress on rights to the cross-border mergers on which large companies were now keen, the only coordinated opposition came from Britain and Denmark. With their higher labour costs and legally protected markets, the governments, and in many cases the trade and employers federations of France, Germany and the Benelux countries, saw the Charter as a way of balancing the ‘Anglo-Saxon advantage’ which was initially predicted to derive from the internal market. Italy and Spain also wished to avoid disruption from trades unions at a sensitive period while their governments pruned public finances. The Charter thus stimulated systemic conflict between very different approaches to industrial relations, labour law, social security, welfare and pensions.

Yet there existed a strong case for arguing that the Charter would actually facilitate the internal market transition of which, according to the Commission, it was now a component (just as Structural Funds – doubled in size to 50 million ecus in 1989–92 – would ease the problems of declining industry and long-term unemployment (including the British coal industry)). The case for harmonizing laws on health and safety had been agreed already and if there were to be derogations they would be for the poorer countries, not Britain or Denmark. Thus the issue rested on the legal weight to be given to rights such as adequate information for employees about company strategies.

On the European Companies Statute (the heir to Vredeling) the Commission set out three basic models: that of Germany, the Franco-Belgian factory council model, and the British tradition of voluntary arrangements or bargains. From the list, all large and medium-sized firms would have to select one. It was perhaps unfortunate that the Commissioner in charge was neither much liked nor diplomatically skilled, because the Commission college let Vasso Papandreou, with her forty-seven directives, take the brunt of UNICE’s attack,²⁸ while keeping in reserve a still-tripartite but more voluntarist alternative.

Much depended on the powers that trade union confederations still maintained at national level, in what was inevitably a subordinate part of the Maastricht arena, even for the more committed member states. Mitterrand’s phase ‘no Europe without a social Europe’ carried little weight even with social-democratic governments in 1991. During the IGC, the Dutch Presidency did its best for the Social Charter. But Britain, its government relatively united on Thatcherite principles, refused, on this matter, to accept QMV at all.

There being no choice, if the Charter were to be salvaged from a British veto, the other eleven governments proceeded with it as if it had been part of the Treaty, in a masterpiece of informal politics which the Netherlands Presidency then turned into a Protocol. John Major, taken aback by the long-term prospects if the Commission were to choose (under Article 100A of the Single European Act) to launch fresh legislation under a QMV heading, presented this optin by the majority of eleven to the House of Commons as if it had been a successful opt-out by the one.

REFORM OF INSTITUTIONS

Bargaining about the Commission’s competences surged up on these issues, often for financial reasons, because many of the trade-offs included compensation, through the proposed cohesion funds, for member states which expected to do badly out of EMU as well as the internal market. But behind disputes about the EC’s swelling budget rested issues of sovereignty and institutional reform. Insofar as the cost of regional equilibrium would rise, for example, the ‘northern’ member states who paid the most required supervision of the allocation and spending of both structural and cohesion funds.²⁹ At the same time, the collapse of Communist regimes in eastern Europe required a response. If there were not to be a rush by Western countries to take easy advantage of newly democratic, politically inexperienced states with weak economies overloaded with Comecon debts, the Community had to act together. So it did; but it was the Commission which coordinated the West’s rehabilitation and loan programme, first for Poland and Hungary, then for all of eastern Europe. Fears that the Commission would thus slip into defining a sort of Community foreign policy led Mitterrand at Strasbourg to sponsor the grand concept of a European economic entente, a case which – like the Kohl-Mitterrand declaration on EMU and EPU – revealed the Council’s increasing habit of reaching major decisions in principle, usually on a Franco-German basis, preempting in practice both the Commission and Parliament.

Even before the IGCs began, change and reform of institutions touched other spheres, such as the European Court of Justice.³⁰ Any extension of QMV proposed at Maastricht would also greatly complicate member states’ tactics, obliging them to calculate more carefully than they already had to, under the Single European Act, when constructing alliances or trading advantages if they wished to mobilize a blocking minority. But some power also adhered to the Parliament, as its President, Enrique Baron Crespo, with Kohl’s support, demanded that the political IGC should confer on it the right to initiate legislation, and amend more of, or reject, what was put before it. Italian, Dutch, and Luxembourg ministers, as well as those from Germany, supported this challenge to the prerogatives of the Commission and the Council.

