Prime minister Margaret Thatcher giving her speech at the College of Europe in Bruges in September 1988.
© PA

This article was first published in the Financial Times of October 13, 1988.

Mrs Thatcher's Bruges speech on the future of the European Community deserved neither the slating it received from the Euro-lobby nor the rapture from the wavers of the Union flag.

Her written text at least was not anti-European. The Prime Minister dwelt fondly on Britain's historical and cultural involvement with the Continent. She also gave a very necessary warning about the Community tendency to overregulate and to distrust competitive markets. 'We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level ..' Amen to that.

But she spoiled the argument by finishing the sentence ' .. with a European super state exercising a new dominance from Brussels.' She makes the same mistake as that of her arch opponent, the Commission President Jacques Delors, in assuming that a European union must be corporatist.

These are different issues. Both corporatism and competitive market policies can be pursued in a insular setting or under some degree of European union. (Let us not incidentally get bogged down in a battle over what that union should be called. A federal United States of Europe has scant prospect of existing in the foreseeable future, however much Mr Delors may wish it otherwise).

The Prime Minister's mistake is at two different levels - the tactical-political and the fundamental. At the first level, Mrs Thatcher would be in a much better position to oppose harmonisation for harmonisation's sake, or provisions for union seats on company boards, if she were seen to accept without reservation and even with some cheerfulness the idea of a Europe without frontiers. She would stand a much better chance of leading the movement towards European unity in a free market direction if she were in its front line - where her best friends would hardly place her now.

Since Harold Macmillan, successive British governments have been missing the European bus and then been surprised that they have so little influence on its destination.

General De Gaulle, on the other hand, whom the present British Prime Minister seeks to emulate, surprised friend and foe alike by accepting the full obligations and the EEC long before the Rome Treaty required him to do.

The bigger mistake is to write off all supranational elements as hopelessly collectivist. The issue is less simple. The Brussels Commission normally presses for a lower degree of protection and subsidy than its member governments desire. The trouble is that when it is defeated, it still prefers a Euro solution, however bad, to returning policy to member governments - as would be desirable, for instance in agriculture.

Where the Commission has actual powers, as in the case of competition and industrial policy, they are exercised to promote market forces and cut back the sums that governments can put into supporting domestic industries. Lord Young has explained how it has limited the size of the parting handshake he can provide for Rover and has vowed to use EEC law to impose similar limits on aid to the French motor industry.

But the issue goes deeper. One aspect of Friedrich Hayek's Constitution of Liberty, so admired by Mrs Thatcher, is the need for constitutional constraints even on elected governments. That need has been restated in an Institute of Economic Affairs Paper, The Invisible Hand in Politics and Economics, by Norman Barry (IEA; 6.50 pounds sterling) .

The European Community is one of the few 'rule of law' constraints on the actions of a government elected with a temporary plurality. Not even Mrs Thatcher will last for ever; and a time will come when her present followers will welcome such constraints, whether internal or external.

Meanwhile in her Bruges speech, Mrs Thatcher suggested four guiding principles for the Community:

* Willing and active co-operation between sovereign states;

* Tackle problems practicality;

* Promote policies which remove barriers and encourage enterprise'

* Europe should not be protectionist.

One could spill a lot of ink debating the first principle: Europe des Patries versus supranationalism. But it would be pointless. Mrs Thatcher's own second point about a practical approach suggests that we do not become bogged down in arguments about the essence of the Community but try to improve it.

The internal market for 1992 was itself partly the result of a British initiative designed to shift attention away from proposals for political union. The Single European Act of 1985 provides for the establishment of this market by qualified majority voting within the Council of Ministers. There is much argument about which national laws are relevant for the purpose; and the Council would not be so foolish as to ride roughshod over any major member's national interest.

The Prime Minister's warning against protection is more important, despite her own mixed record on the issue. Its timeliness is highlighted by the Community's abuse of anti-dumping procedures to exclude a growing range of Japanese, US and Third World products.

The least surprising omission from Mrs Thatcher's speech, despite her emphasis on the already practical, was any mention whatever of the European Monetary System. Maybe she is being misled into hoping that the EMS will collapse when capital controls are removed - ahead of the full internal market - in 1990.

She would then be making just as great an error as those who supposed that the EMS itself would never start or the EEC before it. One extremely highly placed French authority, recently reminded me that France had alredy gone nearly all the way to freeing currency movements across the frontier and that if there were any insurmountable strains, they would be showing already.

There are two aspects of a unified market in 1982 capable of appealing to popular imagination. There is much argument about whether either is required by existing obligations. But if they were both accepted they would give a new wind to the Community.

One is the removal of customs posts, so that the physical barriers which have traditionally divided one European state from another can be seen to have been removed.

The second is dispensing with the services of the money changers, so that the same currency can be used on a journey from London to Munich as from London to Manchester. This cannot happen by 1992, but can at least be an aim.

On neither issue has the British Government shown imagination. The Chancellor is right to oppose the Commission's proposals to harmonise value added tax within stated bands. He argues that (as in the case of US sales taxes) whatever harmonisation is required can be left to market forces and cross-border shopping.

British VAT rates are, however, comparatively low. On drink and tobacco where British rates are high, we are told that either frontier controls have to remain or that rates have to be harmonised upwards.

Perhaps realising that its fiscal case is not watertight, the British Government also advances anti-terrorist arguments for keeping border controls. But no one has explained why movements within the EEC at large need to be more strictly controlled than movements between the Republic of Ireland and the UK at present. Nor why collaboration between national security forces needs to be operated at the frontier.

As for an eventual European currency: there is no necessary connection with full political federalism. The existing EMS is largely run by central banks and finance ministries; and a Gaullist Europe des Patries could still benefit from a single currency, just as sovereign states before the First World War gained from the de facto international currency provided by the gold standard.

It is true that automatic fiscal transfers cushion some economic fluctuations within existing federations. But such transfers are not a precondition of a common currency. Even if they cannot be obtained, it is difficult to see what an individual government gains from retaining the right to devalue. If it is really true that we cannot spend ourselves into prosperity, as Lord Callaghan told us long ago, and the long-term effects of monetary policy are on the price level, then there would be no gain from retaining a national currency, so long as the European version is run on a sound money basis.

The present goal of the EMS is to make parity changes rarer and rarer. Once they have become a thing of the past, currencies will become increasingly accepted across frontiers as they already are in border areas. Eventually the difference between one European currency and another could approximate the difference between English and Scottish pound notes. The national names can be changed when public opinion is ready.

More important will be the need for a European central banking institution to regulate the issue of the linked or unified currencies. The Bundesbank has proposals designed to ensure that any new European unit is as strictly controlled as the German mark and by an authority as independent as the Bundesbank. This would be the British policy too if Mrs Thatcher really were a Thatcherite.

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