WYNDHAM PLACE CHARLEMAGNE TRUST 2012 CHARLEMAGNE LECTURE The British and Europe kidding ourselves or telling it like it is? given by Sir Stephen Wall GCMG on 20 June 2012 in the House of Commons Guy Wilkinson Ladies and gentlemen, before I formally welcome you and our guest speaker for tonight, could I just recall with some sadness the death of the Wyndham Place Charlemagne Trust’s Vice-Chair, Lord Archer of Sandwell, Peter, who died on 14th June after a long illness. We don’t yet know the details of his funeral, but he has been a remarkable person, both in the life of the Trust and much more widely over the years. His death is a great loss so I just want to record our grateful thanks to him. I am sure many others whom he has influenced for good over the years would also want to acknowledge their debt to him. Then turning to this evening, I’d like first of all to thank Lord David Williamson for enabling us to have the reception just now in the House of Lords, and to John Pugh MP for enabling this lecture to take place in the House of Commons here. I am grateful to both of them for their support and encouragement of the Trust over the years, and particularly in enabling this lecture to take place. May I then welcome you to the 2012 Charlemagne Lecture of the Wyndham Place Charlemagne Trust. We are particularly privileged tonight to have Sir Stephen Wall with us to give us this lecture under the interesting and intriguing title, “The British and Europe: kidding ourselves or telling it like it is?”. There can be few people who are better placed to speak on this subject than Sir Stephen. I have before me a long list of his accomplishments and the roles that he has played over the years, but I am not going to read them out because I think it would eat into your lecture time rather substantially! But suffice it to say that there cannot be many people who have had the breadth and depth of experience and the impact on policy making that Sir Stephen has had. He was private secretary to three successive Foreign Secretaries and to a Prime Minister, quite apart from being Ambassador in Portugal and head of the European secretariat at the Cabinet Office. I could go on, but his lecture calls. His lecture tonight of course falls at a remarkable time, a very complex and critical time in the debate and discourse about European affairs. We have this evening with us someone who is well qualified to speak on these matters; we have a subject matter at the heart of many aspects of British policy; and of course we have a context which is particularly acute and critical. 1 And so bringing those three things together I think we are very privileged to have Sir Stephen speak to us this evening. He has also very kindly agreed to respond to questions, so we’ll have time for questions and responses after his lecture. Sir Stephen, may I turn to you now and ask you to speak to us. Sir Stephen Wall Guy thank you very much, and thank you all for being here. I am glad you didn’t rehearse my achievements because a couple of years ago the German government was kind enough to give me an award for what I thought was my part in Europe’s downfall; I went to the German Embassy and the German Ambassador stood up to make a speech and after a brief reference to Europe he played tribute to the seminal work I had done in bringing back to public note the works of Anthony Trollope! I am second to none in my admiration of Trollope, but it did transpire of course that what he had done was google my name and he’d come across the very distinguished academic Stephen Wall my namesake – sadly he’s dead now – whose life work was indeed to bring back to the public the works of Anthony Trollope. A very distinguished Conservative elder statesman – and if I tell you it wasn’t Geoffrey Howe and it wasn’t Douglas Hurd you can probably guess as it’s the only one left as it were – said to me recently that for the first time in his political life, he was more worried about what our partners were doing to the European Union than about what we, the British, were doing to the European Union. And I guess it is a salutary moment to take stock because the European Union is, at the end of the day, not a Church, it is a political organisation; very few political organisations survive beyond a certain period; we know from our own experience that the European Union has worked and I think it is a good time to ask the question, is it working still and will it work in the future? Those of us who worked for Lord Owen, David Owen, when he was Foreign Secretary, know that he had a view which was that those officials - both in the period when Britain didn’t join the European Community and then more pertinently in the period when de Gaulle kept us out - were so scarred by that experience that there was a kind of pre-emptive cringe in their/our approach to European matters, in that they were always afraid that we would once again either miss the boat or somehow be bypassed. And I think there is something at least in what he said, although exaggerated. But I think it is equally fair to ask the question in the light of recent experience, have our partners also over the period of the last decades been in part seduced by their own success? We joined, as we know, because successive governments – the Macmillan government, the Wilson government and the Heath government – concluded after close examination that there was no viable alternative. And each of those governments looked in detail at what the alternatives might be: they looked at EFTA and concluded that it was not big enough or powerful enough and anyway, a lot of its members, like us, were looking towards the European 2 Community; they looked at a North Atlantic Free Trade Area, and were not themselves much seduced by it, and even if they had been, the position of the United States government of the day was “you’ve got to be joking”: it was more politely put, but the basic message was, “we have twice come to the rescue of Europe and if you think we want you guys being attached to us more than you are already, think again”. And we looked at the option known as GITA, Go It Alone, and equally it was concluded by those successive governments that that was not a viable option. So the decision to join – the decision taken by Macmillan, and the decision subsequently taken by Harold Wilson, was taken partly on economic grounds, but primarily on political grounds. The economic arguments, certainly as they presented themselves to the Wilson government, were balanced ones. They looked in particular at the balance of payments effects of joining, and while they hoped for a dynamic economic effect, the initial costs and the costs over several years were going to be considerable, so the argument that was made, the argument that George Brown as Foreign Secretary made when he presented the British application at a meeting of the Western European Union, was a political argument: that here in the second half of the twentieth century membership of the European Community was the only means available by which countries like Britain and others of equivalent size could make their weight felt in the world and could make their influence felt as against the otherwise preponderant position of the two great superpowers, the United States on the one hand and the Soviet Union on the other. China was sometimes mentioned as a kind of distant threat; Japan at that stage was not mentioned at all. And neither then nor later – and indeed not even very much later – was it thought that the Soviet Union might not go on being the other great superpower until the end of the twentieth century. Never was that thought entertained. Now, I think the interesting thing – and what I’m trying to do is to chart where a divergence happened between British views and that of our partners – the organisation that Britain joined was one which institutionally – and I emphasise institutionally rather than in policy or money terms – was one which institutionally speaking the French and Germans – at that time – thought that they had joined too. If you look at the evidence of what Brandt and Schmidt thought, of what Pompidou and Giscard thought, of what Wilson and Heath thought, they all believed in a European Community which would be run by the