Margaret Thatcher: Power and Personality (80 page)

What MPs could see, even if the Prime Minister could not, was that the conflict between her unelected economic adviser and her Chancellor would certainly be divisive and might be explosive.

HOWE STIRS THE ERM DISPUTE

It is unlikely that Margaret Thatcher’s troubles with her Chancellor would ever have escalated to the point of threatening her tenure as Prime Minister had they not become inextricably linked to her difficulties with the Foreign Secretary.

Sir Geoffrey Howe had been simmering resentfully in his post for many months. His personal relations with Margaret Thatcher were deteriorating. There were also policy differences between them in several areas. By far the most important of these was the growing divergence in their attitudes towards Europe. In simplified terms, she was an Atlanticist, while he was a Europhile. She was increasingly sceptical about the direction in which the European Community seemed to be heading. He took the opposite view, supportively accepting much of the federalist agenda in Brussels, which was being spearheaded by the energetic new President of the European Commission, Jacques Delors.
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Against the background of these tensions, Sir Geoffrey took the far from benign decision to involve himself publicly in the row with Lawson over the European ERM. Howe had long been a strong but quiet supporter of Britain’s entry into the ERM. Unfortunately, he chose to declare his hand at the most awkward of moments from the Prime Minister’s point of view, right in the middle of her split with the Chancellor, which had been exposed by Neil Kinnock’s questions in Parliament on 12 May 1988.

The following day, 13 May, Geoffrey Howe was speaking at the Scottish Conservative Party Conference in Perth when he departed from his prepared text. Having mentioned the time-honoured formula about joining the ERM ‘when the time is right’, he ad-libbed his opinion that ‘We cannot forever go on adding
that qualification to the underlying commitment’.
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Inevitably the press made hay and many negative headlines over this evidence of a further split within the cabinet.

This was a red rag to Margaret Thatcher. She was furious with Howe for ‘making mischief’ on the ERM at such a sensitive time.
³²
He claimed that he had no such intention, and had merely been innocently replying to points raised in a European debate by Scottish Tories. This seemed a disingenuous explanation to the Prime Minister, who thought her Foreign Secretary had been stirring up trouble and the consequent media coverage quite deliberately.

The day after his speech in Scotland, with the newspaper headlines trumpeting about the disastrous cabinet divisions over the ERM, Geoffrey Howe telephoned Margaret Thatcher at Chequers to suggest they should meet together with Nigel Lawson to ‘settle the semi-public dispute’.
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He claimed that he made the call ‘in all innocence’.
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She thought his motives were less pure. She gave him the full blast of her fury in the belief that his purpose in asking for the meeting was so that he and the Chancellor could steamroller her into agreement with their views on the ERM. ‘No, I shall certainly not see the two of you together about this’, she shouted.

Howe was ‘astonished by the ferocity of her reaction’.
³⁵
He was left in no doubt about her hostility to his proposal since she repeated her refusal to meet three times. She also told him that the best thing he could now do was to keep quiet, adding for good measure, ‘We were not going into the ERM at present, and that is that’.
³⁶

This row had far-reaching consequences a year later when Howe reopened the arguments about the ERM to mount what was later called the ‘Madrid Ambush’. It consisted of a joint effort by the Foreign Secretary and the Chancellor to persuade the Prime Minister to change her mind about the ERM on the eve of a European Council Summit Meeting in Madrid.

The ambush failed, but it had severe repercussions for all parties. As the Madrid European Council Meeting itself was only tangentially concerned with the ERM, this episode is dealt with in a later chapter,
^†
which focuses on Margaret Thatcher’s growing alienation from the centralising policies of the European Community. But the issue of the ERM could not be separated from
the issues of running the British economy. From mid-1988 onwards Margaret Thatcher had put herself in the dangerous position of fighting against two of her most senior ministers on two different fronts.

This was a situation that could only end in tears. So it proved. But it took another thirty months before this passion play, born in the complexities of a technical dispute about exchange rates, ended with not one but three political crucifixions.