The Parliament had already conducted its own attempt to set the IGC’s agenda, when its first ‘assizes’, held in Rome in November 1989, debated the proposals which Baron Crespo was later to advance in his semi-official meetings with ministers before and during Maastricht. These included not only greater rights to initiate, amend or reject legislation, but definitions of citizenship – basic rights on which might eventually be constructed the idea of a European public. In addition, it asked for enlarged competence for the Commission in social and environmental cases, and that European political cooperation (EPC) should be brought within the Treaties.

III. Political Union

The second IGC’s origins derived from two sources: member states’ long concerns with foreign policy from which, unlike EMU or the Social Chapter, Britain could not and did not wish to dissociate itself; and from the threats to their national security represented by cross-border crime, drug smuggling, terrorism and illegal immigration. Consciousness about the latter grew as the internal market and abolition of economic frontiers approached, and on the former with every stage in eastern Europe’s metamorphosis. Although the IGC had not been envisaged initially as having a defence element, events in 1989–91, including the incipient break-up of Yugoslavia, led that way, as did economic aspects of both the Community’s foreign and security policy (CFSP) and the internal market, via defence procurement, state aids to industry, and mergers such as the Siemens/GEC takeover of Plessey.³¹ Meanwhile, thirty-five years after the French Assembly had killed off the EDC, the French government wished to come back into the centre of European defence, even if that meant it had to reconsider aspects of NATO, so long as it did not have to rejoin NATO’s Military Committee. But defence as a separate theme could not be brought within the Treaties since it had been specifically excluded in 1957.

Mitterrand therefore sought an enlarged status for Western European Union (WEU) as the main plank of France’s CFSP proposals.³² But since the dilution of NATO was a highly sensitive subject, his proposals remained vague – as did their embodiment in the Treaty (see p). Not only did they have a direct impact on other member states in NATO, they invited an unpredictable Russian response. France’s defence industry, long the most successful of any EC exporters, also stood to gain substantially, to the dismay of British and German competitors and those parts of the Commission concerned with the single market and competition policy. If defence was to be touched on during the IGC, not only Britain’s fears about NATO but Germany’s concerns with its own new status and the problems of eastern Europe and Yugoslavia had to be addressed.

Interior Ministry issues were also brought into sharp focus by events in eastern Europe, above all the profound uncertainty about what would emerge from the former Soviet system after the onset of civil war in Yugoslavia. For the first time since 1961, the possibility of a flood of refugees and asylum seekers confused the patterns in which legal and illegal immigration had largely been contained. Unlike 1961, heavy structural unemployment in western Europe was beginning to change the outlook of governments which had previously been willing to accommodate large numbers of refugees. For the first time since the 1960s, the prospect of economic migrants, rather than refugees, from eastern Europe reappeared. In mid–1991, while the IGC was in progress, the International Labour Organization estimated that roughly eight million legitimate immigrants were living within the EC’s borders; on top of that had to be added the illegal ones, and asylum seekers whose numbers had risen from a mere 70,000 in 1983 to 350,000 in 1989 and nearly half a million by 1991 – even before the Yugoslav conflicts.

Refugees and asylum seekers were one thing, illegal migrants another. But the conditions of the time fostered confusion, so that the two easily became conflated, in certain political movements, and by the popular press. Nations’ rights to defend themselves against crime or drugs, recognized in Article 36 of the Rome Treaty, had been reaffirmed in the Single European Act. But the Schengen Agreement, made between France, West Germany and the three Benelux states in 1985, prefigured a Europe of open borders, where the southern and eastern members – Greece, Italy and Spain – would stand in effect as frontier guarantors for the rest against most sources of illegal immigration.

The political IGC therefore had to encompass a vast area, with no clear long-term aims, where member states argued not only over the practicalities of ID cards, data protection, and the so-called ‘right of hot pursuit’, but their likely impact on national public opinions. This was especially so in Britain and France, but became more so in parts of Germany and Spain; Italy felt the force of it once refugees began to pour in from Yugoslavia and Albania. Even among the Schengen countries, discords developed, for example over Dutch permissive policies on soft drugs, which French interior ministers referred to in outspokenly critical terms. Sentiments which had rarely been voiced in public now became commonplace, throwing doubt on the competence of other member states to keep out, variously, Moroccans and Algerians, Albanians, Yugoslavs or Somalis, and economic refugees from behind the fallen Iron Curtain.

