The Iron Lady

in 1974 – 5.The fundamental imbalance derived from the fact that Britain continued to import more than other members from outside the Community, so paying more in import levies, while having a much smaller farming sector, and consequently gaining much less benefit from the Common Agricultural Policy (CAP). Over the past decade Britain’s growth had fallen behind that of other countries, so the budget contribution fixed in 1971 had become disproportionately high. By 1980 Britain was paying about ?1,000 million a year more into the Community than she was getting out.

The existence of an imbalance was recognised in Brussels. Callaghan and his Foreign Secretary, David Owen, had been making efforts to correct it; but Labour was handicapped by its history of hostility to the Community. The election of a Conservative Government with a more positive attitude to Europe was expected to make agreement easier. Callaghan exaggerated when he told the House of Commons: ‘We took the shine off the ball, and it is now for her to hit the runs.’³¹ But with goodwill it should not have been difficult, by the normal processes of Community bargaining, to achieve an equitable adjustment without a bruising confrontation. The Foreign Office would have considered a rebate of about two-thirds both satisfactory and achievable.³² It was the heads of government on both sides of the Channel – Mrs Thatcher on one side, but equally Schmidt and Giscard on the other – who played to their domestic galleries and elevated the issue into a trial of political strength.

By chance the first overseas leader to visit London the week after the British election was Helmut Schmidt. Their talks in Downing Street actually went quite well. Though he was supposed to be a socialist, Mrs Thatcher approved of his sound economic views, while Schmidt in turn told the Bundestag (a touch patronisingly) that he was impressed by her ‘knowledge, authority and responsibility’.³³ But she left the German Chancellor in no doubt that she regarded Britain’s present budget contribution as unacceptable and intended to seek a rebate. That was quite right and proper; but she soon struck a discordant note by talking truculently about getting ‘our’ money back, as though the Community had stolen it, and declaring that she was not going to be ‘a soft touch’, as though her European partners were a bunch of con men.³⁴ This sort of talk went down badly in Paris, Bonn and Brussels, because it showed a fundamental failure to understand how the Community worked.

First of all, the Community did not recognise the concept of ‘her’ money; funds contributed by each member country belonged to the Community, to be expended by the Commission for the benefit of the Community as a whole. The idea of each member keeping a profit-and-loss account was strictly non- communautaire. Within this broad principle there was certainly a case that Britain was paying more than her fair share; but if Mrs Thatcher was going to be legalistic about it, her partners could argue that Britain had signed up in 1972 and could not now rewrite the contract because it had turned out to be disadvantageous. They were particularly unsympathetic since Britain’s economic position had now been transformed by North Sea oil, a benefit which no other member enjoyed. Moreover, in the wider context of European trade, the sums involved were really very small.

Second, Mrs Thatcher exasperated her partners – and not least the President of the Commission, Roy Jenkins, whose job it was to broker a deal – by insisting that Britain’s demand for a budget rebate should be treated as an issue entirely on its own, not settled as part of a wider package, as was the Community’s normal way. Schmidt and several of the other leaders were willing to help Britain, but they expected Mrs Thatcher in turn to be flexible and constructive in other difficult areas like lamb, fish, oil and the European Monetary System. This she adamantly refused. ‘We simply cannot do so,’ she told the Commons in March 1980.³⁵ In opposition just twelve months earlier she had repeatedly condemned Labour’s counterproductive obstructiveness towards Europe.³⁶ But now she wanted Britain’s grievance settled before she would allow progress on anything else.