big governments – i.e. by France, Britain and Germany. They paid little more than lip service to the notion of democracy in Europe via the European Parliament and they certainly did not foresee the extent to which, once that Parliament became elected, power would, as it were, grow out of the barrel of the ballot box. All of them – all of them thought that the European Commission should be the servant of Governments. Helmut Schmidt railed against the European Commission as no other European Head of Government has ever done. Ted Heath used to argue – and he argued in writing and in many meetings – that he wanted the Commission to be composed of politicians, but not, he said, 3 because those politicians were to exercise independent authority, but rather because, as politicians, they would understand the domestic politics of the member states and the policies put forward by the Commission would therefore take account of those domestic realities. So all of them thought that the Commission should be the servant of the Governments. And I think all of them underestimated the dynamism of the Treaty of Rome: they overestimated the extent to which this was a process that would be wholly under the control of governments. That is not to say that they were unaware of the realities. Every British government that looked at this issue, including the Heath government at the time that we joined, were made very well aware by British Government lawyers, both political and official, that the Treaty of Rome was unlike any other international Treaty that Britain had hitherto signed up to in that, whereas those international Treaties stated in absolute terms what their powers were, and any change in those powers would require a fresh treaty, in the case of the Treaty of Rome, the power within it to make laws at European level created a dynamic system in which the relative power as between the institutions and national governments might change. But although they knew it, they did not appreciate at that stage how significant this factor would be. So if there was then that degree (as I believe that there was) of mutual agreement, where and when did the divergence happen? It certainly didn’t happen at that early stage on the question that was then no more than a prospect being debated, the question of the possibility of a single currency. In 1966 the then Chancellor of the Exchequer James Callaghan made a speech at the Mansion House in which he spoke positively about the possibility of a single currency as being part of the answer to Britain’s own problems with sterling. Nicholas Kaldor, Harold Wilson’s adviser at the Treasury, had done a paper on the subject which senior members of the government read and, although it was never formally endorsed by Cabinet, it was greeted with interest and, at least by implication, with approval by the senior members of the Government. And the position of the Labour Government – the Government that applied to join the European Community in 1967 and was preparing to negotiate for entry when it lost office in 1970 the position of that Government was that it would move as far and as fast on integration as any of Britain’s future partners wanted to do. I think the moment of divergence really starts from 1970, and for a number of reasons. By the time negotiations for British accession were about to begin, and they were about to begin at the moment when there was a General Election in Britain and Labour lost office, something very significant happened. The reason the Labour Government decided to apply when they did in 1967 was because, as George Brown, the then Foreign Secretary, told them, in about 1969, the European Community would take a definitive decision about how to finance its policies; and the financing of its policies meant the financing primarily of the Common Agricultural Policy which then occupied 90% of the Community’s budget. And George Brown argued, and convinced his Cabinet colleagues, that Britain had to be inside the European 4 Community by that point in order to be able to secure its interests. And indeed that view was supported by the European Commission and by friends of Britain like the Germans who said “yes indeed, if you were to join later than that you could face a situation in which your national interests could be very severely disadvantaged, but of course you will be in by that point and able to defend your position”. Now as we know, General de Gaulle put paid to that by his second veto, the veto that he passed in 1967. I think that - because of all the visceral issues and his obsessive view which applied, not just to Britain but to all his Community partners, about the way in which they were setting themselves up for dominance by the United States - I think it is often easy to overlook the very hard-headed national interest element in de Gaulle’s position. This was that, much as he detested the institutions of the European Community, nonetheless he had succeeded, France had succeeded, in shaping an organisation whose central policy, the Common Agricultural Policy, was massively to France’s interest. And with that came the notion of Community preference, a self-avowed protectionist system, which ensured that, as Pompidou later put it to Heath, in political terms, it prevented conservative peasants in France from becoming communist car-workers. In the election campaign which led to Ted Heath’s rather unexpected victory in 1970, I think it is significant that a number of Conservative candidates elected in that election had canvassed in their own constituencies on an antiEEC platform. And Ted Heath was very quickly being advised by people within the Conservative Party, pro-Europeans within the Conservative Party, that Enoch Powell – who then was still a Conservative (some suggested that he garnered for the Conservatives in that election up to two million votes on the back of his “rivers of blood” speech, a contention that has never been proved or disproved) - that Enoch Powell had worked out that leading the anti-EEC lobby in Parliament could be a vehicle for his own leadership ambitions, i.e. that he could defeat Heath on Europe and then defeat him for the leadership. And that was a threat that Heath took very seriously and indeed, from that moment onwards, the issue became a divisive issue within the Conservative Party as it already was to an extent within the country as a whole. And of course the same was true in spades of the Labour Party. All evidence suggests that, had Harold Wilson still been in government, he would indeed have negotiated terms which in the end would have been very similar to those which Heath accepted. Equally, I think that Harold Wilson’s intention in opposition was to maintain broadly speaking the pro-European stance of the Labour Party, but that option was quickly removed from him. His leadership was no longer guaranteed. He was after all the man who had unexpectedly lost his party the election. He devoted a lot of his time in the early months after the election defeat to writing his lucrative memoirs rather than paying attention to the fate of his own party. So on the one side – on the proEuropean side – he had Roy Jenkins wanting his job, and on the other side he 5 had people like Denis Healey and Crosland: Healey who went anti-European, pro-European, anti-European again within the space of weeks; Tony Crosland who had long been a supporter of European Community entry and reversed himself. Above all, he had as a potential threat to his leadership, Jim Callaghan. There is no evidence to suggest – and I have read not just the Cabinet minutes but the notes made by the Cabinet Secretary – there is no evidence to suggest that Jim Callaghan as Chancellor of the Exchequer was other than a firm supporter of the Labour Government’s bid to join the European Community. But in the spring of 1971 at about the time when Ted Heath was visiting Paris for his famous meeting with President Pompidou which opened the door to the successful end of the negotiations for British entry, Callaghan made a speech in Southampton, and he rang the editor of the Times before going to Southampton, saying “you should send somebody to cover my speech, this is the speech of the next leader of the Labour Party”. And in that speech, Callaghan