Prime minister John Major at the EC summit in Birmingham in October 1992
© Getty

This article was first published in the Financial Times of September 30, 1992.

The British presidency of the European Community has reached a turning point. The next three weeks are likely to show whether a modest political victory can be wrested from the string of humiliating defeats, or whether Mr John Major's pledge to move Britain to 'the heart of Europe' will prove no more than a cute Foreign Office slogan.

Time is running out. This week's meeting of European finance ministers in Brussels underlined Britain's near-isolation in the EC, with ministers giving short shrift to Mr Major's demands for a reform of the European exchange rate mechanism (ERM), and demanding that all EC members proceed at the earliest date possible with ratification of the Maastricht treaty on European monetary and political union.

Worse still, the British prime minister's European policy is foundering amid mutual recrimination in the Anglo-German relationship and a residue of suspicion in virtually all EC countries about the British and their attitudes to the Community. Repairing the damage before next month's emergency EC summit in Birmingham to discuss Maastricht will require a huge effort by Mr Major and his cabinet colleagues.

When Mr Major succeeded Mrs Thatcher, the bete-noire of Brussels, two years ago, he inherited a good deal of good-will. With his early efforts to forge a closer relationship with Chancellor Helmut Kohl, Mr Major appeared to be the first British prime minister since Mr Edward Heath to be willing to lead his country to play a full role in the development of the EC.

The political and monetary crisis of the past three months has revealed just how exaggerated the hopes were of a new relationship between Britain and the Community.

'We thought we were moving forward with Mr Major, now it looks as if we may not even be able to stand still,' said a senior EC official. 'We may even be moving backwards.'

The most important force propelling the current crisis was last June's referendum in Denmark which led to narrow rejection of the Maastricht treaty.

Not only did it unleash the current political uncertainty in Europe about Maastricht; it also gave fresh impetus to anti-European voices in Britain, both in the Conservative and Labour parties.

In retrospect, says a senior German official, all EC members misread the impact of the Danish referendum. 'What we thought was the Danish problem in fact turned out to be the 'British problem'. Or as another EC official put it yesterday: 'Even if we solve the Danish problem, we cannot be sure we can solve the British - and that may be one problem too many for the Community.'

Brussels officials believe Mr Major's decision to withdraw from the ERM was a serious blow to his European policy, but it was not fatal. Indeed, they argue that the real damage has come from misjudgments and tactical errors before and after sterling's withdrawal from the ERM.

The first mistake, they believe, came with the British presidency's campaign to open speedy negotiations to enlarge the EC to admit Sweden, Austria and Finland, before ratification of the Maastricht treaty and before final approval of the Delors II spending package providing extra financial aid to the poorer southern states such as Italy, Spain and Portugal. However honourable the motives, Mr Major's push looked like a replay of Mrs Thatcher's efforts to limit the EC to a free trade area.

The sterling crisis magnified British misjudgments. First, Britain declined to raise interest rates despite increasing evidence this was the only way to avoid a devaluation of sterling; then it refused to join in a general realignment in return for a cut in German interest rates; finally, it announced a withdrawal, accompanied by accusations of betrayal against the Bundesbank and calls for reform of the ERM.

Downing Street's attack against the ERM has ballooned, at least in the eyes of Brussels diplomats, into a broader assault on the integrity of the European Monetary System. The resulting damage in relations with the other 11 members is hard to underestimate. As the joint communique signed on Monday night suggested, the EMS is viewed as the sina qua non of monetary stability in Europe.

This explains, in part, why there has been so much loose talk in the past fortnight of a two-speed Europe, an early push by France and Germany to monetary union. Doubtless contingency plans exist in Paris and Bonn; but the wider message is that if anyone, particularly perfidious Albion, should seek to dismantle the Maastricht process, they risk being left out of the game.

What can Britain do? Brussels officials say final judgment on the British presidency will depend on three factors. First, how far it allows domestic political considerations to influence its views on Denmark's pleas for special treatment post-Maastricht; second, its willingness to listen - rather than dictate - on the EMS; third, whether it manages to broker a compromise on the Delors II package.

Beyond these issues, there remains the question of ratification of Maastricht before the British parliament. Mr Lamont said on Monday night the Conservative government was 'honour bound' to present the treaty for a vote. In Brussels, the view is that Mr Major must deliver - or be damned.

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