The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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From Single Market to Single Currency: Evaluating Europe's Economic Experiment

Chapter 1 The Single Market

Dr Martin Holmes


The EC's Single Market is currently being hailed as a resounding success by Euroenthusiasts of all persuasions. To supporters of this view the benefits of Britain's access to the Single Market by themselves preclude any deeper discussion of other aspects of EC membership such as the CAP, the Common Fisheries Policy, the Budgetary contributions or even the loss of parliamentary self–governance. But how successful is the Single Market? How can its progress since 1 January 1993 be gauged? Do its advantages really outweigh its drawbacks? For too long these questions have not been properly addressed: the Single Market is simply assumed to work well rather than is proved to do so. A Eurorealist analysis of the Single Market is long overdue.

To understand the Single Market process, it is necessary to consider its economic background. To most observers, the European Community was considered to be an economic success between its foundation in 1957 and the oil price shock of 1973. In this period, all the European Community countries enjoyed substantial economic growth, full employment, and relatively low inflation, following the continental model of welfare capitalism. A fundamentally market economy was supplemented by a substantial welfare state with a high level of fiscal transfer payments. By the mid 1970s it was clear that the European Community was more economically successful than the COMECON countries of central and eastern Europe; it was also clear that the economic strength of the European Community was greater than that of the EFTA countries, even though living standards in the EFTA countries were marginally higher. Moreover the prosperity of the European Community up to the mid–1970s was very much dependent on Germany as an engine of economic growth. During this period the internal EEC tariffs fell fast, a process which was largely completed by 1967. However, the oil crisis of 1973–4, which included the quadrupling of the price of oil and a major transfer of wealth away from the European economies towards OPEC, created a crisis which the EC was unable to solve. The inadequacy of the response to this crisis ultimately led to the Single market economic revival plan of the mid–1980s.

Many of the European countries initially tried to reflate their economies when the increase in oil prices occurred. They believed that if they increased the level of aggregate demand, this would enable them to avoid the effects of higher unemployment and lower growth. In virtually every case, the outcome was higher inflation. The level of European inflation increased markedly from the mid–1970s onwards. Similarly there was a marked increase in unemployment and a lowering of the European level of economic growth. The levels of unemployment which had been between 2% and 4% up to the mid 1970s subsequently increased to between 4% and 9%. Additionally, the whole system of welfare provision in Europe was always based on a high level of government revenue, which in turn was dependent on a high level of economic growth. 1 As soon as the oil crisis hit the European economies, their growth rates fell, precipitating a considerable revenue shortfall; the result was budget deficits and a greater difficulty financing the welfare state. The European Community countries reacted to the oil price crisis and to the transfer of wealth to the OPEC countries with less skill than was the case either in the United States, or in Asia Pacific. By the early 1980s, the European Community countries could no longer boast an unbroken period of economic growth, a European economic miracle. Consequently in terms of overall economic performance they began to fall behind the global competitors especially the tiger economies of Asia Pacific. Indeed, most Europeans in the early 1980s had little knowledge of Asia Pacific, did not regard it as economically significant, and were slow even to understand the strength and resilience of the Japanese economy.

By the mid 1980s, however, the truth had dawned. The EC became aware that the decade between 1973 and 1983 had seen a comparative slippage in economic performance in relation to the rest of the world. Herein lies the origin of the Single Market process which aimed to increase European competitiveness, and to inject dynamism into the European economy without necessarily creating a massive inflationary surge. The objective was the illusive combination of economic growth while maintaining stable prices and stable monetary policies. It may be argued, with much justification, that the EC should have responded by reducing labour costs, curbing welfare expenditure, accelerating privatisation, resisting external protectionist temptations, and dismantling the "industry policy" network of subsidies. But such solutions were too politically painful for countries which lacked a free–market tradition. The Single Market had the advantage of being politically non–controversial as well as advancing the cause of European integration which was now being pursued with the greatest intensity since the 1950s under the interventionist leadership of Jacques Delors.

The Single Market process was therefore devised in the mid–1980s as a supply side measure. Its principle creators, Paolo Cecchini 2 and Lord Cockfield, 3 argued that if Europe would reduce its non–tariff barriers such as the waiting time at borders, the result would be a beneficial increase in the internal mobility of labour, goods and capital. The Single Market process was therefore aimed at the reduction of all non–tariff barriers to complement the corresponding reduction in internal tariffs. According to Cecchini and Cockfield, this would give a massive boost to the European economy, creating 1.8 million new jobs, and increasing by up to 4.5% the level of economic growth within the European Community.

The obvious way to realise such an objective was through 'mutual product recognition', or MPR. The idea of MPR was that if a product is on sale or is manufactured in any of the member states, it can then be sold in all the others. Danish beer, for example, could not be sold in Germany because of brewing laws dating back to the fourteenth century; according to MPR, the Germans would have to remove those laws, enabling Danish beer to be sold in Germany as well as anywhere else in the European Community. The concept of MPR was to remove national laws and standards which discriminated against products by prohibiting their sale. The advantage of MPR was its simplicity. All the European Commission had to do was to identify each barrier and remove it. MPR would not involve harmonisation; it was not a common standards scheme. It was a way of preventing standards in any one country from obstructing trade between member states. MPR aimed to maximise European trade by removing all the barriers to trade which national standards had hitherto erected.

The British government supported the Single Market based on MPR, believing that the Single European Act would work to this effect. This author chaired a meeting in London in 1989 at which Mrs Thatcher's Secretary of State for Trade and Industry, Lord Young, said that the Single Market meant the "Thatcherisation of Europe", because MPR would remove the internal non–tariff barriers. But this initial enthusiasm did not live up to expectations. By 1994 Lord Young was attacking the '... Brussels principle of equal misery otherwise known as harmonisation'. 4 The reason for his disillusionment was obvious. The version of the Single Market preferred by the continental countries, and particularly by the European Commission, including its ubiquitous President, Jacques Delors, was standardisation, better known in Britain as harmonisation. It led to the opposite approach to MPR. With harmonisation, the task of the Commission was to establish standards for each product, and to ensure a uniform system of compliance. The Single Market was channelled into setting standards for health, safety at work, product size, product quality, and ensuring that each national manufacturer changed its products accordingly. The EC Commission gleefully promoted common standards throughout Europe, not least because Commission power and responsibility rapidly expanded. The consequences of this approach have even been attacked by the former EC Commission Vice–President Lord Tugendhat who told a Chatham House audience that:

I believe, a major component of the widespread disillusion [with the EC] stems from the legislation needed to bring the Single Market into being. That legislation has proved to be unprecedentedly intrusive. Partly, there is the question of sheer scale – 282 individual items of European legislation required to bring it into effect. Partly too it is a result of so many existing national rules and regulations on technical standards, health, safety, environment and other matters being so detailed that in order to create a level playing field EU regulations had to follow suit. As a result it has been brought into what Douglas Hurd has described as "the nooks and crannies" of national life all over the European Union.