picked on something that Pompidou had said in an interview with a “Panorama” programme. Pompidou had talked about the need, after British entry, to preserve the French language – he didn’t claim more than that. “Oh”, says Callaghan in his speech, “does that mean that we can only speak the language of Chaucer and Shakespeare and Dickens by permission of Mr Pompidou? No thank you Mr Pompidou! To be clearer I’ll say it in French, “non merci beaucoup”.” And “non merci beaucoup” was not just about Pompidou, “non merci beaucoup” was Callaghan saying: I take my stand against membership of the Common Market. The fact that he had told the editor of The Times that the speech should be covered because it was the speech of the next leader of the Labour Party, was reported within 40 minutes of Callaghan making the phone call, to Harold Wilson who was on a visit to Helsinki, and so Wilson’s position became almost untenable. And the price he had to pay for preventing his party going all out for complete rejection of membership was to offer renegotiation – not at that stage a referendum although the idea of a referendum became common currency. At the same time of course, the Government, the Heath Government, was completing the terms of British membership and knew that the terms were in many ways very unsatisfactory. President Pompidou, under pressure from the Germans and others, had opened the door to British membership but only on condition that the financing of the Community and its Budget were decided before negotiations began. And so Britain entered those negotiations knowing that she would be required to make a net contribution well beyond her position in terms of GNP and certainly without any compensating advantages in terms of expenditure by the European Community coming back to Britain. And officials did indeed consider whether, actually, they should advise ministers to pull away, to say right, we cannot conclude on this basis. But they – rightly in my view – judged that if Britain said “no” in 1970, the circumstances were such that she would be forced back to the negotiating table in a year or two’s time and possibly have to accept even worse conditions. So they secured - clever people like David Hannay - secured in the text of the negotiating document a commitment that if the British were 6 right about the costs they would have to pay, that the subject would have to be revisited. When the negotiations were concluded, and before Britain joined, in the October of 1972 at the first European Summit in Paris, the Heads of Government including Ted Heath committed themselves to two things. By 1980, they committed themselves to economic and monetary union on the one hand, and something called “European union” on the other. People knew what economic and monetary union meant. Pierre Werner had done his report on the subject and there was certainly no doubt in British minds that what we were talking about in economic and monetary union was ultimately a single currency, and in the British view almost certainly a single economic and fiscal policy to go with it. As to “European Union”, at about midnight on the last day of the conference, the Danish Prime Minister was brave enough to put up his hand, having the conclusions in front of him, and say “what do we mean by European union?” The British record of the meeting says that, happily, fortunately President Pompidou paid no attention and brought the meeting to a close. When the Foreign Secretary, Alec Douglas-Home was asked in the House of Commons the following week “what do you mean by European Union?” he said, “well, we’ll make it up as we go along, we’ll decide as we go along”. A few years later Michel Jobert told Jim Callaghan, the latter being by this time Foreign Secretary, that Pompidou had done it as an expression of hope. In other words this commitment to something called European Union was entered into without any definition of what union meant. But the commitment to economic and monetary union was entered into with a much clearer definition and indeed phases by which it should be brought about. But those phases, or the next stage of those phases, were quickly scuppered by a number of things in 1973 coinciding with British accession. The first of those was the collapse of the Bretton Woods system. There is a footnote to that which is about a very interesting two days that Heath spent in Bonn in February 1973 when he and Brandt came very close to making a great leap towards monetary union. Heath made a speech at a dinner given for him by Brandt in Bonn at which he said: “This is a moment like 1940, like the moment when Churchill offered union with France. We have to pull out all the stops and go straight for our objective.” Derek Mitchell, the senior Treasury official who was with him, was supportive and Heath left Bonn believing that Brand and Schmidt, his finance minister, were in favour of immediate steps towards economic and monetary union. But when Anthony Barber, the Chancellor of the Exchequer, presented a British proposal in Brussels, a week or so later, part of that proposal was that for Britain to get back into the snake - the currency system then in force in Europe - it would require – it sounds familiar in present circumstances – would require massive levels of support from our partners. So, as often happens if you do not prepare the ground, and do not explain to people what you’re about, people become deeply suspicious. They thought this was just a British ploy to get 7 money from her partners and they disregarded what was undoubtedly the serious political intent behind Heath’s initiative. So the initiative foundered. As the year wore on, two other things compounded the problem. The first was Henry Kissinger’s wonderful “year of Europe”, a year launched without any consultation with America’s European partners, and producing a reaction, not least on the part of Ted Heath, that later in the year led Kissinger to summon the British ambassador in Washington, Lord Cromer, and to tell him that Ted Heath had single-handedly destroyed the special relationship. We thought, Kissinger said, that when you joined the European Community you would bring France to heel but instead of that France has brought you to heel, you are doing France’s bidding not the other way round. And secondly and much more significant, the Arab-Israeli war and the oil embargo that followed, from which I would draw out two things. One, that it was a demonstration of a failure of solidarity, i.e. the countries less disadvantaged by the embargo because of their Palestinian policies, namely Britain and France, were not willing to come to the help of those who were significantly disadvantaged, notably Germany and the Netherlands, on the slightly - in my view, spurious - grounds that this would only make matters worse. And then on the back of that, and this coincides with the last weeks of the Heath government and the three-day week etc etc, Heath was determined to get agreement to a Regional Development Fund as the way of bringing EEC-money to Britain and balancing what would otherwise be the budget imbalance. He instructed his Foreign Secretary, Alec Douglas-Home, to block all progress on a Common European Energy policy unless and until Britain got its way on the Regional Development Fund. So we can see, even under Ted Heath, the beginnings of policies of confrontation. So when Wilson comes back in in February 1974 committed to renegotiation, the atmosphere between Britain and her partners was already quite a bad one. And inevitably – with Britain having only just got in and now threatening to come out – creating circumstances in which Britain’s partners were willing to renegotiate was very difficult. Wilson sensibly made the necessary concessions by agreeing first of all to stay at the table and in doing so he managed to blindside the eurosceptics in his Cabinet; and secondly by agreeing he would seek no change in the Treaty of Rome and no change in the Treaty of Accession. That immediately created a different atmosphere. Later on, when people like Giscard and Schmidt said to Wilson, “are you simply going to put the results of this negotiation to the British people or are you going to put your weight behind them?”, Wilson then said, “if