Baimb idge, Ma k (Ed.); Bu ki , B ian (Ed.); Whyman, Philip (Ed.)
Book
Implica ions o he Eu o: A c i ical pe spec i e om he le
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Baimb idge, Ma k (Ed.); Bu ki , B ian (Ed.); Whyman, Philip (Ed.) (2006) :
Implica ions o he Eu o: A c i ical pe spec i e om he le , ISBN 978-0-203-69539-5, Rou ledge,
London,
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Implica ions o he Eu o
To da e, c i ical analysis o he Economic and Mone a y Union p ojec has la gely
been ad anced om he cen e- igh spec um o B i ish poli ics. Compa able
ques ioning om he cen e-le , whils once a powe ul phenomenon, has mo e
ecen ly ailed o ind a cohe en oice. Ye he Eu opean aul -line canno be
cha ac e ised as a nea le – igh issue. The e a e no iceable di isions in opinion
ac oss B i ish business, he ade union mo emen and wi hin he Labou Pa y.
Implica ions o he Eu o o e s a unique insigh in o his key deba e om he ‘cen e-
le ’, eu oscep ic iewpoin . This book p o ides a igo ous analysis o he salien
economic and poli ical issues o conce n, such as: he economics o a single
cu ency, employmen and social implica ions, in addi ion o issues o so e eign y
and poli ical de e mina ion. The a gumen s p esen ed in his olume highligh he
eme gence o a cohe en al e na i e o deepening economic in eg a ion as a
pla o m o build a jus and equi able socie y.
Con ibu ions a e d awn om leading academics, ade union leade s and
p ominen poli icians, bo h om he Labou Pa y and he wide p og essi e le in
B i ish poli ics. This in o ma i e and hough p o oking book will be indispensable
eading o s uden s and p ac i ione s in economics, poli ics and in e na ional
ela ions, as well as hose in e es ed in his highly con en ious opic.
Philip Whyman is Reade in Economics a he Uni e si y o Cen al Lancashi e.
Ma k Baimb idge and B ian Bu ki a e Senio Lec u e s in Economics a
he Uni e si y o B ad o d.
Also by Philip Whyman
The Impac o he Eu o
Deba ing B i ain’s u u e
(co-edi o )
Economic and Mone a y Union in Eu ope
Theo y, e idence and p ac ice
(co-edi o )
Fiscal Fede alism and Eu opean Economic In eg a ion
(co-edi o )
Sweden and he ‘Thi d Way’
A mac oeconomic e alua ion
An Analysis o he Economic Democ acy Re o ms in Sweden
B i ain and he Eu opean Union
Al e na i e u u es
(co-au ho )
Also by Ma k Baimb idge
The Impac o he Eu o
Deba ing B i ain’s u u e
(co-edi o )
Fiscal Fede alism and Eu opean Economic In eg a ion
(co-edi o )
Economic and Mone a y Union in Eu ope
Theo y, e idence and p ac ice
(co-edi o )
Cu en Economic Issues in EU In eg a ion
(co-au ho )
B i ain and he Eu opean Union
Al e na i e u u es
(co-au ho )
Also by B ian Bu ki
T ade Unions and Wages
Implica ions o economic heo y
T ade Unions and he Economy
(co-au ho )
Radical Poli ical Economy
The Poli ical Economy o Social C edi and Guild Socialism
(co-au ho )
The Impac o he Eu o
Deba ing B i ain’s u u e
(co-edi o )
B i ain and he Eu opean Union
Al e na i e u u es
(co-au ho )
Implica ions o he Eu o
A c i ical pe spec i e om he le
Edi ed by Philip Whyman,
Ma k Baimb idge and B ian Bu ki

Fi s published 2006 by Rou ledge
ma e and selec ion; he con ibu o s o indi idual chap e s
Typese in Baske ille by
Book Now L d
B i ish Lib a y Ca aloguing in Publica ion Da a
A ca alogue eco d o his book is a ailable om he B i ish Lib a y
Lib a y o Cong ess Ca aloging in Publica ion Da a
A ca alog eco d o his book has been eques ed
ISBN13: 9–78–0–415–34952–9 (hbk)
ISBN13: 9–78–0–415–38071–3 (pbk)
Copy igh © 2006 Philip Whyman, Ma k Baimb idge and B ian Bu ki o edi o ial
The Open Access e sion o his book, a ailable a www. and ebooks.
com,
has
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made
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C ea i e
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A ibu ion
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No De i a i es 4.0 license.
2 Pa k Squa e, Mil on Pa k, Abingdon, Oxon OX14 4RN
Rou ledge is an imp in o he Taylo & F ancis G oup, an in o ma business
711 Thi d A enue, New Yo k, NY 10017, USA
by Rou ledge
Published 2017
This book is dedica ed by he edi o s o he memo y o he
R Hon Lo d Sho e o S epney PC (1924–2001). Th oughou
B i ish poli ics, whe he his iews we e accep ed o no ,
he commanded espec as a man o p inciple.
