Downing Street Years - Margaret Thatcher [440]
Whatever the Governor may have done proved ineffective. When the Delors Report finally appeared in April 1989 it confirmed our worst fears. From the beginning there had been discussion of a ‘three-stage’ approach, which might at least have allowed us to slow the pace and refuse to ‘advance’ further than the first or second stage. But the report now insisted that by embarking on the first stage the Community committed itself irrevocably to the eventual achievement of full economic and monetary union. There was a requirement for a new treaty and for work on it to start immediately. There was also plenty of material in the treaty about regional and social policy — costly, Delorsian socialism on a continental scale. None of these was acceptable to me.
THE AMBUSH BEFORE MADRID
Whatever problems the Delors Report raised, it won few friends at home. However, Nigel and then Geoffrey used it to reopen the argument about the ERM. Nigel argued at our meeting on the afternoon of Wednesday 3 May that we should now enter the ERM. I replied that the overriding priority must be to get down the rate of inflation and it would be quite wrong to adopt the objective of exchange rate stability. This is what we had done when we had been trying to shadow the deutschmark, and it had compromised our battle against inflation. I did not believe that the Delors Report on EMU altered the balance of argument on the ERM. On the contrary, we should certainly not be drawn further into a European system that would almost certainly change following the Delors Report. I did not accept the premise that it was necessary to join the ERM in order to prevent developments in the Community which we did not like. I thought that the idea of setting a target date for joining some time in the future would be particularly damaging. Nigel disagreed. But I said that I did not want the issue of UK membership of the ERM to be raised at this stage.
This did not mean that I was giving no thought to it. Indeed, a few days later Alan Walters sent me a paper entitled ‘When the time will be ripe’, spelling out the conditions which must be met before we would join. He suggested that all the constituent countries must have abolished all foreign exchange controls and the legal machinery through which they were imposed. All domestic banking systems and financial and capital markets must be deregulated and open to competitive entry from EC countries. Any institution, corporation, partnership or individual must be free to enter any banking or financial business, subject only to minimum prudential conditions.
These were bold suggestions. On the one hand, they would certainly give our position a much more positive aspect. The moves against corporatism in France, Germany and Italy would be valuable in their own right. Whether the ERM could for long stand the removal of all these controls, which helped give it a false stability, was to be seen. The difficulty of Alan’s approach, of course, was that it did not remove the fundamental objections which both he and I had to the system of semi-fixed exchange rates which the ERM constituted. But in the end I knew that Alan’s ingenious suggestion might be the only way in which I could resist the pressure from Nigel, Geoffrey and the European Community for early entry.
Leon Brittan — now Vice-President of the European Commission — came to see me soon afterwards to try to persuade me of the benefits of ERM membership. He argued that it would give us an important say in the next steps of economic and monetary co-operation. Indeed, he said that it would enable Britain to dictate the pace and course of further progress in this area. He had apparently been reinforced in this view by a remark made to him by M. Delors over dinner to the effect that ‘if she joins, she wins.’ I was not, however, overimpressed by the European Commission President’s table-talk. I said that I did not believe that those who wanted to advance along the route mapped out by the Delors Committee on