This is by no means only the result of Commission initiatives. The Single Market has become the means by which individual member states have sought to push their own agendas on social, environmental and other matters. This has added to the volume of proposals the Commission has brought forward. 5

By the time the Single Market came into view, on 1 January 1993, it was clear that its philosophy was based upon harmonisation or standardisation: MPR had been effectively lost, except in non–controversial areas. MPR might prevail if there was no dispute about a product, but given the complexity of modern industrial society, it was almost certain that the Commission at some stage would be called upon to adjudicate in terms of the various standards which were being applied. From the start the Single Market was being transformed into a uniform market over which the EC Commission acted as judge and jury. As a result the Single Market is deficient in four different areas: harmonisation; competition policy; external tariffs and protectionism; and Value Added Tax.


Firstly, harmonisation, which, according to Douglas Hurd has penetrated the "nooks and crannies" of everyday life. But such high level government criticism is not new. Back in 1974 Prime Minister Harold Wilson commented that 'There is too much talk about harmonisation ... a Euro–loaf, Euro-beer... An imperial pint is good enough for me and for the British people and we want it to stay that way.' 6 His successor, James Callaghan, recalling his time as Foreign Secretary, noted in his memoirs that:

I found myself corresponding with the Chancellor, Denis Healey, about import levels of apricot halves and canned fruit salad, and with Peter Shore about mutton and lamb. I recall one low point when nine Foreign Ministers from the major countries of Europe solemnly assembled in Brussels to spend several hours discussing how to resolve our differences on standardising a fixed position of rear-view mirrors on agricultural tractors.7

Michael Heseltine, currently the President of the Board of Trade and Secretary of State for Trade and Industry, in his 1987 book Where There's a Will, entitled a chapter 'Our European Destiny'. Anticipating the benefits of the Single Market he argued:

One of Britain's two commissioners, Arthur Cockfield, has put forward a detailed plan for making a reality of Europe's internal markets. The idea of creating a European market in which goods, services, people, and capital can move without hindrance is not a new one; it was the core of the Treaty of Rome. But this plan is by far the most ambitious attempt to make it a reality. The Cockfield plan seeks systematically to remove within seven years all the physical, technical, and fiscal barriers which divide the Community. 300 legislative proposals have been put forward to create this great market; to encourage trade flows and reduce unacceptable administrative costs, the physical barriers have to go. Technical barriers frustrate the creation of a Common Market for industrial goods; as a result, manufacturers in Europe are forced to focus on their own national rather than European markets, with consequent increases in costs. Every day consumer goods have to be adapted to different standards. More than 80 different types of television sets are made to meet different national standards. 16 types of electric shaver are made. Air fares within Europe are held artificially high by national regulation and cosy monopolies. 8

But Michael Heseltine, as Minister of the Board of Trade said of the Single Market in March 1994 that:

the Single Market is over regulated, overprotected, over–centralised We now have Eurosclerosis; we burden our businesses with extra costs, preventing labour markets from working properly, stifling the regenerative process of the capitalist system. 9

If someone initially as enthusiastic as Michael Heseltine has expressed such criticism it is no surprise that Eurosceptics have been even more critical. Thus Christopher Booker in his columns in the press and in his book The Mad Officials 10 has catalogued many of the absurdities of harmonisation.

For instance, the Commission plans to harmonise the size of buses in Europe by switching from double–decker to single–decker. The British, and the Germans in Berlin, often prefer double–decker buses; but the Commission wants to prohibit manufacture to enforce harmonisation. This approach is the opposite of MPR: under MPR, all buses, single or double–decker, could be on sale anywhere in the EC and the consumer would choose. Also threatened by the directive are the bus industry exports to Asia Pacific, where there is a preference for double–deckers. As Mr Booker points out such proposals 'will deal a devastating blow to British manufacturers and to our bus and coach operators. Their costs would amount to so many billions of pounds that their trade organisations find it hard to estimate an overall figure.' ll Just as ludicrous is the 1800 word European directive on the curve in cucumbers; according to the Commission, cucumbers should not curve by more than 5 mm. It does not matter if a cucumber curves, as generations of consumers know full well. Why should Brussels want to regulate the curve in a cucumber unless this is regulation for regulation's sake? Harmonisation zeal now affects lettuces. Lettuces grown in Britain, because of the climate, require fertiliser, unlike lettuces grown in Southern Europe. MPR would simply permit all lettuces grown with or without fertiliser to be sold anywhere; what the Commission has done is to issue a lettuce harmonisation directive, preventing the production of lettuces with. Five thousand jobs are now at risk in an industry with a £65 million turnover. 12 Equally unjustifiable is a harmonisation directive on the emissions from crematoria and mortuaries. Apparently all the crematoria in Europe have to standardise their emissions from the burning of corpses. Crematoria rarely export their services; it is not the focus of a massive European trade. People who die in Britain do not usually have their cremations' for example, in Greece; it does not matter if our crematoria design is different from the Greek. Why should they all be the same design?

Another harmonisation obsession concerns forestry as Christopher Booker has described:

There is something called the directive on Forestry Reproductive Materials, number 66/404. This is a very curious piece of legislation because it was originally taken from a German forestry law of 1963, and this in turn was copied from a so–called Forestry Race Law introduced by the Nazis in 1934 to preserve the genetic purity of forests in the Third Reich.

The intention of that now nearly 30 year old EC directive is the same – to preserve the genetic purity of trees. And of course it has been translated into regulations by the authorities here in Britain, and applied more rigorously than anywhere else in Europe.

The trouble is that British oak trees have a natural tendency to hybridise. This means that there are only a few strands of oaks in British woods and forests which meet the exacting purity standards laid down by the directive. And it is now a criminal offence to sell acorns from any other trees. 13

Other industries to suffer severe disruption because of harmonisation include whisky distilling, herbal medicines, slaughterhouses and meat production, cheese and milk products, l4 and retailing. In March 1995 the Sunday Express reported harmonisation plans aimed at abolishing imperial measures with fines and prison for shopkeepers who weigh produce in pounds and ounces. Their report illustrated the plight of one typical shopkeeper Mrs Diane Brandon of Devon:

'I'd rather go to jail than give up pounds and ounces says Diane, 42. And swingeing new Euro laws mean she may have to do just that. For Trade Minister Michael Heseltine is pushing for £5,000 fines for shopkeepers who stick to imperial measures that have been good enough for centuries, with prison for non–payers. Eilos and grammes are to be introduced over a five–year period From October. But not if Diane, who runs Osmond Stores in Uffculme, near Tiverton, Devon, with husband Michael, 46, has anything to do with it. 'If we don't do something to stop this now', she says, 'then we are just on a big Euro roller coaster. We serve 2,500 customers in this village and the surrounding area and I believe most of them will want to keep the traditional measures.' Under the Euro rules, shopkeepers will have to display prices of prepacked food in kilos and will not be allowed to display a conversion chart. 15

Such harmonisation increases costs, leads to higher unemployment, and unnecessarily increases burdens on business. Harmonisation has cut the choice for the consumer, creating not a single market, but a uniform market. There is a great difference between a single market where the consumer is king, and a uniform market where the European Commission decides on product determination. Unfortunately it is a uniform market which the EC Commission directives are rapidly producing.

