The New Old World (7 page)

The third great change has followed from the end of Communism in the countries of the former Warsaw Pact. The restoration of capitalism east of the Elbe has further transformed the position of Germany, both by reinstating it as the continental
Land der Mitte
which its conservative theorists always—with reason—insisted it
would once again become, and—a less noticed development—by reducing the significance of the nuclear weapons that France and Britain possessed and it lacked. Yet more significant, however, is the currently expressed desire of virtually all the East European countries, and some of the former Soviet lands, to join the EU. As things stand, the total population of these candidates is about 130 million. Their inclusion would make a Community of half a billion people, nearly twice the size of the United States. More pointedly still, it would approximately double the membership of the European Union, from fifteen to some thirty states. A completely new configuration would be at stake.

Historically, these three great changes have been interconnected. In reverse order, it was the collapse of Communism that allowed the reunification of Germany that precipitated the Treaty of Maastricht. The shock-wave moved from the east to the centre to the west of Europe. But causes and consequences remain distinct. The outcomes of these processes obey no single logic. More than this: to a greater extent than in any previous phase of European integration, the impact of each is quite uncertain. We confront a set of
ex ante
indeterminacies that, adopting a Kantian turn of phrase, might be called the three amphibologies of post-Maastricht politics. They pose much more dramatic dilemmas than is generally imagined.

The Treaty itself offers the first. Its origins lie in the dynamism of Delors's leadership of the Commission. After securing passage of the Single European Act in 1986, Delors persuaded the European Council two years later to set up a committee largely composed of central bankers, but chaired by himself, to report on a single currency. Its recommendations were formally accepted by the Council in the spring of 1989. But it was the sudden tottering of East Germany that spurred Mitterrand to conclude an agreement with Kohl at the Strasbourg summit in the autumn, putting the decisive weight of the Franco-German axis behind the project. Thatcher, of course, was implacably opposed.

But she was comprehensively outmanoeuvred, not least by the continental regime she most disliked, which sat in Rome. The otherwise impregnable self-confidence of
The Downing Street Years
falters disarmingly whenever its heroine comes to Europe. The titles of the chapters speak for themselves. The ordinary triumphal run—‘Falklands: The Victory'—‘Disarming the Left'—‘Hat Trick'—‘Not So Much a Programme, More a Way of Life'—‘The World Turned Right Side Up'—is interrupted by a faintly
woeful note. We enter the world of ‘Jeux Sans Frontières' and ‘Babel Express', with its ‘un-British combination of high-flown rhetoric and pork-barrel politics', where ‘heads of government would be left discussing matters that would boggle the mind of the City's top accountants', and ‘the intricacies of European Community policy really test one's intellectual ability and capacity for clear thinking'.
²⁵

The uncharacteristic hint of humility is well founded. Thatcher appears to have been somewhat out of her depth, as a persistent tone of rueful bewilderment suggests. The leitmotif is: ‘Looking back, it is now possible to see'—but ‘I can only say it did not seem like that at the time'.
²⁶
Many are the occasions that inspire this mortified hindsight. Exemplary in its comedy is the Milan summit of the European Council in 1985, which ensured the inclusion of qualified majority voting in the Single European Act. ‘Signor Craxi could not have been more sweetly reasonable'—‘I came away thinking how easy it had been to get my points across' (
sic
). But lo and behold on the following day: ‘To my astonishment and anger, Signor Craxi suddenly called a vote and by a majority the council resolved to establish an IGC'.
²⁷
Five years later, the precedent set at Milan proved fatal at Rome. This time it was Andreotti who laid the ambush into which Thatcher fell head over heels, at the European summit of October 1990. ‘As always with the Italians, it was difficult throughout to distinguish confusion from guile', she haplessly writes, ‘But even I was unprepared for the way things went'.
²⁸
Once more, a vote to convene an IGC was sprung on her at the last minute, this time on the even more provocative topic of political union. Her explosion at Andreotti's silken trap finished her. In London, Geoffrey Howe took a dim view of her reaction, and within a month she was ejected from office. No wonder she hated her Italian colleagues so cordially, to the point of saying: ‘To put it more bluntly, if I were an Italian I might prefer rule from Brussels too'.
²⁹

Thatcher respected Delors (‘manifest intelligence, ability and integrity'), liked Mitterrand (‘I have a soft spot for French charm') and could put up with Kohl (‘style of diplomacy even more direct
than mine'). But Andreotti she feared and detested from the start. At her very first G-7 summit, within a few months of coming to power, she found that

he seemed to have positive aversion to principle, even a conviction that a man of principle was doomed to be a figure of fun. He saw politics as an eighteenth-century general saw war: a vast and elaborate set of parade-ground manoeuvres by armies that would never actually engage in conflict but instead declare victory, surrender or compromise as their apparent strength dictated in order to collaborate on the real business of sharing the spoils. A talent for striking political deals rather than a conviction of political truths might be required by Italy's political system and it was certainly regarded as
de rigueur
in the Community, but I could not help but find something distasteful about those who practised it.
³⁰

Andreotti's judgement of Thatcher was crisper. Emerging from one of the interminable European Council sessions devoted to the British rebate, he remarked that she reminded him of a landlady berating a tenant for her rent.