I get a successful outcome, I will put my weight behind the campaigning for a yes vote in the referendum”. Then, in the negotiations between Britain and her partners, things started to happen. But at the end of all that, the position of the Labour Party, the divisions within the Labour Party, the divisions within the British Government, made the idea of a kind of relationship that had been dreamed of, of the three big leaders, 8 Schmidt, Giscard, Wilson and subsequently Callaghan, that idea had gone even though Wilson and Callaghan had far closer personal relations with Helmut Schmidt than Schmidt had ever had with Giscard. And Schmidt later said, I think to Julian Bullard when he was our Ambassador in Bonn, that all his life he had tried to create European policy with the British and in the end Britain had driven him into the arms of the French. Curiously, and interestingly, as part of the process of renegotiation Wilson reconfirmed what Heath had agreed to in 1972, in other words he formally reaffirmed Britain’s commitment to European union and to economic and monetary union. But by that stage, because of everything that had happened in the world economy, economic and monetary union looked like a distant goal, an aspiration rather than a commitment. As far as European union was concerned, when Jim Callaghan asked the other members of the European Community, “what do you mean by European union?”, he got eight different answers including the one from Jobert that I mentioned, and advised the government and his party that this notion was basically hot air. And of course, throughout this period, another aggravating factor was the state of the British economy: the problems of keeping Britain within the snake that I’ve mentioned and subsequently the problems of the British economy both under Heath and, later on, under Wilson and Callaghan. So the brief moment at the outset of 1973 when Britain might have been part of a great leap forward, was lost for various reasons. When Thatcher came into power in 1979 she was obliged – however she did it she was obliged - to re-open, as Wilson had done before, the issue of Britain’s budget contribution and to fight toughly in order to get a satisfactory result, to get redress. And she had to do that within an organisation which in terms of its protectionist stance was diametrically opposed to everything she was trying to do in the British economy and more generally. There was a moment in the 1980s on the eve of the GATT negotiations when Margaret Thatcher said to President Mitterrand: “President Mitterrand this is no time to go protectionist”. He replied: “what do you mean? The whole point of the European Community is that it is protectionist: that’s why we created it”. So when talks started to revert to the idea of economic and monetary union and political union, yes, it raised alarm bells. This was why, in 1983 at Stuttgart, Margaret Thatcher ensured - rather harking back to what Alec Douglas-Home had told the House of Commons in 1972 - that European union must be defined, not as an objective or as something specific, but as a process. On that basis she was willing to accept reference to European union in the Single European Act which massively increased majority voting in the European Community and which she wholeheartedly endorsed at the time, contrary to what she subsequently asserted. And she accepted references to economic and monetary union partly because, as she says in her memoirs, that had been foisted on her by Ted Heath and partly because she was assured at the time privately by Helmut Kohl that he was not in favour of economic and monetary union. 9 So at that stage was she deluded in believing that the British position was secure? I think there’s an interesting kind of transition from that moment onwards, from the time the Single European Act comes into being and a number of things following from it. One is the greater use of majority voting not just to put through things that Britain wanted to create in the Single Market, but also things that Britain did not want, in particular social legislation, perhaps the primary reason why Margaret Thatcher’s government and successive governments including the Blair government, which only reluctantly signed up to the Social Chapter, have had reservations on that score. And then of course the gradual move led by Delors to get back onto a serious agenda leading towards economic and monetary union. Initially Margaret Thatcher did not take it very seriously. At the time of the Single European Act she had given privately to Kohl and Mitterrand a British draft paper about how to improve Foreign and Security policy. She had asked privately for their comments, but comment came there none - and then the French and German governments produced out of a hat a Treaty of Political Union which was basically the British document topped and tailed: behaviour which Margaret Thatcher said at the time was enough to “get you thrown out of a London club”. And she thought – indeed she said so publicly on the back of that experience - that economic and monetary union would probably be something rather small with a grandiose title, and by the time she realised that it was more than that, the shape of what became the Maastricht Treaty was beginning to become apparent. And she again is on record at that time as saying that a monetary union could only succeed if its members were willing to make large fiscal transfers from rich to poor. And, she added, you can only have those large fiscal transfers in a political union – and a political union for her was unacceptable. But I think it’s worth remembering that in her famous speech in the House of Commons, the famous “no no no” speech – the “no, no, no” was not to economic and monetary union, much though she opposed it, but to a different aspect of Delors’ policy namely the idea that, as he had put in a speech (hence the three no’s) that the shape of the European Union should consist of an administration, namely the Commission, answerable to the European Parliament, with the European Council, the heads of government, as a kind of second chamber. Now, was she right to take that as seriously as she did? Well in retrospect no, but at the time, she was the only head of government who reacted against it, and her reacting against it was considered extreme and indeed was one of the things that provoked the resignation of Geoffrey Howe and the leadership election that brought about her downfall. So when it comes to the Maastricht Treaty, first of all there has to be a recognition on the part of the British Government, as there was – not by her but by her successor – that this cannot be stopped, and the countries that want a single currency will do it anyway on their own if we seek to block them. We therefore have to let them and have a treaty of the whole in which our interests both not to join and potentially to join are safeguarded. 10 Certainly there was a huge, huge concern on the part of the British government about whether there was adequate convergence between the economies of the participating states to make it workable. And I can recall a conversation between John Major and Charlie Haughey when Charlie Haughey was Taoiseach, in which John Major set out what the single currency involved: single exchange rates, single interest rates, and Charlie Haughey laughed and said, “oh John, I don’t know anything about all that stuff! For us it’s the politics, we’ve got to do it because of the politics”. And I think when it happened, when I look back, I was sitting in Brussels in 1999 when the single currency came into force, I think that at that stage I and a number of others had accepted the argument – and indeed Ken Clarke was one of its principle exponents - that actually you could have a successful monetary union without the political aspects to which Margaret Thatcher had referred. Secondly the success story of the Member States of the European Community in making happen what they wanted to happen would prevail and, in particular, if you had France and Germany united behind a particular policy. So I think we had overlooked some of the underlying economic issues and I think we had also overlooked two other factors. One was of course that with German