Tory disunity on Europe

The unity of the Tory Party on Europe was undermined by the issue of the Exchange Rate Mechanism (ERM), which had been set up in the late 1970’s in an attempt to stabilise currency fluctuations between member countries. The Conservative government had committed itself to joining the ERM but kept deferring membership until 'the time was right'. Margaret Thatcher appeared happy for this situation to continue indefinitely, but by the mid 1980s her Chancellor, Nigel Lawson and Foreign Secretary, Geoffrey Howe, were both keen for Britain to join. As a dry run for ERM membership, Lawson in 1986 initiated a policy of Sterling shadowing the Deutschmark. Lawson was then at the height of his prestige having presided over an impressive rise in the standard of living. He was given a fairly free hand to manage the economy, without too much interference from colleagues, including Margaret Thatcher.

After a while, Lawson’s policy of shadowing the Deutschmark came under increasing attack from some sceptical economic commentators, most notably Alan Walters, Margaret Thatcher’s economic adviser. He argued that keeping the pound at an artificial level – in Margaret Thatcher’s words 'trying to buck the market', would stoke inflationary pressures. Walters was to be proved right, but not before both Lawson and Howe teamed up in an attempt to bounce Thatcher into the ERM by threatening to resign if she refused. She faced down their demands and before long both were replaced. Unfortunately, their successors were also ERM supporters, John Major as Chancellor and Douglas Hurd as Foreign Secretary. Once again, in the summer of 1990, she came under pressure to join and this time she reluctantly capitulated – she claimed that by then she was the only cabinet member opposed to membership. Within a few months John Major had replaced her as leader.

During the late Eighties both the Labour and Conservative parties began to reassess their attitude towards Europe. (The third major party, the Liberal Democrats, have consistently, almost blindly, supported every move towards greater European integration). Two key speeches signalled a major change of direction for both Labour and the Conservatives. Margaret Thatcher, in her Bruges speech was the first Tory leader to question the drive towards greater European integration and the creation of a European super-state. At about the same time Jacques Delors, then European Union President, in a skilful speech pointed out to a demoralised Labour Party and trade union leaders that they could achieve many of their objectives with the aid of European institutions and legislation. Many Conservatives interpreted this as an attempt to bring about 'socialism by the back door'. Following these two speeches, in a very short period of time there was a distinct change in attitude by both parties towards Europe. The Labour Party was suddenly more enthusiastic whereas the Tories started to become more questioning.

John Major, in one of his first statements after becoming Prime Minister in 1990, declared that he wanted Britain to be at the heart of Europe. However, Major appeared to face both ways, since at the same time he was reassuring the euro-sceptic wing of his party of his opposition to Britain joining the single currency. Major was soon involved in the negotiations for the Maastricht Treaty that sought to establish a framework for the single currency, and extend EC involvement in a number of other areas including the Social Chapter provisions that regulated employment rights and conditions. Margaret Thatcher, supported by a growing band of euro-sceptic MPs, declared that Maastricht was a 'treaty too far'. On the other hand, some of the Tory high command such as Kenneth Clarke and Michael Heseltine made it clear that they would have been happy for Britain to sign up to all its provisions. In the event Major succeeded in achieving a compromise by obtaining an opt out from the Social Chapter, and deferring Britain’s membership of the Euro until such time as it was agreed by the British parliament. If Major thought that this compromise would heal the rifts in his party over Europe he was soon to be disabused of this notion. Shortly after his government’s re-election in 1992 Major was faced with two European issues that would destroy the credibility of his Government – the debacle of 'Black Wednesday', when Britain was ejected from the ERM, and the campaign of opposition by euro-sceptic Tory rebel MPs against the ratification of the Maastricht Treaty.

Britain joined the ERM in 1990 towards the end of Margaret Thatcher’s premiership and against her better instincts. Virtually all her cabinet were in favour of membership as were the Labour and Liberal Democrat opposition, who had regularly castigated the Tories for their hesitancy. Not only were the political parties united on the case for membership, but so too were the CBI, the TUC and the overwhelming majority of newspaper pundits, including the Economist and the Financial Times. The only notable voice of opposition to this cosy consensus was Alan Walters, Thatcher’s former economic adviser who had resigned his post on the same day as Nigel Lawson. The ostensible reasons given by supporters for joining the ERM were that tying sterling to other EC currencies would help peg inflation and provide more exchange rate stability, thus giving more certainty to manufacturers and those trading with Europe. However, the true reason was that Euro-enthusiasts wanted Britain to be fully signed up to the European Project and moves towards a single currency. Walters was again to be proved spectacularly right when he argued that joining the ERM at too high a rate would make Britain uncompetitive and lead to a rise in unemployment and large scale business failures.