REFLECTION

The ERM dispute between Margaret Thatcher and her senior colleagues in the 1980s is an arcane relic of twentieth-century economic history, which has about as much relevance to contemporary politics as the Schleswig–Holstein question. This was the nineteenth-century diplomatic dispute about Danish and German principalities now remembered solely for Lord Palmerston’s joke: ‘Only three people have ever really understood the Schleswig–Holstein business – the Prince Consort, who is dead – a German professor, who has gone mad – and I, who have forgotten all about it.’
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In the same way, it now seems extraordinary that Nigel Lawson, Geoffrey Howe and Margaret Thatcher could ever have become so obsessed with the intricacies of the ERM that they fought about it as if it was the Holy Grail of the British economy. It was nothing like that important. The ERM was a technical tool for stabilising international exchange rates and keeping down inflation. What made it different was first, that it required co-operation with European central banks and, second, that most of the grey eminences of Britain’s economic establishment were in favour of this move throughout the 1980s.

At the ministerial meeting on 13 November 1985, Willie Whitelaw summed up the situation by saying, ‘If the Chancellor, the Governor and the Foreign Secretary are all agreed that we should join the EMS then that should be decisive. It has certainly decided me.’
³⁸
Consensus man had spoken.

Margaret Thatcher’s rejection of this unanimity and her walk-out from the meeting was as dramatic as it was unexpected. For there did not seem to be any great issue of principle on the table with which she could quarrel so vehemently. Seven years earlier she had chided Jim Callaghan for not signing up to the ERM.
Four years later she was finally persuaded by John Major and Douglas Hurd to allow her government to join it. The pros and cons of Britain’s membership were always argued in technical terms such as timing, currency stability, exchange-rate fluctuations and the effect on inflation.

Sir Geoffrey Howe may well have had the cause of greater British participation in the European Community’s future grand designs for European Monetary Union (EMU) on his mind, but this was not the case he stated. Equally, Margaret Thatcher never at the time took her stand against the ERM because she thought it would be a Trojan horse leading to a single currency. She may have had some silent fears in this direction, but she never expressed them. It was more likely, as Terry Burns saw at the time, that her opposition was rooted in anxieties about the loss of control, the loss of British self-government, that joining the EMS involved.

Whatever her reasons, the Prime Minister’s instinctive veto on ERM membership was to prove the killer on the policy for the next five years. The harder she maintained those killer instincts, the harder Geoffrey Howe and Nigel Lawson attacked her. Their challenges opened up a dark side in Margaret Thatcher, revealing a character willing to engage in bitter personality clashes against old friends who had turned into her new foes. She preferred not to seek a collegiate solution with them, but to fight against them at every turn. The ERM dispute thus became personal, eventually with dire consequences for all three combatants in the power struggle.

But who was right on the substantive issue? History vindicates the judgement of Margaret Thatcher. For after she reluctantly agreed to allow Britain to join the ERM during the last six months of her premiership in June 1990, it soon became apparent that the policy would lead not to economic stability but to a roller-coaster ride of exchange-rate fluctuations, interest-rate surges, expensive interventions, huge losses of foreign-exchange reserves and chaos in the markets.

Eventually, Britain’s membership proved so catastrophic that the then Chancellor, Norman Lamont, had to make an ignominious exit from the ERM on ‘Black Wednesday’, 16 September 1992. It was seen as a disaster at the time although once Britain regained control of its own economic destiny, a recovery soon followed.

One Treasury official who had a ringside seat throughout the seven-year ERM drama – first as Chief Economic Adviser to the Treasury and later as its Permanent
Secretary – was Sir Terence Burns. What was his verdict on Margaret Thatcher’s opposition to joining the ERM during the Lawson–Howe era?

‘Seen with the full flow of history, I believe Margaret Thatcher was right’, said Terry Burns, when interviewed for this biography. ‘She recognised ahead of others that the UK just could not live with the European level of interest rates.’
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It was one of the paradoxes of Margaret Thatcher’s personality that she often reached the right judgements but enforced them in the wrong way. Some of her ministers could take this. In the third term, Nigel Lawson and Geoffrey Howe could not.

The ERM dispute was a sideshow which they promoted into a Punch and Judy show with the stage management of their Madrid ambush. In the same histrionic spirit, the Prime Minister acted out the part of the policeman wielding a truncheon. She hit them too hard with it. There were better ways of handling the problem.