reunification, Germany’s interest in European union declined. And of course there was also an aspect of the single currency which was a deal between Kohl and Mitterrand, Kohl accepting the single currency in exchange for Mitterrand accepting German reunification. Of course, if you look at the newspapers of the time, there were real French fears on the one hand that Germany would drift into dangerous neutrality or, on the contrary, that she would become a dangerous superpower and therefore that a single currency was a matter of corralling her. Were our partners guilty of hypocrisy or were they guilty of wishful thinking? I think probably wishful thinking to the extent that they too believed that the momentum could create the convergence and as we’ve seen over recent years, that simply hasn’t happened. So on the one hand you have a Britain which in my view is calling it like it is, in other words is saying, “it is ridiculous to have a modern organisation whose budget is dominated by agriculture which is a relatively small part of our economies. We have to have a European Union which is outward looking, we have to have a European Union which is liberalised in economic terms, we have to have a European Union that enlarges.” All that nowadays sounds commonplace, but when Margaret Thatcher made the Bruges speech in 1988, and when she said, “let us never forget that Prague, Warsaw and Budapest are also great European cities”, that was regarded as outrageous by many of Britain’s partners at the time: this was dilution as against deepening. Where does all this leave us, now? As we all know, prediction in the present circumstances, is very difficult. The Chancellor - rightly in my view - is urging on the eurozone the moves which they are indeed seeking to make: to try to have the kind of economic and fiscal union that will if they succeed make a political union. Obviously there’s many a slip between the cup and the lip: 11 the markets may dictate otherwise; domestic opinion in the countries concerned may dictate otherwise; the sheer size of the eurozone on the one hand compared with its heterogeneity on the other makes the task hugely more difficult. But if you are interested in economic stability and political stability it seems to me that that success is something devoutly to be wished. What seems to be less realistic is the kind of suggestion that you thereby create a world that we in Britain can and would want to get off. Part of this was expressed in Lord Owen’s proposals of a week or so ago in which he suggests a referendum in which the British government would, if people voted yes to one of his propositions, be mandated to negotiate a new form of wider community in which competences in things like agriculture, industry and social issues would move from Brussels back to the nation state. Well as Peter Mandelson said at an event that I was at yesterday, strategy and tactics have to go together, and part of judging your tactics and your strategy is a realistic assessment of what is negotiable. Off the top of my head I can think of the following countries – France, Germany, Italy, Spain, Portugal, Ireland, Greece, Denmark, the Netherlands – who would not agree to the repatriation of agricultural competences. So it seems to me that the aim we should be focusing on in present circumstances is yes, the success of the eurozone but how, how in very very difficult circumstances do we manage to maintain those aspects of the united European Union to which Britain attaches importance. Let us say that the eurozone countries succeed in getting their act together. If they don’t then all bets are off for all of us in the European Union. If we assume they succeed, then self-evidently, that will be the power at the centre of the European Union; they will need to do what they need to do to continue to be viable, and if that impinges on the single market policy and competition policy, then in my view they will move in that direction and they will have the votes to do so. And yes, we can veto a treaty of the 27 or the 28 or however many members we are, but we can’t necessarily stop a separate treaty among the eurozone if that were what they sought to do. So it seems to me that part of our approach ought to be - and I’m sure behind the scenes is - to work out what do we really need to preserve and how do we preserve it? And that raises the question, “where do we find our allies?” In turn that raises the question, “what compromises do we make rather than insisting that every British interest is a vital British interest?” And the other thing it seems to me that we need to reflect on is to ask ourselves the question that all these governments I’ve talked about asked themselves: “is membership of the European Union in our national interest?” Part of the answer to that question is, “are there any viable alternatives?” I myself don’t know what at this stage the viable alternatives are because if you want peace and stability, the first people you need to cooperate with are your neighbours who happen to be your partners. If you are worried about the potential rise of populism within Europe, then you need concerted action to deal with that. And that’s setting aside the very valid point made by what 12 is usually regarded as the eurosceptic thinktank Open Europe last week, that if you look at the economic alternatives which are paraded as if they are the answer, all of them are less advantageous than the European Union as it exists, provided of course that we maintain the advantages that we have in common policies around a single market. And of course it goes without saying, that unless we do maintain something of that coherence and unity, the thought that was in the minds of Macmillan and Wilson and Heath, that Europe is the vehicle by which we can exercise influence in the world – well, we can forget it. So we have done some telling it like it is, but we’ve also done a bit of kidding ourselves, and I think now we are in danger of kidding ourselves that this is their problem. But it is our problem to the extent that it impinges on our economy and I don’t think we are thinking about it in terms of what is the positive contribution we can make to ensure that we can preserve for the future the Europe, whole and free, that previous Prime Ministers strove to create. Guy Wilkinson Thank you very much indeed for that quite remarkable survey of where we’ve come from and for showing us how in many ways, where we’ve come from reflects the same kind of issues that we face now. I think that question you posed in your title: realism or denial, is one that we’ve struggled with from the beginning down to the present day. What struck me was the way in which, as is often said, economic and monetary union and European union, were not part of the original deal: it’s often claimed that that was the case; I think that what you’ve done is to make it very clear that that was a strand at the centre of the discussion right from the very beginning. We have time now for questions and discussion, so I’ll take two or three questions at a time and then we’ll move on. - Sir Stephen, I was hanging onto your every word, as I am sure everybody else was, - hoping you might mention the word “banks”. Because it seems to me that where we are talking about a nation not being by itself but being part of a political union and part of an economic union, we are at great risk if our banks don’t do their job properly. It was true in the 1930s, it was true in 2008, and indeed if you look at the political response then it seems we are not recognising it now. The elimination of the Glass-Steagle Act in the late 90s in the US showed that some people thought they were having a good time and they could have an even better one if they could borrow even more money than they were borrowing already. And this government at the moment is shelving any opportunity it possibly can to install the equivalent of the Dodd-Frank Act in order to make them do what they ought to do. It certainly is the failure, the absence of any effective banking regulation, that 13 seems to me to be the elephant in the room, the biggest problem we’ve got in Britain quite apart from the politics that you quite rightly mentioned. - My question is, what’s going to happen