LONDON – At the just-concluded European Union summit, British Prime Minister David Cameron vented decades of accumulated resentment stemming from his country’s relationship with Europe. Europeans were appalled at how the last-minute injection of finicky points about bank regulation could stymie what was supposed to be a breakthrough agreement on the regulation of EU countries’ budgets. Cameron’s supporters in Britain cheered and portrayed him as a new Winston Churchill, standing up to the threat of a vicious continental tyrant.
The United Kingdom’s view of Europe has always been both emotional and ambiguous. A Conservative government wanted to join the European Economic Community in the early 1960’s, but was rejected by French President Charles de Gaulle. The General mocked the British ambition with a rendition of Edith Piaf’s song about an English aristocrat left out on the street, “Ne pleurez pas, Milord.” In the end, Britain came in from the cold, but British leaders always felt that they were not quite welcome in the European fold.
At two critical moments in the past, a British “no” had a decisive impact on European monetary developments. In 1978, German Chancellor Helmut Schmidt and French President Valéry Giscard d’Estaing proposed an exchange-rate arrangement – the European Monetary System (EMS) – to restore stable exchange rates in Europe. Initially, the Germans and the French negotiated trilaterally, with the UK, in meetings that were slow, cumbersome, and unproductive.
In fact, the talks were sabotaged by British Prime Minister James Callaghan, who started conferring with US President Jimmy Carter about the challenge that the European plan posed to the United States, and how the Anglo-Saxons could respond to the continental threat. As he put it, according to the transcript of one of the phone calls, “with the strength of the German economy, it could be extremely serious, and I don’t know, Jimmy, how to obviate it.”
Callaghan and Carter were right to worry, but they should have worried about themselves rather than the Europeans. At the time, Britain and the US had much greater problems – more radically unstable government finances and feebler economic growth – which ensured the ineffectiveness of their efforts to impede the European negotiations. Once Britain dropped out of the talks, a bilateral Franco-German deal was easily arranged. The EMS became a device for improving French policy and opening up the French economy.
The French position became a model for a new vision of how central banks could operate politically to enhance economic stability. Within a few years, France faced a major challenge when François Mitterrand’s experiment in radical socialist economics collapsed in 1983. When Jacques Delors, Mitterrand’s finance minister and the architect of his U-turn from nationalization and other socialist policies, later became EU Commission President, he was one of the most effective advocates of European monetary union.
The idea underlying the French strategy of tying the currency to German strength, the franc fort, was that it would limit or constrain domestic policy. Mitterrand had to wrestle with a fractious range of coalition partners. On the left, there were Communists, whom he wanted to marginalize politically, as well as Jacobin socialists who wanted a national path of economic development. Some of the most important industrial leaders also pleaded – in secret “night visits” to the presidential palace – for a national path involving devaluation and a weak currency.
The complex European way of constraining domestic opposition never appealed to British politicians. In the early 1990’s, Prime Minister John Major negotiated an opt-out from the Maastricht Treaty’s provisions on monetary union, but was proud that the pound was a stable and – as he saw it – central part of the EMS. In September 1992, a speculative attack on the pound led to Britain’s departure.
The subsequent nine months saw a spectacular collapse of the European momentary order, as speculators worked over one country after another. Spain, Portugal, and the Scandinavian countries followed Italy and the UK out of the EMS, before France itself came under attack – the last of the falling dominos.
The crises that wracked Europe from September 1992 to July 1993 laid the foundation for the final drive to the establishment of European monetary union. Britain was left on the sidelines, and fiscal discipline was to be imposed externally. The major problem, of course, was that in some cases, discipline was not enforced.
As in 1978 and 1992, British obstructionism today may be a blessing in disguise for the rest of Europe. In particular, it opens the way to a Europe of variable geometry, in which only those countries willing to accept stability criteria will go forward with deeper integration. Institutionally, this may be more complex than an EU-wide treaty amendment, but the result can be tailored and crafted more appropriately to the real situations of rather diverse countries.
By contrast, for Britain, the legacy of its heroic defiance of Europe has been much bleaker. In both 1978 and 1992, the immediate aftermath was a substantial period of economic and political turmoil. Monetary shocks led to geopolitical irrelevance.
Today, as in 1978, the UK and the US are in a parlous fiscal state, and schadenfreude about European problems is no substitute for embarking on a strenuous path of reform.
Cameron, in particular, should not allow comparisons to Churchill go to his head. No one would include James Callaghan and John Major in the ranks of great British leaders. Cameron, too, could one day be remembered as a barely relevant and largely discredited figure.