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his conclusions on the best way forward. He said that the strategy must be to slow down the advance towards Stages 2 and 3 of Delors and the erosion of national sovereignty they entailed, but to ensure all the while that the UK was not excluded from the negotiating process. This had an indiarubber feel to it. So I said that there were serious dangers if we adopted a posture which implied that moves beyond ERM membership towards further economic and monetary integration could be contemplated. If other member states wanted to take such steps that was up to them. But the UK would not participate in that process. If we made that absolutely clear, I thought it was likely that, under pressure from the Bundesbank, Germany would also decline to move to the next stages of EMU. I sought to get John to view all this in a wider context and talked to him about the need to develop free trade relations with the USA and other countries, pointing out that centrally controlled blocs of countries — such as a federal Europe looked like being — must not be allowed to stand in the way of this.

John Major became increasingly worked up about both ERM membership and EMU. On 9 April 1990 he minuted me that he had been startled by the determination of other European Community Finance ministers to agree a treaty for full EMU. He had found little support for our new alternative approach — a ‘hard ecu’ circulating alongside existing currencies, managed by a European Monetary Fund — which we had advanced as an ‘evolutionary approach’ to EMU.* He therefore set out a number of options as to how we might proceed. Of these the option which he recommended — and which was ultimately to be developed further at Maastricht — was to work for a treaty which gave a full definition of EMU and the institutions necessary for its final stage (together with any transitional stage, if agreed) but then allowed an ‘opting-in’ mechanism for member states. This would allow them to join in the new Stage 3 arrangements — that is the single currency — at their own pace. He believed that this should be the goal we should work for as the outcome to the IGC. At a meeting with me on Wednesday 18 April, John rehearsed the arguments of his paper, emphasizing that the goal of full EMU as described by Delors was shared by all except the United Kingdom.

I agreed neither with John’s analysis nor his conclusion. I said that the Government could not subscribe to a treaty amendment containing the full Delors definition of EMU. Further work should be done to develop our proposal for a European Monetary Fund which we could put forward as the most that it was necessary for the Community to agree upon for now. I was extremely disturbed to find that the Chancellor had swallowed so quickly the slogans of the European lobby. At this point, however, I felt that I should hold my fire. John was new to the job. He was right to be searching for a way forward which would attract allies in Europe as well as convince Conservative MPs of our reasonableness. But it was already clear that he was thinking in terms of compromises which would not be acceptable to me and that intellectually he was drifting with the tide.

ENTRY OF STERLING INTO THE ERM

In tandem with consideration of tactics for EMU went consideration of timing for the ERM. The Treasury drew up a note for me about the best time for sterling to join, bearing in mind economic circumstances and political events. Although the other countries and central banks were pressing for our membership there would still be an established procedure to go through. So it was assumed that we would announce our intentions on a Friday so as to leave the weekend for the details to be settled before markets opened on Monday. There would have to be an initial discussion of the details between Finance Ministry and Central Bank representatives in the EC Monetary Committee: the possibility of a full meeting of EC Finance ministers and governors in person had also to be allowed for, though in practice this proved unnecessary. After timing, the two most important questions