now? - Could I ask Sir Stephen to address the trend which has developed over the years and which you’ve described at the institutional level: the increasing gap between the rulers and the ruled? We have seen the rise of what are called right-wing nationalistic movements of one sort or another, more in the UK perhaps than elsewhere. Perhaps you could indicate the extent to which communication between those who are doing the ruling and those they are ruling is widening. There really is a need for a big PR exercise whether it’s the particular thing of the eurozone or the general things that are happening in Europe, to communicate better with the people and to stop this drift towards what I think is a very ugly development over to the right of the political spectrum. Stephen Wall I agree with you about the banks. I think in talking about national regulation as a benign alternative to European regulation again you come back to the fact that anything determined by the eurozone is going to have a determining effect in practice on the way our own banks have to perform. So personally, I recognise all the problems as regards the City of London about regulation at European level, but we have had a reasonably successful track record not necessarily in terms of the substance of what was done but in terms of the representation of British interests on the subject and I don’t believe that we should assume that regulation at the European level is bound to disadvantage our interests as against those of Paris or Frankfurt. What now? I think it is impossible to predict because there are so many imponderables. One is the one I’d hope for: that the eurozone does indeed make the move that they’ve not so far made, but that they are seeking - to move towards a fiscal and economic union that would have the characteristics of a political union. However we see from day to day how difficult that is, a) because of the reaction of the markets, b) because of public opinion and the response of leaders to that. I do think that even beyond that it is very difficult to conceive of a eurozone of the size that it is, that could actually form a political union. I don’t myself see that, so to that extent I think that the risk is that we have an extended period of all the traumas and dramas that we are seeing – not terminal but certainly very damaging, not just to our national economies, but to all of us, but without the ability of the European Union to agree any kind of position in broader political and economic world affairs. On the question of the rulers and the ruled, I don’t know whether you’ve read David Marquand’s book published about a year ago where he specifically addresses this issue. I think it goes beyond what you suggest, but it’s almost insoluble. The way to solve that gap between the rulers and the ruled is to 14 have a European federal system in which you actually have some democratic control over those with power. But the fact is that not just in Britain but in most member states, that idea would not be acceptable. And I think public consent, popular consent was very much there in the early days of the European Community, partly for historical reasons obviously, experiences in the war and immediately afterwards, and partly because it was an economic success. Although the problem is more dire in Britain than elsewhere, in every European Union country we’re seeing that falling off of consent. The Netherlands for me is the classic example: the Netherlands which at the time of the Maastricht Treaty were the most integrationist country. Black Monday for them was when their proposal for a political union in Europe was rejected by the other member states. It is inconceivable that you could now get consensus among any likely Dutch government let alone public opinion to such a proposition. So I think a better job has to be done than is being done – and I say better because in this country it isn’t being done at all – of actually saying why this project is still of benefit to us, but I think there’s no way that I can see of actually completely bridging the gap you describe. Your background history was absolutely fascinating. One of the preconditions of our being able to muck in and reshape after joining was that we could sign up with fingers crossed to certain common objectives. Isn’t a fundamental difference now that no British government imaginable could sign up to the sort of objectives that the eurozone countries are going to commit themselves to – either economic union of a eurozone type or eurozone-plus with all the political and institutional constraints that would go with that? It wouldn’t be saleable in this country. And if we can’t sign up to those very important strategic objectives, even with fingers crossed, it’s going to be much harder for us to muck in on reshaping the European Union in a way that would help to protect our banks, to keep the Union outward-looking, to continue enlargement etc? - - What Stephen seems to be saying to us is a sorry tale of our inability to get our point of view across to our European partners, and that we aren’t able to understand what they’re up to. If that’s the drift of what his lecture was about, and if that is so, then are we likely to be any better at it in the future? I think that everyone in this room thinks we’ve got to get stuck in – the question is how do we do it? Not whether the alternative is to try and go it alone because – well, we know a number of people think of going it alone but most people in this country want to stay. May I just refer here to the publication today of written evidence submitted to the Foreign Affairs committee of the Commons for their current enquiry which shows just how much deep thought and analysis of a constructive sort there already is in the country.1 The question is, who is going to make good use of it? 1 www.parliament.uk/business/committees/committees-a-z/commons-select/foreign-affairscommittee/inquiries1/parliament-2010/future-of-european-union-uk-government-policy 15 - The first thing I always come back to is the generations that were born, and have grown-up in the UK, since the last European referendum: 1975. And those born in the UK since the EU was born: those born after 1992. The latter are Blair’s "babies" if you like and I’m just a little concerned that they are seeing Europe in very very different ways to those who were born earlier: those who didn't have EU citizenship as a "birth right"; who were born and grew-up with different assumptions. And I always look at the age of MEPs; and wonder how their world-view differs to that of those who grew up after a Commonwealth of fairly independent states replaced a British Empire. But quickly in relation to that, if you look at the expectations of those younger people and what those younger people see at home, I wonder how many of them ask why the successful solar subsidy regimes they see at home in the UK are not replicated successfully elsewhere in the EU. Why, when they visit Spain, Greece, Cyprus, Malta, Italy do they not see solar panels on the roofs of residential homes and hotels that might be packed with climate-changing air-conditioning? I wonder if they ask themselves how much money such micro-solar generation might save Greece; or how the financing arrangements might help Greek and other Mediterranean banks? And finally, speaking of banks I am very intrigued by possible cross-border mergers and acquisitions and where Germany will take its banks in due course. A few years ago the idea of certain cross-border bank acquisitions within the EU was considered an unlikely occurrence; but how long before Germany issues eurobonds and uses the money raised to finance its banks in making Mediterranean acquisitions (or even, more sensitively, French acquisitions)? Might eurobonds that fund the acquisition of new "subsidiaries" of German banks in Greece prove more palatable in Germany than Eurobonds directly given to foreign states? And, if so, and if the acquisitions occurred, where would British banks be left in due course with regard to the sheer weight of capital centred in Germany? Stephen Wall On that very last point you may well be right but I don’t know. I do agree with you that clearly people of my age are the last generation which – not in