Downing Street Years - Margaret Thatcher [441]
My relations with Nigel went through another difficult patch in May when an interview I gave to the World Service came indiscreetly close to admitting that the reason why our inflation rate had increased was because we had been shadowing the deutschmark. This, of course, was true, but it was a departure from the convenient answer that it was because we cut interest rates in the wake of the ‘Black Monday’ Stock Market crash and held them down too long that inflation had begun to rise. Nigel was at a European Finance ministers’ meeting in Spain and became very upset. So I authorized a line for the press which reverted to the less accurate but more mutually acceptable explanation. But I did at this time ask the Treasury to provide me with a paper giving their explanation as to why inflation had risen. I was subsequently interested to learn that Nigel had asked that the first draft of this paper, which had focused almost exclusively on the shadowing of the ERM, should be revised to extend the analysis to cover the earlier 1985–6 period as well.* Not surprisingly under these circumstances, I found the finished product less sharp and persuasive than some other Treasury papers.
There was worse to come. On Wednesday 14 June 1989, just twelve days before the European Council in Madrid, Geoffrey Howe and Nigel Lawson mounted an ambush. Geoffrey, I soon learnt, was the moving force. They sent me a joint minute arguing that in order to strike an acceptable compromise on the Delors EMU proposals — agreeing to Stage 1 but with no commitment to Stages 2 and 3 or an Inter-Governmental Conference (IGC) — I should say that I would accept a ‘non-legally binding reference’ to sterling joining the ERM by the end of 1992, provided that certain conditions were fulfilled by then. The alternative was — as usual — ‘isolation’. It was a typical Foreign Office paper which Nigel Lawson in his better days would have scornfully eviscerated.
I had myself, since reading Alan’s earlier paper on the conditions for entry into the ERM, been giving a great deal of thought to this subject. It was not clear to me whether spelling out these conditions at this stage would help deflect the other Community countries and the Commission from the course towards EMU on which they seemed set. I was not convinced about the alleged political advantages. I was deeply concerned about the consequences of setting a specified date for the currency markets. However, I saw Nigel and Geoffrey on the evening of Tuesday 20 June to discuss their minute and its contents. At the end I said that I would reflect further on the way in which this issue should be handled at Madrid. I remained sceptical whether a concession on membership of the ERM would really achieve our agreed aim of blocking an IGC and Stages 2 and 3 of Delors. But this could only be judged on the spot at Madrid. In any event I remained very wary of setting a date for sterling’s membership.
I had not liked this way of proceeding — by joint minutes, pressure and cabals. But I was more than angry about what happened next. I received a further joint minute. In this Nigel and Geoffrey said that just spelling out in greater detail the conditions which would have to be fulfilled before we joined — widening these to include for example Single Market measures — would be ‘counterproductive’. There must be a date. And they wanted another meeting before Madrid.
I read their minute on Saturday morning at Chequers and almost immediately received a telephone call from my office to ask about the time for a meeting. This was extremely inconvenient. On Sunday afternoon I was due in Madrid. But they could not be deterred. I could have seen them late on Saturday night or early on Sunday morning at No. 10. They chose the latter.
I knew that Geoffrey had put Nigel up to this. He had been in a great state about the European election campaign which had not gone well for us. I knew that he had always thought that he might one day become