The other leaders first realised what they were up against at the European Council at Strasbourg on 21 – 2 June, where Mrs Thatcher began by trying to get the budget issue placed first on the agenda, which naturally irritated Giscard. When they eventually reached it, Jenkins wrote in his diary, she ‘immediately became shrill’ and picked an unnecessary quarrel with Schmidt, ‘which was silly because he was absolutely crucial to her getting the result that she wanted’.³⁷ She herself was well pleased with her performance. ‘I felt that I had made an impression as someone who meant business.’ She was delighted to overhear ‘a foreign government official’ comment that ‘Britain is back’ – ‘a stray remark that pleased me as much as anything I can remember’.³⁸

She deliberately set out to be difficult. But Giscard and Schmidt, the experienced European statesmen, both in office since 1974, should have handled her better. After five years of Wilson and Callaghan, they had every reason to welcome the return of a British Government unambiguously committed to Europe. Giscard particularly welcomed British support for the French nuclear force de frappe.They should have set out to disarm her. Instead, at the purely personal level, Giscard as the host at Strasbourg went out of his way to snub her, first by failing to seat her next to himself at either lunch or dinner, and then by insisting on being served first – asserting his precedence as head of state over the normal courtesy due to her sex.³⁹ French gallantry alone might have dictated an effort to make a fuss of her. She was susceptible to Gallic charm, as Francois Mitterrand later proved. Instead she thought Giscard’s behaviour, with reason, ‘petulant, vain and rather ill-mannered’.⁴⁰ When the French President came back to dinner in Downing Street later that year she got her own back by deliberately seating him opposite full-length portraits of Nelson and Wellington.⁴¹ More seriously, the two European leaders (and Giscard in particular) seem to have decided that the way to deal with the British Prime Minister was to put her down.

They misjudged their woman. Once she had defined the issue as a trial of her strength, she would not – could not – back down. Carrington, caught uncomfortably in the crossfire, thought the Europeans’ handling of her was ‘pretty stupid… enormously short-sighted and selfish’.⁴² They would have done much better to have taken her aside right at the outset, before Strasbourg, and offered her a generous out-of-court settlement before the political stakes were raised too high. As it was, Mrs Thatcher spent the interval between Strasbourg and the next European Council at Dublin in November working herself into a position of determined intransigence. In Luxembourg in October to deliver a Winston Churchill memorial lecture, she declared truculently: ‘I cannot play Sister Bountiful to the Community while my own electorate are being asked to forgo improvements in the field of health, education, welfare and the rest.’⁴³ In the House of Commons, pressed both by Labour and by anti-Market Tories, she talked up what she hoped to achieve at Dublin. What she wanted was ‘a broad balance between what we put in and what we get out’.⁴⁴

In fact she was offered a refund of just ?350 million for the current year. Instead of taking it as a starting point for bargaining, she rejected it with contempt as ‘a third of a loaf’. Roy Jenkins had a ringside view of what followed. ‘She kept us all round the dinner table for four interminable hours,’ he wrote in his diary,⁴⁵ ‘for the greater part of which,’ he later recalled, she talked without pause, but not without repetition.⁴⁶ ‘It was obvious to everyone except her that she wasn’t making progress and was alienating people.’

What infuriated her was that no one bothered to argue with her. Giscard ostentatiously read a newspaper, while Schmidt pretended to go to sleep. This was perhaps inexcusable, though they for their part felt provoked by her aggressive insensitivity. But it was not only the big players that she antagonised. For good measure she gratuitously ‘upbraided… the little countries for their pusillanimous attitude’ to nuclear weapons.⁴⁷ There was only one flash of light relief. In the middle of a tirade about ‘my oil’ and ‘my fish’, she exclaimed ‘My God’, at which someone audibly interjected, ‘Oh, not that too!’⁴⁸

The next morning she continued ‘banging away’ at the same points, still getting nowhere, before Jenkins and Carrington took her aside and persuaded her to agree to a postponement on the basis – ‘the words coming out of her with almost physical difficulty’ – ‘that she would approach the next meeting at Luxembourg in April in a spirit of genuine compromise’.⁴⁹

Back in the Commons she was constantly under pressure from both Labour and Tory anti-Europeans to leave the Community altogether. But that was an option she refused to countenance. She certainly felt no emotional or visionary commitment to the idea of Europe; and the more she saw of its institutions in practice, the less respect she felt for them. She regarded it as an organisation founded upon compromise and horse-trading, which she despised. Nevertheless she still accepted without question, as she had done since Macmillan’s first application in 1961, that Britain’s place was in the Community. When pressed, however, she always tended to justify membership in the context of her overriding preoccupation with defence. In his first conversation with her