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Britain and Europe – Mrs Thatcher’s relationship with Europe

When Mrs Thatcher became Prime Minister in 1979, the Conservative Party was pro-European, as it had been during Heath’s leadership.

Although Thatcher herself had no great enthusiasm for Europe, she had economic and other major problems to deal with during her 1979-1983 Government and European relationships were not a priority.

She also had to appoint ministers who had been Heath supporters for the sake of party unity and even some of her allies, such as Geoffrey Howe her Chancellor of the Exchequer, were not Eurosceptic.  By the end of her period of office though, Europe was a major issue which deeply divided the Conservative Party.

After 1983, secure in a large majority in Parliament and with the economy improving, she turned her attention to the EU. Two initiatives were promoted during the 1983-7 Government:-

Britain’s Rebate

The terms of entry in 1972 had involved a considerable British contribution to the EU budget, rising to 19%.

Labour’s renegotiations in 1974-5 had secured a rebate to Britain and this was in place in the early 80s, although even without a rebate Britain’s contribution to the EU amounted to under 0.5% of its Gross National Income.

Mrs Thatcher pushed relentlessly for a larger rebate arguing that Britain did not benefit as much as other countries from the Common Agricultural Policy which made up 70% of the Budget and that  UK per capita income was only 91% of that of West Germany but its contribution was larger.

The other members were anxious to protect the idea of the EU having its ‘own resources’ from the existing formula, safeguarded from national rebates.  The issue saw Mrs Thatcher adopting a much more confrontational style than had been seen at Council meetings, leading the Greek Prime Minister, Georges Papandreou, to remark after one session, “It would be a great relief if Britain left the EU”.

Bernard Ingham, Mrs Thatcher’s Press Secretary, liked to present these meetings as a battle in which she was fighting for Britain. In the end she persuaded the Germans to support her with a new formula which measured the gap between VAT payments and expenditure and agreement was reached on a larger rebate at the Fontainebleau Summit of 1984. Jacques Delors as the new President of the Commission introduced a package for 1987-8 limiting spending on the CAP and confirming the British rebate.

The Single European Act

The increasing interdependency of the member state economies and the superior performance of the American and East Asian economies in the early 1980s led to ideas for the extension of the Single Market.

Tariff barriers had been removed but there were many impediments to internal EU trade because different regulations in different countries meant that some goods produced for the home market could not be sold in other member states without a separate and expensive production process.

Mrs Thatcher was keen on the greater competition that this implied and promoted the idea at the Council meeting in 1983 and appointed Lord Cockfield to be the Commissioner to see it through. She was also interested in foreign policy cooperation as long as this did not bind Britain’s policies in any way.

The Single Market Act

The Single Market Act brought the new system into being in 1986. However, the other member states saw it as part of a broader movement of political integration especially as some countries were not that keen on economic liberalisation.

Integration took place with environmental policies, which were weak in Britain at the time, and in research and development and foreign policy cooperation developed.  More significantly, Delors persuaded Thatcher that, if they were to get through all the new directives necessary to bring the Single Market into effect, there would have to be majority voting in the Council of Ministers.

It also meant that the Commission, which Thatcher saw as merely a bureaucracy, would have to take a lead role.  The effect was soon felt in British politics.  Jonathan Aitken, in his new book on Margaret Thatcher, recounts that she was surprised to be called by the Conservative whips to the House of Commons to vote because the Government’s majority of well over a hundred was in danger.

She arrived to find furious Conservative MPs who were threatening to vote against an EU directive on noise levels for lawnmowers.  The directive made sense in Single Market terms because one country could not sell lawnmowers to another if their noise level was above that required by regulations in the other country and so harmonisation was the logical solution.  Mrs Thatcher asked if it could be stopped but was told that it had all been agreed by Britain in Brussels.

Mrs Thatcher Says No

After her third term of office, which started in 1987, events pushed Mrs Thatcher into a Eurosceptic position which split he Government and, after her resignation in 1990, the Conservative Parliamentary Party.

The sequence was as follows:-

  • She increasingly clashed, in private, with her Foreign Secretary, Geoffrey Howe, over European policy.  Howe had come to be uncertain about the American alliance that was the cornerstone of Mrs Thatcher’s view of foreign policy and, instead, sought a united European position on issues in order to influence the Americans.  Mrs Thatcher opposed this strategy and believed that European protectionism would lead the US to withdraw from the defence of Western Europe.
  • Disagreements developed between Thatcher and both Howe and her Chancellor of the Exchequer, Nigel Lawson, over European monetary integration. Lawson was not particularly pro-European but had become convinced that joining the European Monetary System, which would align the European currencies, would increase the stability of the £ and control inflation.  He had already let the £ shadow the Deutschemark without making this change of policy clear to the Prime Minister. Howe, a former Chancellor, felt that national control of the money supply was now difficult with increasingly global capital flows and that the creation of a European currency would limit the power of the Deutschemark.  Thatcher, in contrast, thought that a market in currencies was preferable and that a fixed rate might lead to speculation against the £.
  • Thatcher was to give a speech at the College of Europe in September 1988. The College was a strongly integrationist institution and she had already commented that it “must seem rather like inviting Genghis Khan to speak on the virtues of peaceful coexistence”. The Foreign Office produced a draft that was diplomatic but she decided to react to Delor’s speech, which had promoted the EU as a vehicle for social and employment rights and as the source of a greater proportion of legislation.  Her Bruges Speech now  talked about avoiding protectionism, the need to concentrate on enterprise, to keep NATO as superior to the Western European Union and not proceed to the Euro.  It reasserted the rights of nation states against the EU and contained the phrase that they “had not rolled back the frontiers of the state in Britain only to see them re-imposed at a European level and a European state exercising a new dominance from Brussels “.  The impact was greater on the Continent than in Britain but its tone was not lost on Howe and Lawson who sought her line on the euro as a departure from agreed Government policy.
  • Economic and Monetary Policy was to be discussed at the Madrid summit in June 1989. Howe and Lawson met the Prime Minister on the morning of her departure for Madrid and threatened to resign if she did not give a date for British entry to the ERM. She gave in but shortly afterwards, angry because she felt she had been bounced into a position that she did not want to hold, sacked Howe as Foreign Secretary and moved him to the Deputy Prime Minister role.
  • Mrs Thatcher appointed Alan Waters, who had similar views to herself, as her personal economic adviser. He increasingly clashed with Lawson and, after Walters had written an article attacking the ERM as half baked, Lawson threatened to resign if she did not sack Waters and repudiate his views. She refused and Lawson did resign, as did Waters.
  • Thatcher returned from the Rome summit in November 1990 and in the House of Commons, in her statement on the meeting, uttered the famous No, No, No sentence against monetary union.  Howe resigned and gave a devastatingly critical resignation speech. This allowed the pro-European Michael Heseltine to challenge Thatcher for the leadership and, although he did not win, he brought her down.