Competition Policy

The second deficiency of the Single Market concerns competition policy. During the build up to "1992" the European Community stated that it would be open to investment from outside. Consequently, there was an increase in investment from the United States and from Asia Pacific. Companies were informed that if they invested in any one European country, they would have access to the domestic market of all the others. However, a number of interesting cases have shown that the rhetoric of openness has run ahead of the reality. For example, the American company Procter and Gamble, having set up their factory to manufacture baby products such as nappies, found that their share of the market was increasing to such an extent that European competitors complained to the Commission, who investigated Procter and Gamble for obtaining an excessive market share. Procter and Gamble are not in breach of any rule or regulation; they have not been using unfair competitive tactics, and they are not in breach of anti–monopoly laws. They are not in breach of a member state law or European Community law; they have simply done well in selling their products to Europeans. Nonetheless, the Commission's investigation instructed Procter and Gamble to divest important parts of its European business. As the Wall Street Journal reported:

Procter & Gamble said it was 'surprised and disappointed' by the Commission's decision to investigate its potential domination of the feminine–hygiene sector in Germany. 'We don 't understand it, especially after our plans to divest not only the diaper business, but also parts of the feminine hygiene business of VPS', a Procter & Gamble spokesman said in Brussels...

At the group's headquarters in Cincinnati, Ohio, Procter & Gamble Chairman Edwin L. Artz expressed frustration with the Commission's reservations. 'We have done our utmost to meet possible concerns about the impact of the sale in other produce markets by excluding the VPS feminine–hygiene business volume', he lamented 'The resulting share position for Procter & Gamble win not restrict competition in any European product category.' l6

The same problem has been faced by the Nissan motor car company, which found colossal restrictions on its exports to the European Community because of protective tariffs and voluntary export restraints (VERs). Taking advantage of the Single Market, Nissan built a factory in Britain, with the hope of exporting cars throughout Europe. However, France and Italy complained that although the Nissan cars are built in Britain they are still Japanese cars and should therefore be subjected to tariffs. The Commission is now determining the outcome of this case. When Gillette invested in the Single Market, they did so with the hope of being able to sell their razors in all countries; the result has been a massive increase in the sale of Gillette products. But domestic European manufacturers objected on the grounds that Gillette's market share had become too great. Yet the reality is that Gillette's products are much better, and better priced, than the European products. They are also more imaginatively advertised. For these reasons Gillette is thriving; it is not because the company is in breach of regulations or have violated laws concerning monopolies. In all these cases, the notion of a Europe open for business has been exaggerated. Even powerful multinationals are not immune from spiteful restrictions on product sales and market access.

The policy of the European Community is that foreign investment is welcome as long as it is not particularly successful. If an outside company is too successful, and if the European consumer buys its products, the domestic European manufacturers will soon want to erect the equivalent of trade barriers. The result is that EC economies have been losing out to the US in the competition for foreign direct investment, according to a study by the Organisation for Economic Co–operation and Development in June 1995. Inflows of foreign direct investment to the US economy nearly tripled to $60.07 billion last year from $21.37 billion in 1993. The 1994 figure also marked a six–fold increase from the $9.89 billion of such investment into the US in 1992. The totals underscore perceptions that the US has emerged as a favoured destination among OECD economies for multinational companies because of its big market and its competitive cost base. Recent major investments in the US by companies such as Germany's Daimler–Benz AG and British Telecommunications have sharply driven up the pool of foreign funds invested in American industry. In Europe, Italy saw foreign–investment inflows slow 34% to $2.48 billion in 1994, while French inflows slipped 13% to $10.5 billion. German inflows were actually negative in 1994 after slipping to $241 million in 1993 from $2.38 billion in 1992. The UK saw its inflows fall 24% in 1994 to $11.06 billion from $14.54 billion a year earlier. l7

Competition policy has thus become a barrier to customer choice rather than an enhancement of it. This can be demonstrated by the fact that several industries are still largely immune from competition. Air travel, accountancy, insurance and telecommunications are not yet fully covered by the Single Market; yet all of these industries are large and important. There is no Single Market in ferry travel. Greece has exemption until 2004 on the provisions for competition on ferries between its various islands. Competition is distorted by high industrial subsidies to "national champions" which now emerge as "European champions" – Airbus Industries, Thompson Bull, Philips, Fiat and Renault, and most of the EC's steel industries. Even an EC Commission report on the Single Market in June 1995 was primarily devoted to bemoaning obstacles to free movement of goods because of inadequate compliance with directives. 18 But such an approach is a tacit admission that the harmonisation philosophy has proved unsatisfactory in practice. The final objective should not be total compliance for its own sake but greater choice for European consumers. If MPR had prevailed as the guiding philosophy in the mid– 1980s the consumer would now have better choice in many products.

External Protectionism

The third defect of the Single Market is the way in which external tariffs and protectionism has increased. 19 Many European companies, while accepting greater internal competition, have demanded by way of compensation greater protection from imports and external competition. As Anthony Cowgill accurately predicted in November 1991, 'Reducing border restrictions for example will have no effect on the competitive edge of British manufacturing industry – in fact the EC may well damage the international competitiveness of British companies if it persists in becoming more protectionist and if it starts carrying out centralist social engineering measures.' 20 There has been a noticeable increase in external tariff and non–tariff barriers in the run up to, and in the operation of, the Single Market. The EC favours internal competition, but is prone to keep out products from non–member states, 21 in particular competition from the United States, Asia Pacific, and from Central and Eastern Europe. Many Eastern European economies are now performing very well. The Czech Republic's economic miracle has become the successful model to emulate. Eastern European countries are now able to export to Western Europe products of a fairly high quality at a good price. But EC protectionist devices have continued to proliferate, especially in the "sensitive" areas of textiles, coal and steel, and agriculture. Both the 1991 GATT and IMF reports condemned such external EC protectionism and a 1994 UNCTAD report noted that:

... in 1993, Hungary, for example, still saw 30% of its exports to the EU subjected to some form of non–tariff trade barriers. These barriers included such things as quantitative restrictions and minimum pricing rules. The figure for the Czech Republic and Slovakia was 25%, for Poland 16.6% and Romania 36%. With the exception of Poland, all of these countries are experiencing about the same level of obstruction as in 1989.

The EU's failure to liberalise the so–called "sensitive" sectors (i.e. iron and steel, chemicals, textiles and agriculture) is particularly damaging to the East because of their own dependence on these sectors. Some 50% of all of Poland's exports to the EU last year came from these "sensitive " sectors. For Hungary, the figure is 54%, Romania 65% and Bulgaria 70%. What may seem like a minor trade restriction on goods from Central and Eastern Europe may in fact be responsible for greatly retarding the pace of economic reform. 22

The proliferation of "anti–dumping" rules has been a favoured EC measure to discriminate against Central and Eastern Europe even though such rules are especially damaging to EC consumers and to companies who require Eastern European imports as part of the production cycle. In May 1993 the EC imposed anti–dumping duties of up to 21.7% on imports of seamless iron and non alloy steel pipes from Hungary, Croatia and Poland after the Commission estimated that such products had dumping margins of up to 50%. Such policies are petty, spiteful, and lacking in any economic justification based as they are on political considerations of placating inefficient EC producers. 23 Central European political leaders have rightly complained. Hungarian Prime Minister Gyula Horn has stated that '... the EU should realise that we live in the market too and it shouldn't place restrictions on the import of our goods. After all we won the Third World War for the West'; 24 Czech premier Vaclav Klaus told the 1994 Mont Perelin Society conference that:

the collapse of the Iron Curtain does not require restructuring and transformation on its eastern side only. The western side needs to adjust as well and the necessity of doing that is no less urgent. Attempts to postpone the painful economic and social process by protectionism and by trade discrimination [against] former communist countries can only worsen problems on both sides. 25

