Orchestrating Europe (Text Only). Keith Middlemas

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СКАЧАТЬ after 1992, which would be accompanied by full capital mobility and a more or less fixed exchange rates in the ERM, member states would still retain monetary autonomy in their national spheres.

      Put simply, Padoa-Schioppa argued that it would not be in the interests of weaker economies to conform and bear the pain; instead they would act as backsliders or deviants, forcing the stronger partners to react, and thus prejudicing the whole. Prudent central bankers, inherently suspicious of what politicians would do to appease their electorates after the experience of the fifteen years since 1974, rated the collective good higher than national sovereignty. The fact that Karl-Otto Pöhl chaired the technical group and both he and Robin Leigh-Pemberton, governor of the Bank of England, signed the Delors Report seemed to indicate that unanimity had been achieved.¹⁷

      To a large extent it had: all the governors accepted that a prototype ECB should start work, in order to begin the process of inducing equality of discipline and practice in reducing inflation as soon as possible. All could reasonably expect their governments to have accepted by then that no one country could bear the costs of doing this alone especially when taken together with contingent problems, such as wages and other labour market rigidities, and that if collective action were not initiated, at the next recession the EC might lapse into another sauve qui peut like 1974. The differences between them related mainly to highly technical problems. But the political issues of whether this new single currency, provisionally styled the ecu, would be too soft (as the Bundesbank feared) or too hard, as the British government suspected, and whether it would eventually be intended to stand up against the dollar and yen as an equivalent world currency, were not and probably could not be argued out.

      The one fundamental disagreement in the Delors Committee concerned the mode of transition to EMU. It was finally concerted between Pohl and de Larosière (Banque de France) with some mediation from Carlo Ciampi, governor of the Banca d’ltalia, and help from the Netherlands and Spanish central banks, in time for Delors to present his report on 19 April 1989, in advance of the Madrid Summit. At that stage, it was sufficiently uncontentious to convince ‘respectable financial opinion’ in the EC, which in Britain included both The Economist and the CBI. But when Delors introduced it later that month to Ecofin, he added a timetable: there should be three stages, the first to begin as soon as possible. All twelve currencies should move within the ERM’s narrow bands by 1 January 1993, the date for completing the internal market. In stage two, exchange rates in the ERM should become almost rigid, and all central banks should be given the same degree of independence as the Bundesbank. Finally, in stage three, exchange rates would be permanently fixed, under an ECB entirely responsible for the monetary policy of the single currency. There would then be binding conventions on member states’ budgetary deficits, modulated – for example in the Spanish, Portuguese or Greek cases – by new EC cohesion funds.

      Little debate took place in Ecofin, which had rarely been a forum for technical monetary matters, and the Spanish Presidency pushed ahead to start stage one on 1 July 1990. The governments of France, Germany, Spain, Italy and Belgium concurred in this timetable (though the Bundesbank held strong reservations); those of Italy, Greece and Portugal were appeased with cohesion promises. Finance ministers from Denmark, Netherlands and Luxembourg argued only over the detailed schedule. British delegates again were isolated. At Madrid, the whole package went through in the wake of Spain’s ERM entry within the 6% bands, (at a surprisingly low rate because Carlos Solchaga, the finance minister, had previously ‘talked the peseta down’). Meanwhile, as Lawson told in his autobiography, he and Howe jointly forced Margaret Thatcher to set out the conditions for British entry, despite her protests up to the last moment of arriving in Madrid.¹⁸ The Bundesbank gloomily went its way, raising West German interest rates further to contain domestic inflation.

      Then the Berlin Wall came down. Very large numbers of East Germans had already escaped, mainly through Hungary’s unofficially opened border, raising the spectre of mass migration from East to West Germany. The situation could be compared with the strong, demand-led inflation experience before the Wall had been built in 1960–61. Bonn poured huge funds into East Germany to forestall such a threat to the DM, and later promised to exchange one deutschmark for each individual’s now almost worthless ostmark at a rate of one to one, a burden on West Germany which ensured high domestic interest rates for the foreseeable future.

      Neither of the logical consequences, an ERM realignment or revaluation against the DM, or very high interest rates for all other member currencies, actually occurred. The first broke on French objections, since the franc fort policy had not yet acquired complete credibility, the second on German political reality. Karl-Otto Pöhl’s outspoken protests against the currency swap were ignored, being politically inconvenient before the crucial autumn elections. He was, in fact, threatened with constitutional revision of the Bank’s statutes if he did not give in. As a direct result, the DM’s credibility was impaired.

      ERM partners in 1990, however, concerned themselves more with the effect of rising German interest rates on their own borrowing and their domestic economies, for while the German government expected to bear 80% of unification costs, it was not willing to internalize the consequences for other Community members. The result, if the Bundesbank held to its primary duty of monetary stability, could only be a steady rise in German rates to which the rest would have to adjust. Yet the British government – or rather its chancellor, John Major, fearful of losing the chance should Thatcher change her mind – chose this moment finally to enter the ERM in the narrow bands, on 5 October 1990. It was a bad time, with the dollar still falling and the ERM now nearly rigid, and a worse choice of parity. Yet the British chose not to take the advice of other member states which the ERM’s informal conventions prescribed – and which might perhaps have counselled caution.¹⁹

      Meanwhile, despite these huge potential sources of tension, member governments concerned above all with passage to EMU went ahead, like Captain McWhirr in Conrad’s Typhoon, hoping to win through the storm to the hypothetical calm beyond. The German government’s price for accepting the principle of EMU in such conditions was to be France’s overt support for reunification and rapid progress to political union, so that the new, larger Germany could cement itself firmly into the Community. This can be read as the second stage of the Franco-German bargain made in 1987.

      France’s government could accept this, whatever Mitterrand’s initial doubts about reunification, and whatever the impact on French public opinion, because few wished to unleash visceral images of Germany’s past being propounded at this time by Thatcher herself and Nicholas Ridley (except, that is, in languages such as Dutch and Danish which the international press agencies did not read). On that basis, Kohl and Mitterrand agreed their highly important joint declaration of April 1990. It followed, apparently naturally, that EMU would come about via the ERM-convergence path, and according to Delors’s timetable. Franco-German clarity of aim contrasted with Britain’s disarray at the top as Margaret Thatcher fell from power in November 1990, the result of a palace coup within her own Conservative party.

      All this time the Bundesbank was constrained not only by its duty to the currency but by its charter obligation to support the Bonn government’s policy in the last resort. Whatever its Directorate felt about Kohl’s pre-election promise that reunification would cost the West German electorate nothing, the bank could not oppose the chancellor’s direction outright. In due course, with the CDU/CSU triumphant in the elections, Pöhl resigned. His lonely gesture and his subsequent explanation, though cogent, had less general effect on events than the new British prime minister’s tone; for John Major’s talk of bringing Britain to a more pro-EC orientation, and signs that his Conservative party might even align with Kohl’s CDU and the European People’s party parliamentary grouping, seemed remarkable after eleven years of marching in another direction.

      It was widely assumed during the IGCs that year that the ERM had become the ‘glide path to Monetary Union’.²⁰ But that this represented a political as well as an economic judgment was not clear until after Maastricht, in spite of the most unwelcome paradox that developed shortly afterwards, when the СКАЧАТЬ