The increasing role of Italy as a critical third in the affairs of the Community was a significant feature of these years. The Report on Economic and Monetary Union of 1989 that laid the basis for Maastricht was drafted by an Italian, Tommaso Padoa-Schioppa, the most trenchant advocate of a single currency, and it was also the initiative of an Italian—Andreotti again—that at the last minute added an automatic deadline of 1999 into the Treaty, to the consternation of the British and of the Bundesbank. Nevertheless, the final shape of the bargain reached at Maastricht was essentially of French and German design. The central aim for Paris was a financial edifice capable of replacing the unilateral power of the Bundesbank as the
de facto
regulator of the fortunes of its neighbours, with a
de jure
central authority over the European monetary space in which German interests would no longer be privileged. In exchange Bonn received the security system of ‘convergence criteria'—in effect draconian conditions for abandonment of the deutschmark, which Italian theorists of a single currency had always rejected—and the fixtures and fittings of ‘political union'.

The diplomatic origins of the Treaty are one thing. Its economic effects, if implemented, are another. What is the social logic of the monetary union scheduled to come into force by the end of the decade? In a system of the kind envisaged at Maastricht, national
macro-economic policy becomes a thing of the past: all that remains to member-states are distributive options on—necessarily reduced—expenditures within balanced budgets, at competitive levels of taxation. The historic commitments of both Social and Christian Democracy to full employment and social services of the traditional welfare state, already scaled down or cut back, would cease to have any further institutional purchase. This is a revolutionary prospect. The single obligation of the projected European Central Bank, more restrictive even than the charter of the Federal Reserve, is the maintenance of price stability. The protective and regulative functions of existing national states will be dismantled, leaving sound money as the sole regulator, as in the classical liberal model of the epoch before Keynes.

The new element—namely, the supranational character of the future monetary authority—would serve to reinforce such a historical reversion: elevated higher above national electorates than its predecessors, it will be more immune, and not only by statute, from popular pressures. Put simply, a federal Europe in this sense would not mean—as Conservatives in Britain fear—a super-state, but
less
state. Hayek was the lucid prophet of this vision. In his 1939 essay ‘The Economic Conditions of Interstate Federalism' he set out the current logic of European monetary union with inspired force and clarity. After arguing that states within such a union could not pursue an independent monetary policy, he noted that macro-economic interventions always require some common agreement over values and objectives, and went on:

It is clear that such agreement will be limited in inverse proportion to the homogeneity and the similarity of outlook and tradition possessed by the inhabitants of an area. Although, in the national state, the submission to the will of a majority will be facilitated by the myth of nationality, it must be clear that people will be reluctant to submit to any interference in their daily affairs when the majority which directs the government is composed of people of different nationalities and different traditions. It is, after all, only common sense that the central government in a federation composed of many different people will have to be restricted in scope if it is to avoid meeting an increasing resistance on the part of the various groups which it includes. But what could interfere more thoroughly with the intimate life of the people than the central direction of economic life, with its inevitable discrimination between groups? There seems to be little possible doubt that the scope for the regulation of economic life will be much narrower for the central government of a federation than for national states. And since, as we have seen, the power of the states which comprise the federation will be yet more limited, much of the
interference with economic life to which we have become accustomed will be altogether impracticable under a federal organization.
³¹

Maastricht, in this account, leads to an obliteration of what is left of the Keynesian legacy that Hayek deplored, and most of the distinctive gains of the West European labour movement associated with it. Precisely the extremity of this prospect, however, poses the question of whether in practice it might not unleash the contrary logic. Confronted with the drastic consequences of dismantling previous social controls over economic transactions at the national level, would there not soon—or even beforehand—be overwhelming pressure to reinstitute them at supranational level, to avoid an otherwise seemingly inevitable polarization of regions and classes within the Union? That is, to create a European political authority capable of re-regulating what the single currency and single-minded bank have deregulated? Could this have been the hidden gamble of Jacques Delors, author of the Plan for monetary union, yet a politician whose whole previous career suggests commitment to a Catholic version of social-democratic values, and suspicion of economic liberalism?

On this reading, Hayek's scenario could well reverse out into its opposite—let us say, the prospect drawn by Wynne Godley. As the Treaty neared ratification, he observed:

The incredible lacuna in the Maastricht programme is that while it contains a blueprint for the establishment and modus operandi of an independent central bank, there is no blueprint whatever of the analogue, in Community terms, of a central government. Yet there would simply
have
to be a system of institutions which fulfils all those functions at a Community level which are at present exercised by the central governments of the individual member countries.
³²

Perhaps because he feared just such arguments, Hayek himself had changed his mind by the seventies. Influenced by German fears of inflation if the D-mark was absorbed in a monetary union (by then he was based in Freiburg), he decided that a single European currency was not only a utopian but a dangerous prescription.
³³
Certainly, it was more than ever necessary to take the control of money out of the hands of national governments subject to electoral pressures. But the remedy, he now saw, was not to move it upwards to a supranational public authority; rather, it was to displace it downwards to competing private banks, issuing rival currencies in the market-place.

Even on the principled right there have been few takers for this solution—which Padoa-Schioppa, perhaps with a grain of malice, commends as the only coherent alternative to his own.
³⁴
But misgivings about what the kind of single currency envisaged by the Treaty of Maastricht might mean for socio-economic stability are widely shared, even among central bankers. With nearly twenty million people currently out of work in the Union, what is to prevent huge permanent pools of unemployment in depressed regions? It is the governor of the Bank of England who now warns that, once devaluations are ruled out, the only mechanisms of adjustment are sharp wage reductions or mass out-migration; while the head of the European Monetary Institute itself, the Belgian-Hungarian banker (and distinguished economist) Alexandre Lamfalussy, in charge of the technical preparations for the single currency, pointedly noted—in an appendix to the report of the Delors Committee, of which he was a member—that if ‘the only global macroeconomic tool available within the EMU would be the common monetary policy implemented by the European central banking system',
the outcome ‘would be an unappealing prospect'.
³⁵
If monetary union was to work, he explained, a common fiscal policy was essential.