Con en s
Lis o illus a ions x
No es on con ibu o s xii
Fo ewo d by Da id Owen xix
P e ace by B yan Gould xx
Acknowledgemen s xx iii
1 The le and he eu o 1
PHILIP WHYMAN, MARK BAIMBRIDGE AND BRIAN BURKITT
2 The g ea deba e: he Labou Pa y and Eu opean
in eg a ion 12
ANDY MULLEN
PART I
The economics o a single cu ency 37
3 Economic consequences o EMU o B i ain 39
JONATHAN MICHIE
4 Wha ype o Eu opean mone a y union? 52
MALCOLM SAWYER AND PHILIP ARESTIS
5 Economic pe o mance and he eu o 60
JANET BUSH
6 The eu o: an ou side ’s pe spec i e 71
PAUL ORMEROD
7 The ECB in heo y and p ac ice 77
MARK BAIMBRIDGE
xi Con ibu o s
B yan Gould was a Rhodes Schola a ending Balliol College, Ox o d. He se ed
as Labou MP o Sou hamp on Tes (1974–9) and Dagenham (1983–94). He
was a p ominen membe o Neil Kinnock’s Shadow Cabine , se ing as
Shadow T ade and Indus y Sec e a y. He con es ed he 1992 Labou leade -
ship elec ion and subsequen ly o med he Full Employmen Fo um o p omo e
Keynesian economic ideas wi hin he labou ma ke . He esigned om John
Smi h’s Shadow Cabine , in a dispu e abou Eu ope, and le B i ish poli ics in
July 1994. He e u ned o his na i e New Zealand and ook on he ole o Vice-
Chancello o he Uni e si y o Waika o, whe e he se ed un il his e i emen in
2004. His books include Goodbye o All Tha (Macmillan, 1995), Mone a ism o
P ospe i y? (Macmillan, 1981), A Fu u e o Socialism (Jona han Cape, 1989) and
Socialism and F eedom (Macmillan, 1985). He is a commi ed an i- ede alis and
was a consis en c i ic o Labou ’s emb ace o mone a ism unde Jim Callaghan
and Dennis Healey.
Billy Hayes is Gene al Sec e a y o he Communica ion Wo ke s Union (CWU).
P io o his, he had spen nine yea s as he Na ional O ice ep esen ing he
union’s ou doo pos al membe s. He joined he Pos O ice, and he union, in
1974 and ook on a numbe o local esponsibili ies, including magazine edi o ,
TUC you h con e ence delega e, ades council nominee, union con e ence
delega e and inally B anch Sec e a y. In 1992, ou mon hs a e being o ed
on o he Na ional Execu i e, he was elec ed a Na ional O ice . Billy has been
ac i e in he Labou Pa y o many yea s and held a ange o posi ions om
Young Socialis sec e a y o GMC membe . He suppo s he Labou go e n-
men , bu no un ese edly. ‘The e a e issues whe e we canno be a aid o
c i icising he go e nmen ’, he says, ci ing as examples index linking o pensions
and he epeal o an i- ade union laws. Billy has always ad oca ed less
cen alisa ion o union s uc u es. ‘We need o lec u e less and hea mo e abou
he eal impac o managemen ’s policies’, he says. ‘S i ing up apa hy is no a
solu ion.’
Ma hew McG ego is Di ec o o he Cen e o a Social Eu ope, a cen e-le
hink- ank. He was o me ly Campaign Manage o he ‘No’ campaign agains
he eu o, a posi ion he held un il he campaign’s mo hballing ollowing he
go e nmen ’s decision o ule ou eu o membe ship un il 2008 a he ea lies .
He is also a lay ac i is in he T anspo and Gene al Wo ke s Union and is
chai o he TUC Young Membe s’ commi ee.
Joe Ma ino is Gene al Sec e a y o he Bake s, Food & Allied Wo ke s Union
(BFAWU). He was elec ed a Shop S ewa d o he BFAWU in 1968 and was
ac i e in he Shop S ewa ds and T ades Council mo emen s o ha pe iod. He
was elec ed on o he Union’s Na ional Execu i e Council (1971–79) and
became a membe o he baking indus y Na ional Nego ia ing Commi ee in
1973, se ing on ha body un il he mo e o local nego ia ions in 1983. In 1979
he was elec ed Gene al Sec e a y o BFAWU, aking o ice in No embe o ha
yea , and in 1998 he was elec ed a membe o he Gene al Fede a ion o T ade
Unions Na ional Execu i e Commi ee. As a membe o he Labou Pa y, and

Con ibu o s x
in line wi h he policy o his Union, he campaigned o a ‘No’ o e in he 1975
e e endum on Common Ma ke membe ship unde he Wilson Go e nmen
and has since been ac i e in his a ea. Disillusionmen wi h he d i o ‘New
Labou ’ led o his lea ing he New Labou Pa y a e almos 30 yea s o
membe ship and he is now a membe o he Socialis Labou Pa y.