Three main influences shaped this IGC: the efforts of the Parliament (by far the weakest); the Commission’s attempts to set the agenda, which dated back to 1986, if not 1985; and the aims and ambitions of member states. The well-attested tendency for EC states to grow more to resemble each other might have led the Maastricht negotiators to expect the same sort of consensus levels that had been obtained in 1985. Earlier frictions between Commission, Council and Parliament had indeed lessened during the late 1980s. But north-south differentiation seemed to have increased, as Spain’s successfully aggressive tone during the bargaining indicated, and the distinction between countries with sound fiscal regimes and others who were lax demonstrated. The ancient gulf between Britain and the majority, with all its philosophical undertones, remained, albeit softened by Major’s ‘Britain at the heart of Europe’ pretensions. Even subsidiarity, which for most states already meant devolution not to national but to regional capitals or even municipalities, meant something different to British Conservatives – though not to many Scots and Welsh.

How divergent the larger member states’ aims were can be gauged from the table of their desiderata compiled by the Economist in December.³³ But whereas smaller and Mediterranean states had more cause than they had had over the Single European Act to defend particular national interests, the activities of Germany, France and Britain were complicated by their adjustments to changing perceptions of the outside world.

As in the past, the German government supported a Common Foreign and Security Policy (CFSP) having, at that stage, no conceivable alternative. French foreign minister Dumas and his German colleague Genscher explained in their October 1990 proposals for a CFSP that they were prepared to include majority voting in the Council. In December 1990, they widened their approach to include a common European defence, building on what had been done in Western European Union (WEU) since 1984. The German-French paper of February 1991 spelled out the WEU’s function as a bridge between the European Union and NATO. For both Bonn and London it was also important to guarantee that any European defence pillar in the framework of the WEU would not undermine NATO. However, the Germans had the additional aim of tempting France back into full membership of NATO.

Conduct of this part of the negotiations, though in the hands of foreign ministers at their monthly meetings, and deputies or permanent representatives on more frequent special occasions, reverted in the last six weeks to heads of government level. In Paris, it was the responsibility of Dumas and Guigou, but never far from Mitterrand himself: in Bonn, rather less harmoniously, it lay between Kohl and Genscher.

For the French government, it was vital to reinforce the EC in French colours rather than allow the Dutch Presidency, aided by Belgium and Italy, to make EC transactions more accountable to the Parliament and more detrimental to national sovereignty. The French were playing for very high stakes: not only for EMU but for a French rather than a NATO-based version of CFSP – at variance, for example, with what the Netherlands required. If defence were also to be included, an alternative had to be found to the organic image of a tree from whose trunk all the branches would spring.

One of the French negotiators, Pierre de Boissieu, brought forward the idea of a temple, whose pediment would rest on three distinct pillars: EMU (which mattered above all other elements to France), foreign policy, and home and justice or Interior Ministry matters. This had the inestimable advantage that neither of the latter need add to Commission competences – negotiations between governments would suffice. Even so, it would need advance concertation with Germany if a move in foreign and defence policy apparently so at variance with France’s twenty-five year stance were to be accepted by French public opinion.

Germany’s representatives regarded strengthening Community institutions and a stronger position for the European Parliament as so important that they were prepared to link them to their consent to economic and monetary union. They were also well aware that EMU was subject to growing criticism inside Germany, and that public support for bringing new fields into the Treaties, such as asylum policy for refugees, combating terrorism and international crime, derived from Länder administrations, not Bonn. Länder governments, of course, sought a significantly stronger role for themselves, and the principle of subsidiarity. Remembering how their views had been ignored when the Single European Act was ratified five years earlier, and relying in part on the example of what Belgium’s ethnic regions had already achieved in the EU context, these sought confidently to replicate in the Community the division of powers between ‘Bund’ and ‘Land’ in the federal system itself.

Less obviously, fear motivated German leaders that if the new treaties were not signed quickly, conditions in the mid–1990s would deteriorate and encourage the rise of instability, fierce nationalism, and ethnic discord in central and eastern Europe. To avoid that, and the repercussions on those of German origin living in the former Soviet Union (and therefore entitled to citizenship of the reunited Germany), Kohl would be prepared to make substantial concessions.