Margaret Thatcher’s aggressive man-management methods were an obstacle to reconciling the policy differences at the top of her government. The virtues of her arguments became clouded by the flaws in her personality. She was setting herself up for much worse trouble with her most senior colleagues.

32

Swinging towards Euroscepticism

ALWAYS A DOUBTER

Margaret Thatcher made a long crossing of the desert between her ‘Yes’ campaigning in the 1975 referendum on Britain’s membership of the European Economic Community (EEC) and her resounding ‘No! No. No!’
¹
denunciations of moves towards closer European integration in 1990. During the intervening fifteen years, Europe changed far more than she did. Through her roots and her instincts she was consistently inclined towards Euroscepticism. Although the term was not invented until late in her political lifetime, there are clues running through her career, which suggest that she was never a believer in the creed which proclaimed an ever-closer British relationship with Europe.

Those clues include the nationalistic patriotism of her Grantham upbringing; her wartime enmity towards the Germans; the pro-Commonwealth zeal of her constituency speeches in Dartford and Finchley; and her lifelong commitment to the primacy of the Anglo-American alliance. Her ardour for these causes far exceeded her lukewarm endorsement of the EEC. Although, as the newly elected Leader of the Opposition she campaigned for a ‘Yes’ vote in the referendum of 1975, her support was punctilious rather than passionate. Her most memorable contribution was to be photographed wearing a jersey patterned with the flags of the EEC states. Yet this sartorial gesture was not matched by more substantive activities. She left the lion’s share of the speech-making and campaign leadership to Ted Heath, from whom she was keeping a careful political distance in the aftermath of their leadership battle.

Some observers did notice that she stayed aloof from the enthusiasts of the ‘Yes’ campaign. Although present at its launch, she made no major speeches in the run-up to the referendum vote. Harold Wilson dubbed her ‘The reluctant
debutante’. The
Sun
drew attention to her absence with a story headlined: ‘Missing: one Tory leader. Answers to the name of Margaret Thatcher. Mysteriously disappeared from the Market Referendum campaign eleven days ago.’
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In private there were other clues to the mystery. Her political secretary, Richard Ryder, recalled her comment ‘Gosh, that was good’ after watching the ‘No’ campaign’s national broadcast. He also remembered her saying that she wished she didn’t have to vote at all.
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Despite such occasional signs of hesitancy about Tory policy towards Europe, Margaret Thatcher did not show her true colours as a Eurosceptic until she had been Prime Minister for nine years and a Member of Parliament for nearly thirty years. Why did it take her so long?

The answer lies in the culture and climate of the Conservative Party. For most of the 1960s, 1970s and 1980s, it was essential to be pro-Europe if you were an ambitious Tory MP eager to move up the ladder of promotion. Throughout the Macmillan–Heath era, the leadership’s prevailing view and slogan was ‘We are the party of Europe’. There were some notable dissenters from this official line headed by Enoch Powell, Neil Marten, Robin Turton, Derek Walker-Smith and Hugh Fraser, all of whom opposed the 1972 European Communities Act. But they were a minority faction. Perhaps, as Geoffrey Howe later observed, Margaret Thatcher should have been part of this group, since he came to see her as ‘a natural member’ of it.
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But she was as cautious as she was ambitious when climbing towards the top of the greasy pole. So she went along with the prevailing Europeanism to get ahead within the party.

Challenging the orthodox acceptance of British membership of the European Community was a step too far in her early years as Prime Minister. Her initial rebellion against Brussels, the ‘I want my money back’ battle of the budget rebate from June 1979 to May 1980, was a single-issue stand of defiance rather than a sustained challenge to the establishment consensus. But although her abrasive advocacy for a rebate may have seemed to her a simple question of budgetary fairness, she gave deeper offence to her Community partners over what they regarded as an issue of principle. They believed she was attacking the Europhile article of faith which maintained that the EEC had its ‘own resources’, which could not be earmarked for, let alone rebated to, individual member states.

Quite rightly, Margaret Thatcher was dismissive towards this theological concept of ‘own resources’. So, by persistent in fighting she won her rebate for
Britain. This was a great achievement. Yet it left behind an atmosphere of British negativity towards Europe. This was only dispelled when the Prime Minister was persuaded to sign up for the Single European Act (SEA) of 1985. It was the one and only time when she was positively engaged in the future direction of the European Community.