my case remembering the war but growing up in an atmosphere where memories of the war and what needed to be done to prevent that happening again were very much at the forefront of people’s minds. But I think you can step back from that. You can step back from the potential threat of renewed discord in Europe and make a positive case for the advancement of your interests by mutual co-operation with those who are your neighbours, with whom you geographically have to co-operate and who have, partly by the intervention of the European Union, been brought to share the same broad democratic objectives. I wouldn’t myself, however, dismiss the more fundamental outlook. When I was sitting in Brussels, the thing that always struck me, week after week in Coreper, was not how strong this organisation 16 was but how fragile it actually is. We are 27 ferociously competitive nations, and the rules of the European Union are what prevent that fierce competition from getting dangerously out of hand. This again may be an old-fashioned remark, but I was very struck by something I came across, which was a comment made by Pompidou to Heath in 1973, when he was talking about Germany and Willy Brandt as compared with what might follow Willy Brandt. And he said, Pompidou said to Heath: “never forget that only ten years separate Stresemann from Hitler”. And if you go on Wikipedia as I did being ignorant, what you find is that in 1926 the then German Chancellor Herr Stresemann and the then French President Aristide Briand jointly won the Nobel Prize for Peace for reconciliation between France and Germany. And less than ten years later Hitler is in power in Germany and we are on the way to war. So don’t think history doesn’t repeat itself: we can’t simply claim that we have abolished dangerous conflict. I agree with the first questioner: I think that in foreseeable circumstances what you say is right, you cannot conceive of the British government that might be able to sign up to the kind of propositions that are inherent in the kind of political union to which the eurozone are striving. I was asked what I thought would happen and I’ll chance my arm. I think what will happen is that there will be a commitment by all three main parties in their manifestoes in 2015 to hold a referendum on whether Britain should be in or out of the European Union. If such a referendum is held, and if as I believe, it is still winnable, the British people decide to stay in, then even if the eurozone succeed in what they are trying to do, then a few years down the track the question of British membership of the eurozone will present itself again. And we may well be faced with exactly the sort of situation that we were faced with in the 1950s and again in the 1960s. - I thought your historical analysis was splendid but you did seem I feel to let off the British politicians and civil servants of the 1950s rather lightly as after all, most of the things that have gone wrong since then go back to their original miscalculation and misunderstanding. And it is rather important to remember that, because of course our partners in the European Community remember that too. So it’s no good us blaming them for everything when in fact we’ve inflicted most of this on ourselves. But the point I wanted to ask you to throw some light on is this: it strikes me that for as far as the eye can see, assuming you’re correct that the eurozone countries muddle through successfully, construct some structures which enable them to support their single currency and the central bank and so on more successfully than they have done in the present crisis, there is going to be for as far as the eye can see, that hard core but also quite a lot of countries that are not going to be in it: Sweden, Denmark, Romania, Bulgaria, Czech Republic, possibly even Poland, because the appetite in the eurozone to take on new members, particularly new members with a certain fragility and a different level of prosperity to the hard core, will be sharply reduced by these experiences. We can’t exclude the possibility even that some bits of the existing eurozone will have broken off – like Greece. So there’s going to be quite a collection of 17 countries. Now without going into the Owen idea - which I think is completely wrong - to form a kind of “outs” club, surely this is going to impose certain requirements on a European Union of 28 which could be reasonably beneficial to us if we play our cards sensibly. If this is true, the situation as you presented it is very much the eurozone and Britain, and it didn’t take into account all these other countries, and I wondered if you could comment on that. - My question really follows on from the previous one. The reality now is that there are at least two speeds in Europe: there are some countries in the euro, there are some countries in Schengen, and others that are not. It’s probably more complicated than that. So looking ahead, is it not already too simple to think in terms of a referendum in some years to come: “do you want to be part of a European Union or not?” Surely the reality already is some sort of more complex question, “do you want to be in parts of the European Union?” - I would go on in the same vein. I was struck by your comment and I would agree with you, that at the next general election we are likely to be committed by all three major parties to a referendum. What slightly worries me is that we may find ourselves with a Treaty of some sort which needs to be ratified before then if we are going to move rapidly towards some form of eurozone political union. And if you want in some way to keep it within the EU of 28, then that implies a treaty modification. How are we going to get past the European Union Act? It’s going to be quite hard to sell that and it will have ramifications for the power relationship between London and Brussels. Stephen Wall Yes that would certainly present the referendum issue sooner and in more stark form if that was to be the evolution. Indeed we have seen over many years, starting I would argue with the Schengen agreement in the mid-1980s, a Europe of variable geometry. We see it not just in economic and monetary union but we see it in the consequences of Schengen in terms of our opt-in opt-out over frontiers policy. I think the difficulty in the terms you talk about if you come to a referendum is the one that occurs to me within the Owen proposition. It is that David Owen has thought in similar terms to you and has concluded I think, that you need the government to seek a mandate in effect, “mandate us by your vote in a referendum to negotiate the following kind of Europe that would suit us”. We then come up hard and fast against the issue of what is actually negotiable with our partners and if you set yourself obviously unrealistic negotiating objectives, and you fail, then you are straight back potentially to the exit door altogether. This is why in 1974/75 the Wilson government, wisely in my view, set themselves some objectives and when they came back from the negotiation they said we’ve achieved some, we haven’t achieved others, but on balance overall this is a result that we will commend to you. 18 On the point the second speaker raised, I wasn’t trying to suggest that it should be just Britain and the eurozone but rather that the debate in this country tends to be framed – and framed by the government in those terms, i.e. what are the British interests that we must protect? Rather than saying that, “here we are faced with an extraordinarily difficult situation where preserving those things that we want, were we to take Britain out of the European Union, would be very hard to preserve. Where do we make and find alliances to preserve those things?” and in so doing, making clear to British public opinion that there will have to be some sacrifices to be made. I come back to this point – I think the one besetting sin of British negotiating policy is that we regularly make every single British interest a “vital” interest. We are incapable, almost incapable, of distinguishing in our negotiating tactics between what actually matters and what doesn’t matter. Malcolm Rifkind made this point when he was Europe Minister in the Foreign Office when the argument was going on at