It was not however clear that the British would even sign. One vital preliminary had been the ousting of Margaret Thatcher, for, in spite of an initially obdurate stance, John Major and Douglas Hurd skilfully let it be seen in private among the foreign ministers that they were not opposed à l’outrance to political union, but rather that they were men of goodwill as well as firm principles, shackled by the Thatcherite faction in their Conservative party. Such hints were reinforced at the personal level by links with the CDU between Chris Patten and Volker Rühe³⁴ and informally by Whitehall officials. By November, confronted with preparations by the other eleven governments for an ‘opt-in’ strategy on EMU, British ministers allowed it to be thought that they were prepared for concessions so long as they were permitted to opt out when stage three finally arrived. There was also some common ground with Germany, given British resistance to the Delors II budget package and demands for greater parliamentary audit over spending, as well as for the ECJ actually to be able to fine member states who ignored single market judgments.

In the end, Major was able to extract large, even remarkable concessions, partly because he was not Margaret Thatcher but more because it suited the other large state governments – principally Germany’s – to make deals which safeguarded essential interests before too much time elapsed. But this was done at what seemed a high price to the southern states then facing up not only to completing the single market but to the Community’s next extension in favour of EFTA countries which were already completing their political and economic reorientation.³⁵ Brokerage between governments conscious of the need to safeguard their national interests, rather than Commission control of the agenda, characterized the second IGC, together with a determination to get everything into texts, agreed and signed, before it was too late.

As the IGC ground remorselessly on, under enormous pressures from world events and domestic public reactions, a series of interlocking, contrapuntal elite bargains were made, by men and women who were often by now over-tired, working late at night in cabals and closets using an arcane jargon, assisted by increasingly exhausted officials. Although within each government’s apparatus, the issues appeared clear (and some of those engaged now admit that there was insufficient discussion by some national EC affairs coordination systems, leading to a lack of direction on essential questions),³⁶ their outcomes proved simply too complicated or obscure to explain in public language.

Yet since the web of alliances seemed to preclude national vetoes, while most participants believed the Luxembourg Compromise dead, national publics – or perhaps better, national media – came to feel that ‘their’ governments could do little to reverse the momentum. A pervasive sort of disillusionment spread, most strongly in Denmark, which may have been the first genuine expression of European-wide public opinion. It ramified in Britain and France, to say nothing of Italy, where the failure to educate or explain led (with good reason) to deep fears about higher taxes, sacrifices and assaults on work-place security as a result of fiscal reform.

Shifts of perception occurred, the results of a changing external environment, among the main players during the IGC. German diplomacy now had to operate in an entirely different way, given its borders with eastern and central Europe, a factor which explains President Bush’s transfer of interest as early as 1990 (and which disturbed Mrs Thatcher on her last visit to see Bush at Camp David). Her fall removed the principal – indeed the only – exponent of a bilateral diplomacy involving Britain and France, intended to contain a newly united Germany, but it did not alter Britain’s reliance on NATO and the CFSP framework; nor the fact that on matters such as Community support for Slovenes and Croats against Serbian claims to a greater Serbia, or EC extension to eastern Europe as well as EFTA, Germany would now insist on being heard.

The orientation of France towards the Community also changed, signified in 1991 when the Quai d’Orsay abandoned its line on ‘variable geometry’, even if the phenomenon was interpreted in a variety of ways by French analysts at the time. Under Mitterrand and Edith Cresson, France committed itself firmly to the internal market, not in the form of Anglo-Saxon liberalization – which Cresson, as a member of a Socialist government, frequently lampooned – but as a defence against Japanese competition and a means to adjust (an echo perhaps of how de Gaulle had assessed the EEC’s mid–60s harmonization policy). An element of protectionism grew, while unemployment rose in 1991–2. Yet as its one method of containing Germany, France set itself to become less particularist and more truly European, a step well beyond the already-significant turning point of 1983–4.

Documents flooded into the IGC, starting with the Commission’s agenda and member states’ own proposals. Others, with less formal status, included the Martin Reports and recommendations from the Parliamentary Assizes. Having been hyperactive in the preparatory period, the Commission appeared to miss several chances of imprinting its own agenda, possibly because Delors and the college were preoccupied with the many separate issues ranging from the early trade negotiations in eastern Europe to disputes over the budget. Whatever the reasons for the loss of focus, the proliferation of member states’ general plans, which varied from relatively ‘soft’ Spanish proposals to the more forthright German draft Treaty of March 1991, caused serious problems for the Luxembourg Presidency.

To contain the flood, and induce greater precision, the Presidency wrote what it styled a ‘non-paper’ in April, summarizing the state of play as if it had actually encompassed majority opinion. Later, on 20 June, in time for the Council Meeting, this was rendered into the negotiating text for a draft Treaty. As was normal in these circumstances, Council did little more than endorse what was going on, because actual progress was held up by three points of principle.