Jona han Michie is P o esso o Managemen and Head o he Business School,
Uni e si y o Bi mingham, UK. P e ious appoin men s include Head o he
School o Managemen and O ganiza ional Psychology a Bi kbeck College
whe e he also held he Sainsbu y Chai o Managemen ; oge he wi h senio
academic pos s a he Uni e si ies o Camb idge and London and as an Expe
o he Eu opean Commission in B ussels and in he Economic Depa men
o he T ades Union Cong ess. His ecen books include The Handbook o
Globalisa ion (Edwa d Elga , 2003), Sys ems o P oduc ion (Rou ledge, 2002), A
Reade ’s Guide o Social Science (Fi z oy Dea bo n, 2001), The Changing Face o
Foo ball (F ank Cass, 2001), Foo ball in he Digi al Age (Mains eam, 2000), The
Poli ical Economy o Compe i i eness (Rou ledge, 2000), Inno a ion Sys ems in a Global
Economy (Camb idge Uni e si y P ess, 1999) and A Game o Two Hal es? The
Business o Foo ball (Mains eam, 1999).
Aus in Mi chell has been he Labou MP o G imsby since 1977. P e iously he
was an academic a Nu ield College Ox o d and a se e al New Zealand
uni e si ies, and hen a ele ision jou nalis (BBC and Yo kshi e Tele ision).
A o me Pa liamen a y P i a e Sec e a y, Opposi ion Whip, Membe o he
T easu y and o he Ci il Se ice Selec Commi ee and F on Bench
Spokespe son on T ade and Indus y, he cu en ly si s on he Ag icul u e Selec
Commi ee. He p esen ed Ta ge wi h No man Tebbi on SKY om 1989 o
1998. His books include Back o he Fu u e Collec i ism in he Twen y-Fi s
Cen u y (Ca alys P ess, 2002), Fede al B i ain in Fede al Eu ope? Enligh ening he
Deba e on Good Go e nance (Kogan Page, 2001), The English Ques ion (Fabian
Socie y, 2000), Fa ewell My Lo ds (Poli icos, 1999) and Las Time: Labou ’s Lessons
om he Six ies (Bellew Publishing, 1997).
Andy Mullen is a Lec u e in Poli ics a No humb ia Uni e si y. His esea ch
ocuses upon he esponse o he B i ish Le o Eu opean in eg a ion om 1945
o 2002. He has ocused on he Eu opean policies o he Labou Pa y, he
T ade Union Cong ess and he wide ade union mo emen , he Co-ope a i e
Pa y, he G een pa ies, he Independen Labou Pa y, he Social Democ a ic
Pa y, he Ana chis s, he Communis s, he na ionalis s, socialis pa ies, and
le -wing p essu e g oups and hink- anks. He is he co-au ho o ‘Eu opean
in eg a ion and he ba le o hea s and minds: New Labou and he eu o’
(Poli ical Qua e ly, 2003) and ‘Spinning Eu ope: p o-Eu opean Union p opa-
ganda campaigns in B i ain, 1962–1975’ (Poli ical Qua e ly, 2005).
Doug Nicholls is Gene al Sec e a y o he Communi y and You h Wo ke s
Union (CYWU). He has held his posi ion since 1987 and is one o he wo
longes se ing Gene al Sec e a ies in B i ain. Since he mid-se en ies he has
x i Con ibu o s
opposed he expansion o he Eu opean Union in o a single supe s a e. He was
he ounding Sec e a y o T ade Unions Agains he Single Cu ency and EU
Cons i u ion. He has w i en widely on all ma e s o do wi h he Eu opean
Union, pa icula ly om a wo ke s’ and ade union pe spec i e. Th ough his
union wo k he was able o ensu e a much mo e scep ical and c i ical a i ude
was de eloped h oughou he B i ish ade unions and pa icula ly he TUC.
He is a membe o he Agenda Commi ee o he c oss-pa y Cong ess o
Democ acy and a membe o he Campaign Agains Eu o Fede alism and
Labou Eu o Sa egua ds. Unusually, pe haps, o a ade union Gene al
Sec e a y, he is a published poe and li e a y c i ic.