No wonder that President Clinton told the EC that 'if the Eastern Europeans cannot export their goods they may export instability even against their own will.' 26

Value Added Tax

The fourth area of Single Market deficiency concerns Value Added Tax. The European Single Market is based on a single taxation strategy for indirect taxes rates. In July 1992 European Community countries approved a minimum level of VAT of 15% on nearly all products and services. This high level of indirect tax is imposed throughout the European Community on different economies, products, direct tax systems, levels of growth and employment. The outcome is effectively to harmonise the tax regime by harmonising indirect taxes upwards. Such a regime creates particular problems with regard to the assessment of levels of inflation. Treasury estimates suggest that the actual level of inflation is up to 1% lower because of the distortions caused by VAT (and other indirect taxes). One practical objection to VAT is that it is difficult to collect. It transforms every business into an unpaid tax collection agency. Large companies can perhaps cope with this; they employ accountants in any case and can absorb the costs. But the small business sector finds it hard to absorb the costs of collecting, assessing, and quantifying VAT. In North America, for example, where there is no equivalent to VAT, it is no coincidence that the small business sector is much larger and more dynamic; the small businesses become medium–sized businesses more quickly, partly because this burden is absent. The VAT harmonisation burden hits the small and medium sized sector of the European economy, which is consequently less able to expand than its competitors in equivalent economies in Asia Pacific or in North America. According to the House of Commons Select Committee on Public Accounts, in a report on VAT in August 1994, two billion pounds of VAT each year goes uncollected because traders either cannot understand the system, cannot be bothered to find out, or deliberately dodge payment. The report painted a nightmarish picture of businessmen ensnared in a web of rules and regulations so complex that only a minority pay their full VAT dues. Members of Parliament noted with concern that VAT is governed by 156 main regulations, and that there have been 209 regulatory changes in the last nine years. 27

Despite the good intentions of the Single Market, its achievements still lag far behind its rhetoric; nor is it likely to succeed unless the emphasis is returned from harmonisation to Mutual Product Recognition. External protectionism based on mercantilist economics should be abandoned in favour of freer global markets in accordance with the spirit and objectives of the World Trade Organisation (WTO). VAT harmonisation serves no worthwhile economic purpose and its removal would provide a supply side boost to the European economy. And non–EC companies investing in the Single Market should not be subject to politically motivated or maliciously inspired restrictions of their market share. Changes along these lines will promote consumer choice and enhance economic growth. So far however the Single Market experiment has, on balance, done more harm than good.

Economic and Monetary Union


European monetary union is a very old idea. The Roman Empire effectively exercised a single currency system, and during the last few hundred years, particularly the eighteenth and nineteenth centuries, gold and silver were effectively common European currencies which existed alongside national currencies. Napoleon planned a customs union and monetary union, and during World War Two, not surprisingly, there were German plans for a European currency once Hitler had been victorious. The Maastricht Treaty is the second attempt to bring about monetary union within the EC. Originally the Werner Report of 1970 advocated monetary union by 1980. But because of the world oil crisis, during which the price of oil quadrupled, and inflation and unemployment rose sharply, the focus shifted away from monetary union, and the plans were dropped. This time the EC is determined to succeed driven as much by the logic of federal integration, which led to the Maastricht Treaty, as by purely economic considerations.

Single Market, Single Currency

Perhaps the best known economic argument for economic and monetary union (EMU) is that if Europe has a single market it needs to have a single currency. So the argument runs, the United States has a single market, and it has a single currency, the dollar; similarly, Japan has a single market, and it has a single currency, the yen. The European Commission once argued that if the Americans really wanted to assist the European economy, they would permit each of the 50 states of the Union to have its own currency, creating similar circumstances to those in Europe. In making such a satirical observation, the EC has advanced the argument that to remove the barriers to trade and commerce it is necessary to remove the currencies of the member states.

The second argument in favour of monetary union is that it will reduce transaction costs. For travellers, tourists, and businessmen a single currency eliminates unnecessary currency conversion. So the argument runs, it would be easier to do business across the EC without the problems caused by volatility in exchange rates, which might make the difference between profit and loss.

Models of EMU

To achieve this end, three particular models for economic and monetary union have been considered. The parallel currency model was suggested in 1989 by the then Chancellor of the Exchequer, Nigel Lawson, who proposed that the currency of each member state should be legal tender in all the other member states; so that, for example, the pound sterling could be used in all the other countries, as could the Greek drachma. In reality this would mean the creation of a Deutschmark zone, because the German currency is the strongest with a proven record of low inflation. Mr Lawson made clear that this would not mean the abolition of each national currency; people in Britain, if they wished to retain the pound, could do so. And, as he told a press conference, this would not mean that to buy stamps at a post office in the heart of rural England, it would be necessary to use Italian lira or Greek drachmae. This plan was comprehensively rejected; the other 11 European countries were unconvinced of its merits.

The second suggested model of monetary union was the common currency proposal which was half–heartedly advocated by Nigel Lawson's successor John Major. Mr Major, when he became Chancellor of the Exchequer, was a household name; alas, only in the Major household. Perhaps his plan for the common currency would make his name in Europe? Major suggested that the existing ecu should be made into a hard currency which could be issued by a European central bank, but which would co exist with each national currency. Under this model an additional currency in Europe, the ecu, could be used in all the member states alongside their national currencies. John Major argued that the advantage of this proposal was that it would bring about competition between currencies, so that the good currencies would drive out the bad. In this way, it was hoped, there would be an anti– inflationary incentive, and an anti–inflationary discipline in the system. For example, business would want the hard ecu to have the lowest level of inflation of all the existing currencies; so if the German inflation rate was only 1%, there would be an incentive for the European central bank to make sure that the inflation rate for the ecu was no more than 1%. But if the ecu rate was 1% and in Greece inflation was 15%, people would switch to the ecu. In these circumstances, the ecu would gain in popularity because it would keep its value. Naturally contracts, international business, trade and commerce would be much more likely to be conducted in the ecu if it kept its value than if it did not. If it turned out to be inflationary, then people would prefer to conduct business in their national currencies. But John Major's 1990 proposal, contained in a Treasury paper just 16 pages long, was rejected.

