arguments were not likely to deter the critics.
So, speaking to the Economic Club of New York on Tuesday 18 June 1991, I put my argument against managed exchange rates both in an international context and in terms which frankly admitted the mistakes which my own Government had made.
With the Louvre and Plaza Agreements in the mid-1980s, we sought to put the objective of greater stability of international exchange rates
Targeting exchange rates injects excessive monetary pressure when central bankers ‘guesstimate’ the wrong rate and, like fine-tuning, can produce wild swings towards inflation or deflation when the rate is either undervalued or overvalued, as East Germany is currently discovering. When that happens, the ‘stability’ that makes fixed exchange rates superficially attractive to businessmen is either abandoned in dramatic devaluation or maintained at the cost of far more damaging instabilities like rapid inflation and higher interest rates. In the ERM Britain is fortunate to have a margin of 6 per cent to accommodate variations in the exchange rate.
In general, however, I recall the words of Karl-Otto Pohl, former President of the Bundesbank: ‘Interest rates should be set according to domestic monetary conditions and the exchange rate should be left to go where it will.’ To which I will add: if you fix the exchange rate, then interest rates and domestic monetary conditions go where
It is fair to say that this analysis was not much appreciated by the Government. But some fifteen months later it was proved to be all too correct. Yet the reaction to my interventions confirmed just how difficult it was to tread the narrow line between general support for the Government and vigorous disagreement on a central aspect of what was emerging as Government policy.
One could just about get away with such a strategy outside Westminster. But it is one of the strengths of the House of Commons that speakers are pressed in debate to reveal their true opinions; and, beyond a certain point, I had neither the intention, nor, after all those years of speaking my mind, probably even the ability to dissemble. The impossibility of the situation was brought home to me by the House of Commons Debate on the European Community on Wednesday 20 November 1991. In my speech, which would in fact be my last in the House, I supported the Government’s motion, attacked the Labour Party’s policy on a single currency and dealt with the criticisms levelled against me for signing the Single European Act. But I went on to question whether any ‘opt- out’ for sterling from a single European currency would be worth much in practice, bearing in mind that the Maastricht Treaty would still require us to sign up to the goal of a single currency and the institutions designed to prepare the way for it. Repeating an idea which I had floated in interviews during my leadership election campaign almost exactly a year earlier, I called for a referendum if there was a decision to abandon the right to issue the pound sterling. This, however, was something which the Government refused to promise.
Events now moved swiftly and, as far as I was concerned, in the wrong direction. Although for some time it would prove difficult even for Members of Parliament, let alone members of the general public, to obtain the full text of the Maastricht Treaty, its provisions were agreed and the Prime Minister made his statement on it on Wednesday 11 December. Those who knew me well also knew that I could not ultimately go along with Maastricht. I could never have signed such a treaty. There were well-meaning and increasingly desperate attempts to persuade me that I could and should remain silent. I would dearly have liked to comply.
An embarrassing little occasion the day after the Prime Minister’s statement illustrated how far wishful thinking would go. I was delighted that John Major was able to come to Denis’s and my fortieth wedding anniversary party at Claridge’s on Thursday evening. We chatted amiably about everything other than what was on our minds. But when I went out of the hotel to see the Prime Minister to his car I was faced by a whole battery of cameras and asked how I felt about his performance at the Maastricht Council. I replied that I thought he had done ‘brilliantly’. And I did indeed believe that as a political operation designed to present his approach in the best possible light he had shown great skill. But naturally my remark was taken as signifying agreement with the Maastricht Treaty itself. As I read the newspapers the following day I resolved that there could be no more misunderstandings of this sort, however painful for all concerned the consequences might be.
THE MAASTRICHT TREATY
Article A of the Maastricht Treaty — viewed superficially at least — nicely combines the two alternative views of Maastricht’s purpose and effect.
By this Treaty, the High Contracting Parties establish among themselves a European Union, hereinafter called ‘the Union’. This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen.
The phrase ‘ever closer union’ is repeated from the original Treaty of Rome, though it is worth noting that in the Rome Treaty it was in the Preamble. Maastricht elevated it for the first time into the substantive treaty text as part of the Treaty’s objectives clauses. But, in any case, the concept of a ‘Union’ is clearly a major extension of that — ‘a new stage’, in fact. Moreover, Articlefsets out clearly the objectives of this Union, including ‘the establishment of economic and monetary union, ultimately including a single currency’, ‘to assert its identity on the international scene, in particular through the implementation of a common foreign and security policy including the eventual framing of a common defence policy, which might in time lead to a common defence’, and the ‘introduction of a citizenship of the Union’. Understandably, therefore, Chancellor Kohl has commented:
In Maastricht we laid the foundation-stone for the completion of the European Union. The European Union Treaty introduces a new and decisive stage in the process of European union which within a few years will lead to the creation of what the founder fathers of modern Europe dreamed of following the last war: the United States of Europe.[69]
On the other hand, the phrase ‘in which decisions are taken as closely as possible to the citizen’, combined with the removal at British insistence of the phrase ‘federal goal’ from the earlier draft Treaty, gave the British Government a pretext for claiming that Maastricht actually devolved power from the centre to individual governments responsible to national parliaments. The flurry of interest in ‘subsidiarity’ similarly stemmed from the British Government’s desire to give the impression that Maastricht was a liberalizing rather than centralizing measure. Indeed, a new Article 3b was inserted by Maastricht into the Treaty of Rome:
In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can, therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community.
This wording has rightly been described by a former President of the European Court of Justice as ‘gobbledygook’. The past behaviour of the European Commission gives no reason to believe that it would constrain