Paul O me od is one o he ounding di ec o s o Vol e a Consul ing. He
p e iously wo ked as an economic modelle and o ecas e a he Na ional
Ins i u e o Economic and Social Resea ch, London (1973–80). He subse-
quen ly le o be Head o Economic Assessmen Uni a The Economis
newspape g oup (1980–2). Fo he pe iod 1982 o 1992 he was Di ec o o
Economics and Depu y MD o Henley Cen e o Fo ecas ing. He was Visi ing
P o esso o Economics a he Uni e si ies o London and Manches e (1983–
97). He is he au ho o bes -selle s Dea h o Economics (Fabe and Fabe , 1994)
and Bu e ly Economics (Fabe and Fabe , 1998) and also o he o hcoming Why
Mos Things Fail (Fabe and Fabe ).
Da id Owen ained as a doc o be o e becoming Labou MP o a ious
Plymou h cons i uencies be ween 1966 and 1992. He was appoin ed Minis e
o he Na y (1968) be o e esigning om he Shadow Cabine in 1972 o e he
Labou Pa y’s e usal o suppo B i ish en y o he EEC. Subsequen ly, he
was appoin ed Minis e o Heal h (1974) and Sec e a y o Fo eign and
Commonweal h A ai s (1977–9). In 1981 he was one o he ounde s o he
Social Democ a ic Pa y, se ed as Depu y Leade (1982–3) and Pa y Leade
(1983–7). The con inuing SDP was e-es ablished unde his leade ship in 1988,
bu was inally wound down as a na ional pa y in 1990. He was c ea ed a li e
pee in 1992. He wen on o become join au ho o he Vance–Owen Peace
Plan o se le he con lic in Bosnia in he 1990s. He was un il ecen ly leade o
he ‘No Campaign’ agains B i ish membe ship o he eu o. His books include
Face he Fu u e (Cape, 1981), A Fu u e ha will Wo k (Penguin, 1987), A Uni ed
Kingdom (Penguin, 1986), Human Righ s (Cape, 1978), In Sickness and in Heal h: The
Poli ics o Medicine (Qua e Books, 1976), Nego ia e and Su i e (CLV Publica ions,
1988), Ou NHS (Pan, 1988) and Poli ics o De ence (Cape, 1972).
Malcolm Sawye is P o esso o Economics a he Uni e si y o Leeds Business
School, UK and Visi ing Senio Schola a he Le y Economics Ins i u e, New
Yo k. His main esea ch in e es s include: aspec s o he Eu opean Union
ela ed o mone a y union, such as he his o ical and ins i u ional amewo k o
he EMU, he shaping o new ins i u ions like a Eu opean cen al bank, he
de la iona y consequences o he EMU and he ype o ins i u ional amewo k
necessa y o gene a e highe le els o employmen . He is Managing Edi o o
Con ibu o s x ii
In e na ional Re iew o Applied Economics and join edi o o In e na ional Pape s in
Poli ical Economy. His books include The Eu o: E olu ion and P ospec s (Edwa d
Elga , 2001), A Fu u e o Public Owne ship (Law ence and Wisha , 1999), The UK
Economy (Ox o d Uni e si y P ess, 2001), Money, Finance and Capi alis De elopmen
(Edwa d Elga , 2001), The Economics o he Thi d Way (Edwa d Elga , 2001),
A Biog aphical Dic iona y o Dissen ing Economis s (Edwa d Elga , 2000), The Legacy
o Michal Kalecki (Edwa d Elga , 1999), The Poli ical Economy o Cen al Banking
(Edwa d Elga , 1998) and The Poli ical Economy o Economic Policies (Macmillan,
1998).
Molly Sco Ca o is a Lec u e in Social Economy a he Welsh Ins i u e o
Resea ch in o Coope a i es wi hin he Business School a he Uni e si y o
Wales Ins i u e Ca di . She was educa ed a he uni e si ies o Ox o d (Poli ics,
Philosophy and Economics), Open (MSc in Social Resea ch Me hods) and
Abe ys wy h (PhD in Economics). She is also he G een Pa y’s Economics
Speake , he Eu o Campaign Coo dina o o he G een Pa y and a membe
o he No Campaign S ee ing G oup. She w o e Se en My hs Abou Wo k (G een
Audi , 1996) and co-edi ed G een Economics: Beyond Supply and Demand o Mee ing
People’s Needs (G een Audi , 1999). In 2002 she w o e a epo o he Associa ion
o G een Councillo s on ‘Using Bes Value o Encou age G een P ocu emen
in Local Au ho i ies’. She is also esea ching he impac o ca bon dioxide
emissions educ ion on he na ional economies o ich and poo coun ies.
Pe e Sho e was educa ed a King’s College, Camb idge, g adua ing in his o y,
bu la e specialised in poli ical economy. He joined he Labou Pa y in 1948
and became head o he Resea ch Depa men in 1959, being elec ed o
Pa liamen o he London bo ough o S epney in 1964. In 1967 he became he
younges membe o he Cabine , jus h ee yea s a e en e ing he Commons.