Instead the EC countries opted for a single currency which would replace existing national currencies. From the outset the assumption was that EC economies would converge in the run–up to monetary union. Although the evidence of the 1990s suggests divergence between EC countries the notion of convergence has suffused all discussion since the Delors committee reported in April 1989. The Delors Report proposed a three–stage movement towards a single currency. 28 In the first stage, all the currencies of the member states would join the Exchange Rate Mechanism of the European Monetary System. Each currency would be tied to the Deutschmark within either the narrow bands of the ERM, at the time 2.25%, or the wide bands, at the time 6%. The second stage would be an irrevocable locking of currencies at their parity against the Deutschmark as part of a fixed exchange rate regime. Only at the third stage would there be the move to a single currency issued by a European central bank. The value of the single currency would theoretically be determined by the monetary policies of the independent central bank with the national currencies converted to the single currency at the existing rate to which they were irrevocably locked to the Deutschmark. The stark truth of this approach was that the national currencies would be abolished. Their fate would be similar to that of the East German Ostmark after currency union in July 1990. The acceptance of the Delors Report 29 proved to be the basis for debate between 1989 and the negotiations for the Maastricht Treaty which were concluded in December 1991, though final ratification was postponed until November 1993.

The Maastricht Treaty

The Maastricht Treaty stuck remarkably close to the Delors Report model. 30 As well as the three stage move to EMU, convergence criteria established targets for inflation, debt/GDP ratio, budget deficits at no more than 3% of GDP, and the requirement for all currencies to join the narrow band rather than the wide band of the ERM. These convergence criteria beefed up the arrangements of the original Delors Report in the expectation that the European economy was actually converging. The Maastricht Treaty stated that in 1997 a decision would be taken about whether to move to stage three and how many of the countries had met the criteria to do so. Thus the Treaty proposed in Article 3(A), 'the irrevocable fixing of exchange rates leading to the introduction of a single currency, the ECU, the definition and conduct of a single monetary policy and exchange rate policy.' To this end, it recommends the establishment of a European System of Central Banks (ESCB) and a European Central Bank (ECB), independent of EC institutions and the governments of member states. Consequently Article 107 reads, 'when exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision–making bodies shall seek or take instructions ... from any Government of a Member State.' Article 103(1) states that 'Member States shall regard their economic policies as a matter of common concern and shall co–ordinate them', while Article 103(2) stipulates that 'the Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States.'

Moreover, Article 102 (3) states that, 'in order to ensure closer co–ordination of economic policies and sustained convergence of the economic performances of Member States, the Council shall, on the basis of reports submitted by the Commission, monitor the economic developments in each of the Member States ... and regularly carry out an overall assessment.' Furthermore, under Article 103(4) 'where it is established ... that the economic policies of a Member State prove not to be consistent with the broad guidelines ... or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting on a qualifies majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned.'

The development and implementation of monetary policy will be completely subordinate to EC control. Article 105(2) states that 'the basic tasks to be carried through the ESCB shall be: to define and implement the monetary policy of the Community; to conduct foreign exchange operations; to hold and manage the official foreign reserves of the Member States.' This will be achieved through the provisions of Article 108(1) whereby 'the ECB shall be consulted by national authorities regarding any draft legislative provision' and that the ECB 'may frame opinions for submission to the appropriate national authorities on matters within its fields of competence.' Moreover, Articles 105(4) and 108(3) state that 'the ECB shall have the exclusive right to authorise the issue of bank– notes within the Community', such that 'Member States may issue coins subject to ECB approval of the volume of the issue.'

These intentions were broadly adhered to at a meeting of the European finance ministers at Versailles in April 1995. The three–stage plan leading to the single currency was re– endorsed albeit with an amended timetable. Consequently in 1997 a decision will be taken as to which countries in 1999 will lock their currencies to the Deutschmark in a reformed and reconstituted ERM. A period of fixed exchange rates from 1999 will now lead to the single currency by the new target date of 2003. Solemn discussions have begun on the single currency's name.

Thus, despite predictions at the time, the turmoil on the international currency markets since 1992 has not led to an abandonment of the whole project. At a finance ministers' meeting on 2 August 1993, the old system of narrow and wide ERM bands was scrapped, to be replaced by a very wide band of 15%. To adhere to the original stage III timetable the EC has now proposed that in 1999 there will be an ERM mark two, of four years of fixed exchange rates leading to EMU. From 2003, the single currency will be introduced on the assumption that member states have met the convergence criteria. What can be concluded from these events? The single currency is going to happen. The EC desperately wants to introduce it and has a new plan to do so. The only thing that has changed in the last six years since the publication of the Delors Report is the timetable. The principle of the single currency has not changed; the principle of three stages has not changed; the principle of using the ERM has not changed; and the principle of abolishing the existing currencies has not changed.

Monetary union is being driven by the political will of the member states and the European Commission which regards the 1992–3 implosion of the ERM as the justification for EMU not as a reason for its abandonment. John Major's claim that the single currency may not happen defies the facts and stated intentions of the EC. In April 1994 in an under– reported interview with Der Spiegel, Mr Major stated that 'if we were to move to a single currency and it was to be successful, you would need proper convergence of the economies across Europe. They would all need to be operating at the same sort of efficiency. I know of no–one who believes that is remotely likely, it simply is not going to happen.' 31 During the 1995 Conservative leadership election campaign, Mr Major reiterated his belief that the single currency may never occur, oblivious to the decision at the EC's June 1995 Cannes summit (which he attended) to proceed to Stage III in 1999 and to prepare the scenario for switching from national currencies at the December 1995 Madrid summit. 32 Similarly the EC's Monetary Affairs Commissioner Yves–Thibault de Silguy told the European Parliament that, under the Commission's plans, once exchange rates were fixed, most transactions between private banks and the European central bank would take place in ECUs, as would the bulk of interbank transactions. This would allow for a "critical mass" of the EU's financial system to shift to the new currency. Mr de Silguy told the Parliament that once exchange rates were fixed it would take another two to four years for "the man in the street" to have the single currency coins or notes in his pocket. He indicated that this period was needed not only for technical reasons but also to woo the public. "You have to teach people to love the currency", he said. 33 In accordance with these plans the EMI President Alexandre Lamfalussy suggested a competition to select the best bank notes design for the single currency because a decision was 'urgent'. 34

There is no evidence to suggest that the current temporary breakdown of the ERM has dented the resolve of the EC. It is too important for the construction of the federal Europe of Maastricht for the EC to abandon the plans for EMU. Too much political credibility is invested in it, and too many careers depend upon it. As Karl–Otto Poehl, the former Bundesbank President, has argued 'a small monetary union could be founded almost immediately [emphasis added] if the political will were at hand.' 35 Moreover a single currency is essential to the creation of a single European government which has been at the heart of the integrationist project since the 1950s. As Sked and Cook noted, 'the real impetus behind monetary union was political: Europe could only become a single state if it had a single currency. Hence the political objection to the Delors Report by Mrs Thatcher: it was really designed to put an end to British national sovereignty.' 36

The common currency was rejected because it is incompatible with political union. The 1990 hard ecu model is consistent with national sovereignty because each country still retains the power to issue its own currency, to have its own budgetary and monetary policy, and its own central bank. But the politics of the EC has ruled that out because the scheme would conflict with the desire for political integration. If there is a single currency, there is a single monetary system with one central bank and only one currency. And if there is a single central bank and monetary policy, there will be one budgetary policy. If there is one budgetary policy, there will be one fiscal and taxation policy. If there is one monetary policy, one budgetary policy and one fiscal policy, there will be one government. Kenneth Clarke's claim that the Irish Republic maintained its political sovereignty up to the 1970s while sharing the pound sterling is a false analogy with EMU. The Irish Republic never gave up its right to issue its own currency after obtaining its constitutional independence in 1922. Under Maastricht the member states would give up for ever the right to issue their own currency. As Norman Lamont has commented, 'under the Maastricht Treaty it would be illegal for Britain to re–establish its own currency. That's why the federalists are so keen on it.' 37