that stage that we should resist more majority voting to achieve the Single Market. He said well, we need to decide what we want. If all we are in this thing to do is to stop anything happen then yes, we need unanimity. If you actually want things to happen then you have to make a calculation, how do you make it happen? Answer: you need more majority voting, and then you need to make a calculation, do you win more than you lose? Now, actually if you look at the track record, we have won more than we lost through majority voting. But the argument is never ever couched in those terms, certainly not in my experience in Whitehall: every issue is couched as being a last chance saloon. Guy Wilkinson I was wondering in the context in which we find ourselves, what you thought were the really key drivers that have led to the current substantial upsurge in antipathy towards the whole European idea, and why there appear to be so few countervailing voices when the kind of analysis you’ve given us says that if you look at this rationally there does remain a fundamental core of argumentation in favour of some kind of continuing membership? I was very struck when talking to someone earlier on by the kind of language that is now being used, there was a column in the Daily Mail the day before yesterday that referred to Germany as the “Fourth Reich”. Now this is quite extraordinary language, so I just wondered where you think these drivers for these strange and really quite extreme perspectives are coming from and why there is no countervailing voice? - I was talking about Blair’s "babies" earlier and of course there are John Major’s "babies" too; but I am conscious that there are also UKIP’s babies; they’ve been around since 1993: "us and them" in Europe since 1993: Winston Churchill on posters and buses; very little about "Independence" from anywhere other than from the EU. And what's more in recent years history broadcasting has had a leaning towards broadcasting wall-to-wall World War II; with a seeming over-fascination at times for the intricate details of how Nazis operated: "us and them" in Europe. The same also seems to go for potential gaps in some popular school history courses: without the good 19 balancing influences delivered by most teachers, our teenage children could sometimes seem to learn far more about the Nazis than about the development and positive progressive elements of European and Roman Catholic thought. Hence, presumably: the marketing women and men used Churchill on UKIP posters; made Church of England references in BNP propaganda; made references back to the Crusades and clashes of "Civilisations" during the Second Gulf and Afghanistan wars: images of enemies on the European mainland (and in the Middle East); and very little about progression through the twentieth century into the twenty-first: "us and them". And the move from three to tens (if not hundreds) of TV channels hasn't helped the cause of Europe in the UK. Aside from those who "obsess" on the history channels (to the seeming-extinction of even the news channels), thanks to a compounding influence from cheap US TV imports one gets a sense at times some teenagers in this country now have a cultural ethnicity that is more American than British - especially since few leave their sofas let alone their home towns. Hence a greater interest in studying Vietnam than Vatican II and, despite Cyprus and Malta now being EU members alongside the UK, a seeming ignorance of who's now in and out of the Commonwealth (gone are the days of "Treasure in Malta" and the "Commonwealth Children's Film Foundation"; despite Mozambique and Rwanda having now joined the increasingly European Commonwealth!). Maybe this UKIP-type (history and TV based) influence is true in different forms across Europe and the resolving political fusion will be a transatlantic, NATO-based, USA (if NAFTA successfuly merges with a Turkey-included EU); but for the moment there seem to be large groups of young people within the UK for whom the EU is (on a painfully simplistic level) simultaneously bad/"evil" and for whom the EU doesn't matter: (i) because they feel ethnically far more American than European and (ii) because they have no plans or need to travel or do business overseas. Most worryingly perhaps, at times, those views are seemingly strongest among the ones who were born with EU citizenship (alongside Commonwealth membership and being subjects of her Majesty) as their birthright: the UK's newest voters: they turned 18 last year. Stephen Wall I think you’re right to mention UKIP’s babies and as I see it I think there are a number of factors here, and one that is undoubtedly deep in our national psyche. I can’t remember the exact quote but there was a Venetian traveller to London in the 14th century who wrote back saying this about London, that it is dirty and squalid and the food’s awful and the people are badly dressed but they think that London is the wealthiest city and they eat better and dress better than anybody else in the world. That is a feature of being an island nation. And then you can add on top of that all the aspects of history including the fact that for at least 300 years we defined ourselves against continental encroachment in terms of the definition of our national interest. Those things even among the very young are probably embedded somewhere 20 in the psyche. I think the other factor is that people of my age and some others in this room have vivid memories of what it was like to have 22% inflation and trying to pay off your mortgage at 13% or whatever. But for anybody under the age of 40 what they have is a memory and experience of up until very recently a very different kind: as far as Western Europe is concerned peace and huge, huge prosperity and on the whole high levels of employment. So I think part of what we are seeing is a reaction to that – all of a sudden, a real sense of shock at what is happening. And I think it combines with three or four kinds of reasons that we could debate for a very long time: a general decline in “respect for authority”, in other words that we all feel that we are as good as anybody else and we want to express ourselves in that way. I have a feeling that we probably have 19 th century institutions in a 21st century world: it certainly seems to me extraordinary that people are expected to go to somewhere a mile or two from their home and put a bit of paper in a ballot box when they could actually vote on their smartphones sitting in the comfort of their own homes. There’s a sort of disjuncture there between the real world in which people live and the institutions that surround them. But I think it’s more. If you look at the history of the European Community and the European Union, the sense of institutional positivism has always coincided with the periods of economic prosperity and vice versa, and so our present circumstances are making it harder to make the case for solidarity which at its heart is a form of generosity. Guy Wilkinson Thank you. Unless there are other burning questions – there might well be as we all continue to reflect – I’ll draw this evening to a close with a really warm sense of appreciation to you, Stephen because it is not often that we are given the longer-term perspective. The short-term perspectives that we are given in the media and in other ways are quite disabling. You have shown us how some of these questions come around cyclically and are inevitably going to come back again because they are foundational to our geography, to our history and increasingly to the globalising of our economics - they’ll not go away. I think you’ve done us a huge service in giving us this perspective from having been one who lived through it, lived through many of the debates and discussions that took place. I suspect that all of us – perhaps I speak wrongly - alternately are hopeful and despairing about where we might land up, but can’t help feeling that at some point unless catastrophe intervenes, we will come back to the notion that some kind of generous cooperation between European nations is not only desirable but will prove to be inevitable. So I would like to thank you on behalf of all of us here – and perhaps on behalf of a much wider audience as well. 21