He la e became a Cabine minis e wi hou Po olio and Depu y Leade o he
Commons. When Labou e u ned o powe in 1974, he was Sec e a y o
T ade and in 1976 En i onmen Sec e a y. When Labou los he 1979 elec-
ion, he was appoin ed Shadow Fo eign Sec e a y. Pe e Sho e wice con es ed
he Labou Pa y leade ship, bu was de ea ed and e-dedica ed himsel o his
mission o cu bing B i ain’s g owing in ol emen in Eu ope. He became Lo d
Sho e o S epney when he e i ed om he Commons in 1997. He summa ised
his belie s on Eu opean in eg a ion in Sepa a e Ways: B i ain and Eu ope (Ge ald
Duckwo h, 2000). He died in 2001 du ing he p epa a ion o his collec ion,
which is dedica ed o his memo y.
Ma hew Wa son is a Senio Lec u e in In e na ional Poli ical Economy and
Di ec o o he Poli ical Economy Resea ch G oup a he Uni e si y o
Bi mingham, UK. He has deg ees in economics om he Uni e si y o Wales
College o Ca di , he Uni e si y o S a hclyde and he Uni e si y o
Bi mingham. His esea ch in e es s a e concen a ed in he b oad a ea o
poli ical economy. Concep ually, hese include classical poli ical economy and
he his o y o economic hough ; he genealogy o mac oeconomic heo y;
x iii Con ibu o s
gene al equilib ium economics; he poli ical e ec s o in e na ional inancial
ma ke es uc u ing; he sociology o specula i e ma ke bubbles; he poli ical
discou se and economic p ac ice o globalisa ion and he disciplina y pa a-
me e s o con empo a y in e na ional poli ical economy. He has published Pos -
Wa B i ish Poli ics in Pe spec i e (Poli y P ess, 1999) and Founda ions o In e na ional
Poli ical Economy (Palg a e, 2004).
Philip Whyman is a Reade in Economics a he Uni e si y o Cen al Lanca-
shi e. He is he au ho /edi o o The Impac o he Eu o (Macmillan, 2000),
Economic and Mone a y Union in Eu ope (Elga , 2003), Sweden and he ‘Thi d Way’
(Ashga e, 2003) and Fiscal Fede alism and Eu opean Economic In eg a ion (Rou ledge,
2004), An Analysis o he Economic Democ acy Re o ms in Sweden (Mellen P ess, 2004),
and also o he o hcoming ex s: B i ain, he Eu o and Beyond (Ashga e), and ‘Thi d
Way’ Economics (Palg a e Macmillan). He has published widely in lea ned
jou nals and w i en a numbe o policy pape s, including submissions o he
House o Lo ds Selec Commi ee on The Eu opean Communi ies (1996) and
he House o Commons T easu y Selec Commi ee (1998). His esea ch
in e es s include he impac o Eu opean in eg a ion upon labou ma ke s, iscal
ede alism, in e na ional mone a y de elopmen s and he Uni ed Kingdom’s
u u e ela ionship wi h he Eu opean Union. In addi ion, he has w i en
ex ensi ely on he de elopmen o p og essi e poli ical economy, he e alua ion
o he Thi d Way and he e olu ion o he ‘Swedish Model’.
I is peculia o Labou go e nmen s ha hey ha e been bede illed by mis aken
decisions o e he handling o mone a y policy. Ramsay Macdonald, as P ime
Minis e , and Philip Snowden, as Chancello o he Excheque , om 1929 o
1931, should ha e le he gold s anda d much ea lie and de alued. Simila ly,
Hugh Dal on and S a o d C ipps as Chancello s o he Excheque , in Clemen
A lee’s pos -wa go e nmen , we e oo slow o de alue. The delayed de alua ion
also damaged Ha old Wilson’s pe iod as P ime Minis e om 1964–70.
Fixed exchange a e con ols ha e been one o he dominan issues o my 40
yea s in poli ics. I en e ed Pa liamen in he Ma ch 1966 Gene al Elec ion ull o
idealism and hope ha a majo i y Labou go e nmen would end B i ain’s pos -
wa economic decline. Ye by 20 July, in a mood o u e disillusionmen in he
House o Commons, we we e old abou a de la iona y package which mean
Labou was back in he same s op–go economic cycle which we had so o en
a acked he Conse a i es o in lic ing. The decision no o de alue a e he 1964
Gene al Elec ion, some hing clea ly en isaged by he ou going Conse a i e
Chancello , Reginald Maulding, was poli ically unde s andable. In o ice a e 13
yea s o opposi ion and acing he necessi y o an ea ly elec ion since Labou only
had a majo i y o i e, i was qui e widely el ha o de alue would be poli ically
haza dous. Bu in 1966 wi h a la ge pa liamen a y majo i y he e we e no c edible
excuses. I was a lamen able ailu e o he go e nmen no o de alue in o de o
pu sue economic g ow h. To oppose he go e nmen ’s e usal o de alue was o be
labelled unpa io ic. Be o e he 1967 Labou Pa y Con e ence I and wo o he
Labou MPs, John Mackin osh and Da id Ma quand, publicly ad oca ed
de alua ion in a pamphle called Change Gea . We we e conside ed hen on he
cen e igh o he pa y, and we joined wi h E ic He e and o he MPs clea ly on
he le o o m a so-called ‘Snakes and Alliga o s’ g ouping o campaign o he
de alua ion ha was la e o ced on he go e nmen in No embe o ha yea .