DIDDLED BY THE SINGLE EUROPEAN ACT (SEA)

The SEA was a major turning point for European integration. Margaret Thatcher saw its positive benefits, the creation of a single market, but failed to realise that the small print of the legislation could be used to pave the way for European Monetary Union (EMU).

The Prime Minister was not alone in this error of judgement. It was surprising how few Eurosceptics, let alone ordinary rank and file Conservatives, saw any pitfalls ahead as the legislation went through its stages in Parliament. I was one of nine Tory MPs to vote against the second reading of the bill.
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Another was my fellow Eurosceptic Teddy Taylor. By chance, he and I encountered Margaret Thatcher just after we came out of the ‘No’ lobby on the night of that vote. ‘Why on earth are you two voting against us?’ she demanded. ‘Because this will be the Trojan horse for Economic and Monetary Union’, replied Teddy.

‘Nonsense! It is no such thing’, replied the Prime Minister, who went on to give us a sharp tutorial on the trade benefits of a single European market.
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Within three years of this conversation, Margaret Thatcher was beginning to make a U-turn on her view of the SEA. There were two reasons for this. The first was her growing unease over the flood of European Directives and Orders, which had to be passed by the House of Commons in order to make British law conform to Brussels law. The second was Jacques Delors, the formidable new President of the European Commission, who was determined to use the SEA as the vehicle to bring about EMU.

The SEA was intended to be the driving force for an expansion of trade within the single market. Unfortunately, it was also a harmonisation force, which
dragged huge areas of British commercial life, quite unnecessarily, under the burdensome umbrella of EC regulation. An almost comic example of this, which considerably upset Margaret Thatcher once she understood it, was the European directive to harmonise lawnmower noise.

The notion that Parliament had to pass new legislation to make the sound of British lawnmowers harmonise with Continental lawnmowers sounds farcical. Nevertheless, some 120 pages of densely detailed legal regulations dedicated to this purpose were solemnly presented to the House of Commons for ratification. Because this latest example of ‘Brussels interference’ was as understandable as it was ludicrous, we Eurosceptic MPs were able to have a field day with it.

The pressure group of backbench Tory dissidents known as the Conservative European Reform Group (Chairman J. Aitken, Secretary T. Taylor), who regularly opposed such measures, suddenly expanded well beyond the usual twenty or thirty suspects. As a turbulent House neared its 1.30 a.m. vote on the Lawnmowers (Harmonisation of Lawnmower Noise Order) Regulation 1986, it looked as though as many as seventy-five rebels might be joining us in the ‘No’ lobby. The possibility of a government defeat was looming – panic at the whips’ office. The payroll
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vote was mustered to the full, so much so that even the Prime Minister had to be dragged back from No. 10 to vote in support of the Order.

When the Prime Minister arrived at Westminster, she wanted to know, ‘What is all the fuss about?’ Unfortunately, she asked a group of colleagues standing around in the corridor behind the Speaker’s chair, who happened to be Conservative European Reform Group supporters. She got an earful. One of the measure’s most vocal critics was the Birmingham MP Anthony Beaumont-Dark, who told her in no uncertain manner that this ‘idiocy’ would close factories all over the West Midlands. Another excited Brummie, David Bevan MP, helpfully imitated the sound of lawnmower engines at full throttle.

Margaret Thatcher was not amused. But she got the point. ‘I shall look into this immediately’, she said before moving on. A few minutes later, her PPS, Michael Alison, came to tell us that the Prime Minister shared the concerns
of our group and would be asking the Secretary of State for Trade what could be done. The answer was nothing. Lawnmower noise was duly harmonised by a smaller-than-usual majority. But the incident did demonstrate that the Prime Minister and an increasing number of her troops were becoming anxious about the encroaching effects of the SEA.

Far more serious a threat to Margaret Thatcher’s favourable view of SEA was her realisation that Jacques Delors, the new President of the European Commission (EC), was using Article 20 of the Act to promote both EMU and a single currency. In her battles against him, Margaret Thatcher had to resort to semantic arguments about what she called ‘the studied ambiguity’ of Article 20.
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Her case was that it only referred to the progressive realisation of economic and monetary union, which was quite different to EMU itself. But this notional difference was not understood, let alone agreed, by any other European leader. Instead, as Delors frequently reiterated, the SEA was seen as the accepted gateway to EMU and the single currency.