Economic Objections

The more honest federalists such as Chancellor Kohl have always admitted that political and monetary union are intertwined. But some in the EC prefer to see EMU as an offspring of the Single Market. For example, the European Commission has argued that it is necessary to have a single currency if there is to be a successful single market. Among those disputing this claim is the former president of the German Bundesbank, Dr Helmut Schlesinger, who in a speech in Los Angeles in April 1993, said that:

Many economists feel that the single European market will only have been completed economically if Europe actually also has a single currency. Nothing expresses this conviction better than the well known slogan, "one market, one money" However, I believe it to be somewhat short–sighted simply to regard the European monetary union as the logical conclusion to the process of economic integration. The monetary union is rather a step with a significance of its very own. A single market can exist and be beneficial without inevitably requiring further moves towards integration in the monetary sphere. Nobody to my knowledge is calling for the creation of a single North American currency, as the consequential establishment of a North American free trade area. 38

As Dr Schlesinger argues, the analogy which the Commission has hitherto used is inappropriate. The Commission has repeated that Europe should be compared to the United States; but Dr Schlesinger's argument is that Europe should be compared to the whole region of North America – the USA, Canada, and Mexico. But NAFTA does not have a plan for a single currency. There are no plans to abolish the Canadian dollar or the Mexican peseta, nor need there be. The same argument applies to Asia Pacific. The European Commission has always referred to Japan, but it has not adequately considered the other countries. In Asia Pacific, either with ASEAN or with APEC, there are no plans for a single currency. Free trade zones are emerging and internal trade barriers are coming down without the abolition of the existing currencies and the imposition of an Asia Pacific currency. The one–dimensional Europe–Japan analogy the EC Commission has proposed is inaccurate.

In the debate in Britain hitherto, advocates of EMU have assumed – rather than proved – that the single currency will keep its value. 39 They point to the Delors Report and the Maastricht Treaty which provide for an independent European central bank immune from political interference. They anticipate that the European Central Bank (ECB) would be as independent for Europe as the Bundesbank is for Germany and the Federal Reserve is for the United States. But this stress on operational independence is an incomplete rendering of recent German monetary history. The reason why the Deutschmark has maintained its value since 1949 is partly due to the independence of the Bundesbank; however that is a necessary but not a sufficient condition. Equally significant is that German central bankers are petrified of inflation because of the inter–war years of hyper–inflation, when in 1923 inflation was measured not in percentage terms but to the power of ten. Inflation destroyed the savings of the middle classes, turning them to Hitler. When the slump followed after 1929, many of the seven million unemployed also turned to the Nazis. To the German mentality, after World War Two, inflation is associated with the collapse of society, civil disorder, and the rise of fascism. In other words, it is the mentality of central bankers, and their fear of inflation because of these historical truths, which makes them so determined that the Deutschmark will keep its value. In assessing any plan for EMU it is impossible to take the central bankers out of central banking. All systems of central banking depend on the individual decisions of central bankers. Independence from the politicians does not by itself guarantee low inflation. A European central bank on the model outlined in the Maastricht Treaty (Article 109a) would contain, at most, seven German representatives out of twenty– one. But other central bank governors sitting round the ECB table have definitions of low inflation which are higher than that of the Germans. Fifteen central bank governors may produce fifteen definitions of low inflation. Perhaps only the German representative would prefer zero inflation. If decisions are taken on the basis of compromise between different levels of inflation, it is likely that a European single currency will have a higher inflation rate than the recently abolished Deutschmark. The foreign exchange markets would be likely to judge a new European currency in terms of its inflation rate compared to the former Deutschmark, or compared to the existing Swiss franc. The Maastricht Treaty, albeit with its provisions for establishing an independent central bank, does not guarantee low inflation.

Nor does operational independence always have the redoubtable reputation it does in Frankfurt. Any analysis of the American Federal Reserve suggests periods in which it has lost control of inflation, most notably in the late 1970s when inflation reached 16%. Similarly the Federal Reserve has been heavily criticised in the work of Milton Friedman and Anna Schwartz for its reaction to the 1929 Wall Street crash when monetary policy became absurdly tight. A wise central banker can be politically dependent; a foolish one can be independent. Moreover, as Tony Cowgill has argued, how would the ECB set monetary policy for Europe as a whole if, in the event of a steep rise in oil prices, its effects are so different among member states? Germany is highly dependent on imported oil and gas; France uses nuclear power for a high proportion of energy needs; and the UR would witness a beneficial effect on its North Sea sector. 40 The operational independence stressed by the Maastricht Treaty does not address this question. Operational independence by itself is a necessary but not a sufficient condition for low inflation. A European currency on the Maastricht model, irrespective of its time–tabling, would not keep its value in the way that the Deutschmark has done. In these circumstances, incidentally, the City of London would be better off with the pound outside EMU. Eddie George has argued that 'the confidence in London's future position does not depend on the UR being in the vanguard of a move to EMU', 41 while Professor Tim Congdon has rightly noted that:

The City ... has nothing to gain from Britain's participation in EMU. Indeed, an argument could be made that our international financial industries could suffer from greater political integration in Europe. At present most of these industries are relatively free from government regulation. For example, banks in London can decide for themselves how large their cash reserves need to be in relation to their foreign currency liabilities, including their liabilities in European currencies. 42

If Britain adopted a single European currency, banks in the City might be forced to hold the same cash reserves as banks elsewhere in Europe. These imposed reserves would almost certainly be higher than those facing banks outside Europe altogether. Because no interest is paid on such reserves, they reduce profitability and are unpopular with banks' managements.

The third objection to EMU relates to levels of growth and employment. Critics of the single currency have always maintained that if the existing currencies of the member states are tied to the Deutschmark in the ERM at an over–valued level then the inevitable result is lower growth and higher unemployment. This is the principle reason why unemployment in Europe during the early 1990s, and during the mid 1990s recovery, has been far higher than in the United States or in Asia Pacific. Interest rates have been kept high in order to keep the value of currencies high against the Deutschmark. The policy of high interest rate levels as the central tenet of exchange rate targeting has penalised the companies of Europe whose international competitors saw interest rates fall. The result has been lowergrowth, lower output and higher unemployment. Martin Feldstein, the Professor of Economics at Harvard and former chairman of the Council of Economic Advisers predicted in June 1992 that:

Monetary union is not needed to achieve the advantages of a free trade zone. On the contrary, an artificially contrived monetary union might actually reduce the volume of trade, and would almost certainly increase the level of unemployment. 43