Exchange a e policy should no be a le – igh issue in he pa y, no should
p io i y o be gi en o he pu sui o economic g ow h. I is idiculous o see oday’s
Labou F on Bench demanding ha all Labou MPs ha e a poli ical du y o go
along wi h ea ly membe ship o he eu ozone, and once again we hea he
a gumen o pa io ism being used agains he doub e s.
E e since my expe ience in he 1960s I ha e been e y dubious abou exchange
Fo ewo d
R Hon he Lo d Owen

xx Fo ewo d
a e con ol sys ems, o e en when hey a e echnically capable o being adjus ed
and a e no a ixed sys em, expe ience shows ha poli icians end o sh ink om
making any downwa d adjus men , o ea o being depic ed weak and a ailu e.
In 1972 Edwa d Hea h’s Conse a i e Go e nmen was unable o li e wi h he
disciplines o he Snake o longe han six weeks.
In 1978 P ime Minis e Jim Callaghan was de e mined o keep ou op ions open
o e joining he Eu opean Mone a y Sys em. As Fo eign Sec e a y, wi h Denis
Healey as Chancello , I helped nego ia e he dual ole o being membe s o he
Eu opean Mone a y Sys em and being ee o decide la e i we wan ed o join
he ac ual Exchange Ra e Mechanism (ERM). This was he o e unne o he
Maas ich T ea y comp omise o e he eu o.
In 1987, a e he Lou e Acco d, Nigel Lawson, as Chancello o he Excheque ,
in e ened by buying Deu chma ks o hold s e ling below DM3. I was a la gely
undecla ed policy o shadowing he Deu chma k, which was e en ually uncapped
in Ma ch 1988. I s main pu pose was o a es he all in s e ling bu i was also
hoped by some ha i would demons a e ha s e ling was eady o join he ERM,
which Lawson had wan ed o do since 1985. En y was e used by Ma ga e
Tha che hen, and again when he ied a e he 1987 Elec ion. Wha shadowing
demons a ed was no so much ha in e en ion was in la iona y bu ha he
o e all policy, aking he exchange a e and in e es a es a he ime in o accoun ,
was no igh enough. Any go e nmen wi hin a loa ing sys em o exchange a es is
wise o ese e o i sel he op ion o in e ening. Bu i should be a ely used. I is
e y di icul o la en ou i a ional cu ency momen s while espec ing he eali y
ha any in e en ion canno hold ou agains de e mined ma ke p essu es.
As Leade o he SDP I had ad oca ed joining he ERM in he mid-1980s and
hough he ules o e adjus men would be su icien when we joined in 1990. The
inabili y o adjus wi hin he Economic and Mone a y Union (EMU), howe e ,
mean ha I and many o he MPs would ne e ha e suppo ed John Majo ’s
Maas ich T ea y nego ia ion wi hou he B i ish op -ou om he eu o. I ha e ye
o be con inced ha he UK can achie e sus ained economic g ow h wi hin a
pe manen ly ixed exchange a e sys em.
I needs o be emembe ed ha John Majo , and subsequen ly Tony Blai , only
e y eluc an ly accep ed ha a decision o join he eu o had o be one o he
B i ish people in a e e endum. They we e o ced in o his concession by public
opinion. The Uni ed Kingdom’s ailu e o achie e a e alua ion inside he ERM in
1992 c ea ed much ha dship, and i demons a ed o me ha he design o he
mechanism was lawed. Fo he Uni ed Kingdom i had sys emic ailings, wi h
specula ion being a one-way be om which many specula o s sa ely made
subs an ial sums o money. The Uni ed Kingdom would isk much by e-joining
he ERM, e en o he EMU quali ying pe iod, wi hou special sa egua ds being
in oduced in o he mechanisms. I is e y no iceable ha Labou Minis e s, when
ad oca ing ea ly en y in o he eu ozone, e ade he ques ion o he ERM
quali ying pe iod. They belie e ha i will be wai ed – bu ha may be oo
op imis ic gi en he ule ha o he EU na ions aspi ing o join mus demons a e
he s abili y o hei cu encies wi hin he ERM.