Jacques Delors soon became Margaret Thatcher’s
bête noire
. She knew little about him at the time of his proposed appointment, and received no guidance from the Foreign Office suggesting that this former French Finance Minister might prove to be a hostile force against the British government’s interests in Europe. However, she was sufficiently wary of the suggested appointee to seek advice from a British banker who had direct experience of working with Delors on a Brussels committee. This banker was Sir Ronald Grierson. He came to breakfast with the Prime Minister on 15 October 1984, the Monday after the IRA bombing in Brighton. Having fully expected his meeting to be cancelled, Grierson found himself being intensively questioned about the potential next President of the European Commission.

‘I told Margaret Thatcher that Delors would be socialist,
dirigiste
, and extremely energetic in working for closer European integration’, recalled Grierson. ‘This was not what she wanted to hear.’
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The Prime Minister ignored Sir Ronald’s warnings, agreed to the Delors appointment and accepted the blandishments of the other European leaders who assured her that the SEA would be a trade measure creating the single market. Margaret Thatcher in later years claimed that she had been deceived. ‘I trusted them. I believed in them. I believed this was good faith between nations co-operating together. So we got our fingers burned.’
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Her Foreign Affairs Private Secretary at No. 10, Charles Powell, was even blunter. He recalled:

Frankly, we were diddled. At the time we were concentrating on the advantages of the single market. The small print of the words in the Act did not seem to be a big deal, particularly after Chancellor Kohl had assured the Prime Minister that EMU was not going to happen. We underestimated, with the wisdom of hindsight, the steady accretions and pressures that followed.
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This explanation that the Prime Minister and her wider entourage of expert advisers were all ‘diddled’ about the far-reaching constitutional implications of the SEA is difficult to accept. The fact of the matter was that the British negotiating team, led by Margaret Thatcher, agreed to an Act that gave away more British sovereignty than Ted Heath had ceded in 1973. What she may have underestimated was that Jacques Delors would so forcefully use the SEA not just to develop the single market, but also to advance the powers of the Commission, by expanding majority voting and pressing forward towards EMU.

The moment when the scales fell from Margaret Thatcher’s eyes about the magnitude of Jacques Delors’ grand design for an integrated government of Europe came on 6 July 1988. That was the day when Delors gave a speech to the European Parliament predicting that over the next six or seven years ‘an embryo European government’ would be established, and that within ten years ‘80 per cent of the laws affecting the economy and social policy would be passed at a European and not at a national level’.
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Margaret Thatcher was furious. Interviewed a few days later on the
Jimmy Young Programme
, she rubbished this scenario as ‘extreme’ and ‘over the top’. She added that Delors was a fantasist, whose prediction of monetary union was ‘some airy-fairy concept which in my view will never come in my lifetime and I hope never at all!’
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Infuriated by what she saw as the President of the Commission playing the role of a politician, not least in a decidedly socialist speech to the TUC Conference, Margaret Thatcher decided to launch a counter-attack. She was scheduled to deliver an address to the College of Europe in Bruges on 20 September. Sir Geoffrey Howe had suggested that she might use this occasion to deliver a ‘positive’ view of the EEC. But the Prime Minister and the Foreign Secretary were growing further and further apart in their attitudes towards Europe.

DISILLUSIONMENT WITH GEOFFREY HOWE

Margaret Thatcher’s conversion to Euroscepticism was personal as well as political. The personal dimension came from her growing disillusionment with her Foreign Secretary. This feeling was mutual, but far rougher and nastier on her side. Her antagonistic bullying of Geoffrey Howe revealed the worst aspects of her personality.

At the beginning of their eleven-year relationship in government, the accord between Chancellor and Prime Minister was a good one, despite some moments of turbulence. In the battle to turn the British economy around they were a harmonious team, united in their strategic purpose and courageous in their political resilience. Throughout her first term, she was humbler in her certainties and more amenable to listening to the views of her senior colleague. At least twice a month Howe would go through from No. 11 on a Sunday evening for a drink with his boss alone in her flat above No. 10. These private conversations strengthened their public policy-making, which resulted in falling inflation, lower public expenditure and higher growth.