This proved an accurate assessment of the consequences of artificially induced European exchange rates as a result of ERM overvaluations. Another example which further backs up these observations concerns Germany. Unification in monetary terms, in July 1990, was successful; the deutschmark replaced the ostmark. But the level of growth and employment in the former East Germany increased markedly because the ostmark, at the point of abolition, was grotesquely overvalued in relation to the deutschmark. We now know that the Bundesbank had argued for a market rate conversion of ten ostmarks for each deutschmark. But Chancellor Kohl, in order to win the general election of December 1990, opted for a politically popular exchange rate of 1:1, swamping the former East Germany with deutschmarks. The consequences were predictable. Wage rates in the former DDR rose to 70% of those in West Germany, when they should have been only 30% of the West German rate. Monetary union thus created a disincentive to the hiring of workers who were subsequently unemployed in the former East Germany. If the German experience is replicated throughout the EC, with each currency overvalued against the deutschmark at the moment of its abolition, the whole continent will have to contend with lower growth rates and higher unemployment. 44

Nor can such unemployment be solved by redistributive fiscal transfers through regional policy. Budgetary policy cannot solve a problem whose origin is monetary. As Professor Pedro Schwartz of the University of Madrid correctly predicted in 1990:

Free currency competition and flexible exchange rates are the cheapest kind of regional policy. During the time when a poorer region lags behind, a relatively weak exchange rate can help the region compete.

The Delors Report's answer to the regional harshness of an imposed single currency is to propose handing out grants to underprivileged regions. But it will be near to impossible tofine-tune these handouts to compensate for the difference between transaction-cost benefits of a single currency, and losses that result from being forced to use the German interest rate. Given the political mechanisms of the Common Market, this proposal could well deuelop into another subsidy mess like Europe's Common Agricultural Policy. 45

This important lesson was learned the hard way in Britain following the decision to join the ERM in 1990. Virtually everyone supported that decision: the CBI, the trade unions, the Conservative party, the Labour party, the Liberal party, most academic economists, the City of London, the Bank of England, and the research departments of most of the large banks. In October 1990, when the pound did join the ERM, this author predicted in an article in the Times Higher Education Supplement that:

By joining the ERM with a grotesquely overvalued pound, Britain is locked into a semi- fxed exchange rate regime which will gravely damage industry, hinder exports, exacerbate the balance of payments deficit, reduce output, increase bankruptcies, lower economic growth, and increase unemployment. By joining the ERM, the government will repeat thefollies of 1925 when Churchill returned the pound to the gold standard followed by a massive increase in unemployment and of the overvalued pound of the Bretton Woods era. ERM entry under current conditions presages several years of an unnecessary masochistic squeeze on the real economy, with the unemployed its immediate victim. 46

Between October 1990 and September 1992 that is exactly what happened. The pound was hopelessly overvalued. The government stubbornly maintained its defence of the existing parity of 2.95 deutschmarks in the wide 6% band. High real interest rates were set in the expectation of defending that parity; but it was clear to the rest of the world in general and to the foreign exchange markets in particular that the pound was unsustainably overvalued. The government's view was that a strong currency creates a strong economy. Never has there been a greater economic fallacy. A strong currency is the result of a strong economy, and not the other way round, as any cursory experience of the art)ficially rigged currencies of the former COMECON countries graphically test)fies. Despite the government's exhortations the markets never accepted the pound's ERM parity against the deutschmark and Britain duly left the ERM on 16 September, 1992. Mercifully the pound has yet to return, despite Kenneth Clarke's preference that it should do so.

Judging by the effects on France, Ireland, Spain and Portugal, it seems clear that the experience of the ERM for virtually al1 the member states was the same. For example, in Denmark during 1993 because of the ERM, nominal interest rates were 10%, the inflation rate was 1%, with the real interest rate 9%. The rate of growth was zero and unemployment was 10%.

The operation of the ERM by the system of exchange rate targeting against the Deutschmark has gravely damaged the European economy. Ironically this outcome was even predicted by the Wilson government's own propaganda which urged a "Yes" vote in the 1975 referendum. Referring to the then demise of the Werner Report the government argued that:

There was a threat to employment in Britain from the movement in the Common Market towards an Economic and Monetary Union. This could have forced us to accept fixed exchange rates for the pound, restricting industrial growth and so putting jobs at risk. This threat has been removed. 47

Alas the threat is still very real. If after 1999 Britain returns to a remodelled ERM, with each currency tied to the Deutschmark and with interest rates set not according to domestic monetary circumstances, but to target the exchange rate, then a repetition of the same experience is inevitable. The current plans for monetary union, which depend on a fixed exchange rate regime, will repeat the same mistakes which led to the implosion of the ERM in August 1993. It is of course technically possible to achieve monetary union. 48 The question is, will the cost be too great?

Dr Hans Tietmeyer, the Bundesbank President, in a speech in Berlin on 9 September 1994, argued that:

Stable exchange rates cannot be determined by government ordinance or fixed arbitrarily by policy makers. Ultimately, durably fxed exchange rates are possible only in cases where economic performance is sufficiently convergent and economic policies have identical aims and models. In recent years, Europe has had to experience yet again how much damage can be done by fixing exchange rates in the absence of due convergence between economies if the fixed exchange rate has to be defended by unlimited central bank intervention. 49

Reinforcing this powerful argument, on 20 April 1995, Dr Tietmeyer commented further that:

…[the Bundesbank] is not pursuing an exchange rate target by our decision [on interest rates] even if observers largely foreign do not wish to believe it. We know in fact that monetary policy alone has only a limited inf luence on exchange rates, and that a monetary policy oriented on exchange rates can easily cause deviation from the internal course of stability, particularly in an anchor currency country. 50

Dr Tietmeyer admits that the Bundesbank is not particularly enthusiastic about any return to the old ERM system; although the German government favours such a return, and favours the single currency, the Bundesbank is aware that rigidly linking European currencies to the Deutschmark did not work well before and is not likely to work again.

Such fears are echoed by Sir Alan Walters whose critique of the ERM over the past decade has been so trenchant and accurate. In October 1993 Sir Alan predicted that 'I am sure we will rejoin the ERM. It will be put together again like Humpty–Dumpty next year. I do not believe Major's assurances that we will not rejoin. I also fear the EEC will introduce powers to impose a transaction tax on foreign currencies to discourage speculation against European currencies and to protect their reserves. But I do not believe you can "fix" the ERM.' 51 Even Eddie George, the Governor of the Bank of England, contemplating the relationship between unemployment and a single currency on 31 January 1995 argued that:

It seems quite possible that a part of the answer to the widely differing levels of structural unemployment will need to be relative real wage adjustment. It is hard to imagine that this could be brought about through a reduction in nominal wages in the high unemployment countries, and without that it is possible that there would be a need for exchange rate adjustment to help bring about a real wage adjustment. Inadequate conversion would be likely to mean slower growth and higher or rapidly rising unemployment in some countries than in others. In that case, the imbalances could only be addressed through some combination of three possible adjustment mechanisms: one, long–term stagnation and unemployment in some parts of the monetary union; two, migration; three, fiscal transfers to the higher unemployment countries. None of these mechanisms appears particularly attractive, and if the tension were substantial then they could become politically divisive. The important thing is that we should recognise the economic significance of monetary union and debate the economic issues dispassionately. 52

Monetary union therefore risks high unemployment and low growth in the medium to long term. A single European currency after 2003 would be the ERM in perpetuity. Political as well as monetary union will prevent member states from making the necessary economic response of regulating their own interest rates. 53 In the worst possible case, the single currency would neither keep its value nor would guarantee a reasonable level of employment or growth. The quicker the British government activates its famous Maastricht opt–out and repudiates monetary union in principle, the better for all concerned.