Fo ewo d xxi
When i became clea ha P ime Minis e Tony Blai was only wai ing o a
change in he opinion polls o join he eu o, I made public in a speech in
Manches e in Janua y 1999 my in en ion o campaign o s aying ou o he single
cu ency. This was despi e conside ing mysel no longe a pa y poli ician, being a
c oss-benche in he House o Lo ds. Tha decision was, howe e , always
condi ional on any campaign being ully commi ed o con inuing membe ship o
he Eu opean Union. La e I wen on o help c ea e New Eu ope (whose publica-
ions can be accessed h ough www.no-eu o.com including he mos ecen
pamphle by Geo ey Fi chew en i led Economic and Mone a y Union and he Eu opean
Cons i u ion). Wi hou he ‘Yes o Eu ope, no o he eu o’ campaign, I belie e Tony
Blai , a e he 2001 Gene al Elec ion, migh well ha e been able o swing public
opinion and o hold and win a e e endum on joining he eu o – wi h e y ad e se
consequences o he UK economy. I is pa icula ly impo an ha i a somewha
simila campaign we e e e needed o be e i ed in he u u e i should ha e an
e en s onge Labou Pa y elemen wi hin i s c oss-pa y mix. The o ch mus
now pass on his issue om my gene a ion o a new wa e o poli icians whose
poli ical u u e will be made in he yea s a e he 2005 Gene al Elec ion.
Publica ion o his book a his ime seems o me, he e o e, e y imely in ha i
s a s o build he b oad base o an economic as ingency abou he eu ozone. I
delibe a ely do no use he wo d scep icism because ha has come o be unde s ood
as emb acing hos ili y o ou membe ship o he Eu opean Union. I no e wi h
in e es , and pleasu e oo, ha a las a signi ican numbe o Libe al Democ a
MPs a e speaking ou abou he eu o and do no sha e he en husiasm o hei
leade s, who like many New Labou leade s wan quick en y on poli ical g ounds
as soon as public opinion allows a e he nex elec ion and ha e no qualms abou
he economic consequences o en y.
One o he majo successes o Labou in go e nmen since 1997 has been i s
eco d o sus aining he economic g ow h which i inhe i ed and which es a ed so
quickly a e No man Lamon , as Chancello , dug ou enough space o expo -led
g ow h ollowing he debacle o ou o ced exi om he ERM. In pa , ha g ow h
eco d has s emmed om he abili y o he go e nmen o se he in la ion a ge
while he Bank o England’s Mone a y Commi ee se s he in e es a es. I ha e
ne e excluded joining he eu o a some s age in he u u e, bu i should only be
con empla ed i he eu ozone economies ha e come e y close o con e ging and
he e is con incing e idence ha all he na ions wi hin he eu ozone a e
i e ocably commi ed o policies ha will allow any such con e gence o be
main ained. Hope ully he eu ozone coun ies will imp o e hei economic g ow h
eco d, and he e is al eady some sign o imp o ed economic ac i i y in F ance,
Spain and I aly. Bu he e is a long way o a el be o e he eu ozone economies
con e ge.
The July 2004 Repo o he Eu opean Commission, The Eu o Fi e Yea s On, says:
‘The a ailable e idence is in line wi h a posi i e impac o mone a y union on
cyclical con e gences.’ Tha is a conclusion based on li le e idence. I was
ubbished only a ew weeks la e by a Deu sche Bank esea ch no e – ‘Con a y o
wha he Eu opean Commission says, we do no see ha he eu o economies ha e
xxii Fo ewo d
con e ged’ – and he no e wen on o say, ‘ he e a e cu en ly no signs ha g ow h
di e ences ac oss he egion a e na owing’ and ha in ac ‘ he e ha e e en been
signs o g ea e di e gence’. I goes on o ques ion implici ly he e y concep o he
eu ozone by saying, ‘economic ins abili y in he eu o a ea is likely o be highe and
end g ow h lowe han i would ha e been wi hou mone a y union’.
The Ge man Bundesbank cu in e es a es in i e pe iods, esponding o
ecession in 1967, 1975, 1982–3, 1987 and 1994–6. I is only because he Eu o-
pean Cen al Bank (ECB) has o a ge in la ion in coun ies in e y di e en s ages
in he economic cycle ha in e es a es ha e no been lowe in he eu ozone, and
his inabili y o ha e lowe in e es a es in Ge many has been e y damaging.
Some ha e calcula ed ha o help he Ge man economy g ow as e o e he las
i e yea s, he in e es a e should ha e been nea e 1 pe cen han 2 pe cen .
Fi e yea s ago I used o a gue ha hough he Uni ed Kingdom should s ay ou
o he eu ozone he e was oo much poli ical capi al in es ed in i by o he
eu ozone coun ies o he e e e o be any ques ion o some membe s wi h-
d awing om he zone. I am no longe so su e o ha . I can imagine he eu ozone
collapsing unde he weigh o i s own economic con adic ions. I am s eng hened
in ha iew by an a icle in he Financial Times by Wol gang Munchau (6 Sep embe
2004), which wa ned ha e en ‘wi h he e o med s abili y pac , EMU will be mo e
like an eccen ic club han an economic union’. He goes on o say ha :
No ma e whe he he igge is high in la ion, a banking c isis o some o he
channel, one common cause unde lies he ailu e o all mone a y unions: he
lack o a poli ical union wi h he au ho i y o en o ce economic and inancial
policy among i s membe s.