1. In the 10 years to 1976, the EC's growth rate averaged 4% a year, compared with 2.6% for America Since 1976 European growth has halved to 2.2%, while America has grown by 2.5%. Japan has had a growth rate of nearly 4% a year over the same period.

2. The Cecchini Report, EC publication 1988.

3. Lord Cockfield, The European Union: Creating the Single Market, J. Wiley and Sons, 1994, gives a personal account of the single market process which highlights the dynamism of the EC Commission in forging the 1992 process into a frontier free harmonised Europe.

4.Lord Young, speech at IOD Convention 26 April 1994.

5. Speech at Chatham House, 14 June 1995.

6. Harold Wilson (September 1974) quoted in S. George, An Awkward Partner, Oxford University Press, 1990, p.87

7. James Callaghan, Time and Chance, Collins, 1987, p.304.

8. Michael Heseltine, Where There's a Will, Hutchinson, 1987, p.259.

9. Michael Heseltine, speech 3 March 1994.

10. Christopher Booker and Richard North, The Mad Officials, Constable, 1994.

11. Christopher Booker, speech at the IOD, 23 February 1995.

12. Ibid.

13. Ibid.

14. Harmonisation effects on the French cheese industry were condemned by Prince Charles at a dinner of the France–Britain Association 3 March 1992.

15. Sunday Express, 5 March 1995.

16. Wall Street Journal – Europe, 22 February 1994.

17. Reported in Wall Street Journal – Europe 26 June 1995.

18. See EU study finds obstacles on path to Single Market, Wall Street Journal – Europe 16 June 1995.

19. For an excellent analysis of this trend see Martin Wolf, The resistible appeal of Fortress Europe, CPS/AEI, 1994, and B. Hindley et al, Trade Policy Review, CPS, 1994.

20. Anthony Cowgill, British Management Data Foundation publication 7 January 1992.

21. The Times reported, 15 July 1994, that thousands of Mr Spock dolls will be refused entry to Britain this year because the pointy–eared Star Trek character from the planet Vulcan is "non–human" and falls foul of new trade quotas. The European Union is restricting toy imports from outside the Community to protect EU manufacturers. Member states are using a 44–year–old international agreement setting quotas for the type of toys that can be imported – human or non–human and animals, wooden and stuffed. It is up to Customs to decide how the rules are interpreted. Under the system, Captain Kirk toys get the green fight, but a limit has been set on the number of Mr Spocks from China. Any more than the allotted number will be turned away by Customs. Customs commented that 'Robin is safe and so is Batman, because he is actually a human. But Mr Spock is not, and will be subject to careful checks. We are skill considering the status of Noddy and Big Ears, but will be as lenient as possible.' The Department of Trade and Industry said Mr Spock fell under regulation 950349: 'He will have to find some other way to beam himself in.' The decision has infuriated British toy traders because about a third of toys in shops originate in China. A spokesman for the European Union said that the quotas had been fitted to a world-wide administrative framework agreed many years ago. Similarly The Sunday Times noted, 31 July 1994, that under the EC's Measures to Encourage the Development of the European Audio–Visual Industry thousands of pounds worth of subsidies are to be paid to European cinemas not to show American films but to screen European titles instead.

22. UNCTAD Report 1994 reported in the Wall Street Journal – Europe 23 November 1994.

23. For an excellent case report against anti–dumping policy see Sir Alan Walters, Economic Viewpoint, Evening Standard 14 October 1991.

24. Wall Street Journal – Europe 25 June 1994.

25. Ibid. 6 October 1994.

26. Speech to the French National Assembly June 1994.

27. The Cost to Business of complying with VAT requirements, HMSO, 1994 (reported in The Times 5 August 1994).

28. For an initial critique of the Delors Report see Martin Holmes, European Monetary System is not for Britain, Wall Street Journal – Europe, 6 June 1989 and Britain and the EMS?, Bruges Group publication 1989.

29. Sympathetic analysis of the Delors Report included D. Gros and N. Thygesen, European Monetary Integration, Longman, 1992, and M. Frahanni and J. von Hagen, The European Monetary System and European Monetary Union, Westview, 1992.

30. For an account favourable to this process see A. Britton and D. Mayes, Achieving Monetary Union in Europe, Sage/NESR, 1992.

31. Interview Der Spiegel, 25 April 1994.

32. See The Times, 28 June 1995.

33. Reported in The Wall Street Journal – Europe, 26 May 1995.

34. The Times, 20 June 1995.

35. Article in The Wall Street Journal – Europe, 1 February 1995.

36. A. Sked and C. Cook, Post–war Britain: a political history 1945–92, Penguin, 1993, p.541.

37. Speech in Oxford, 17 February 1995.

38. Speech in Los Angeles, 16 April 1993.

39. See, for example, the Kingsdown Enquiry of June 1995.

40. Tony Cowgill, speech 23 February 1995, reported by BMDF.

41. Speech at Bath, 2 October 1991.

42. Sunday Telegraph, 20 October 1991.

43. The Economist, 13 June 1992.

44. See R. Barrell (ed.), Economic Convergence and Monetary Union in Europe, Sage/ NIESR, 1992 for an optimistic view of this process.

45. Wall Street Journal – Europe, 18 June 1990.

46. THES, 26 October 1990.

47. HM Government 1975 Referendum advice.

48. See P. Temperton (ed.), The European Currency Crisis, Probus 1993 and C. Border et al, European Currency Crisis and After, mup, 1995.

49. Speech in Berlin 9 September 1994.

50. Press Conference 20 April 1995.

51. Reported in Sunday Telegraph, 31 October 1993.

52. Speech 31 January 1995.

53. National interest is not confined to interest rates determination. As Tim Melville Ross argued in The Times 7 March 1995 the housing market and pensions would also be gravely affected:

In Britain, for example, 80 per cent of all personal debt is in the form of mortgages, and 90 per cent of all mortgage debt is variable–rate. By contrast, most consumer debt in France and Germany is fixed–rate. So what would happen when the European central bank put up interest rates to control inflation? Simple. The British house buyer would be hit far harder than his French or German counterparts, with devastating consequences for the British housing market. Which is not exactly the way to ensure even economic development across the Community.

Or consider pensions: Britain has more funded pension provision than the rest of the EU put together. Most of our future pensions obligations are coloured in this way. Not so France, Germany and Italy, which rely on pay–as–you–go schemes. The governments of these states are at their wits' ends trying to devise means of coping with the demographic time–bomb which will mean that "somebody" will have to pay for the pensions of the increasing numbers retiring in the next 20–30 years.

So who will pay? Governments will either have to tax more heavily or borrow on a huge scale. Higher borrowing means higher interest rates. Thus, within a European monetary union, Britain would find itself with higher interest rates as a result of higher borrowing elsewhere. Should monetary union lead to fiscal union, British citizens might also find themselves paying higher taxes to subsidise pensioners abroad.