I doub ha he eu ozone coun ies can ag ee o a a oughe egime o inc ease i s
e ec i eness, bu i hey wish o do i hey a e ee o do so as long as hey do no y
o impose ha egime on o he non-eu ozone EU na ions. On 13 Sep embe 2004
he ECB’s Chie Economis , O ma Issing, commen ing on he Commission’s
a emp o elax he exis ing ules, said: ‘Wi hou he exis ence o a c edible h ea
o sanc ions, he pac is losing i s bi e. As a esul he cu en si ua ion is
in ole able.’
The B i ish public ha e no wish o emb ace ull poli ical union and e use,
igh ly, o belie e poli ical leade s’ eassu ances ha he wo issues – poli ical union
and he eu ozone – a e unconnec ed. So a , hose ese a ions, bo h poli ical and
economic, ha e o es alled any a emp o ake he Uni ed Kingdom in o he eu o.
The public suspec , co ec ly, albei in a ague way, ha o make EMU wo k
poli ical union is necessa y. They suspec also ha he same poli icians a e
misleading hem when hey p e end ha his new Eu opean Cons i u ion, on
which again he poli icians ha e been o ced o concede a e e endum, does no
ca y wi hin i some pa ing echniques o b ing abou poli ical union. The public
a e igh o be suspicious.
On he ace o i eu o membe ship and he new Cons i u ion a e di e en issues
on which i is possible o ake di e en posi ions. This is why New Eu ope, while
Fo ewo d xxiii
commen ing on he Cons i u ion, has kep o he eu o as he co e campaigning
issue and no emb aced he campaign agains he Cons i u ion. Bu i we a e o
a oid ull poli ical union i is i ally impo an ha we e ain he independen
conduc o o eign policy as a means o de e mining so e eign s a us. In ha
con ex i is ele an o economic a gumen s, oo, o conside he p oposed new
Cons i u ion. In my judgemen he Cons i u ion ails o ully p o ec ou abili y o
conduc an independen o eign policy o e he nex ew decades. The
es ablishmen o a new pos o EU Minis e o Fo eign A ai s will p obably pa e
he way o e en ually es ablishing an EU Minis e o Economic A ai s. The
Cons i u ion ails o make clea a p ecise delimi a ion o compe ence be ween he
membe s a es and he Eu opean Union o e o eign policy, and ha is also he
case o economic policy. The e will be enewed a emp s o gi e he Eu opean
Union powe o e social secu i y and ax policy, no helped by he accep ance o
wide- anging cons ain s by he Eu opean Union – h ough he language o
coo dina ion in he T ea y – o e employmen policies and social policies. The isk
– by a quali ied majo i y o e on he Council – ha he P esiden o he Eu opean
Council could be double-ha ed wi h he ole o he P esiden o he Commission is
he single mos dange ous po en ial powe in he new Cons i u ion. The
go e nmen asse in hei Whi e Pape ha his could no happen, bu his is no
he iew o o he s; o example, he Du ch go e nmen has speci ically old hei
pa liamen ha i is bo h desi able and legally possible o double-ha he wo pos s.
I i is done his would in e ec c ea e, by he backdoo , a poli ical union.
Ensu ing ha he B i ish public iew emains ‘Yes o he EU, no o he eu o’ will
be g ea ly helped i he le keeps he main enance o economic g ow h as high on
i s poli ical agenda as i has in he pas . I do no p e end ha ha ing ou own
cu ency is he only ac o in a g ow h agenda o B i ain, bu i emains as a as
he eye can see a i al ing edien . I also belie e ha he social Eu ope, which he
igh – pa icula ly in he Uni ed Kingdom – dislikes, can, i well judged, ein o ce
indus ial s abili y and compe i i eness. I hope ha he new Commission unde he
o me Po uguese P ime Minis e , José Manuel Ba oso, will demons a e he
inne cohe ence and he con idence o concen a e on he all-impo an Lisbon
agenda o economic and ma ke e o m ha does aim o he igh balance
be ween social and compe i i e agendas. The e is no u gen need o a new
Cons i u ion.
The T ea y o Nice did all ha was i al o handle he g ea ly- o-be-welcomed
enla gemen . The weigh ed o ing o mula ag eed hen is now o be changed by
he new Cons i u ion, and his we a e cynically old by Gisca d d’Es aing was done
in pa o make i less likely ha o he coun ies would o e o Tu key o en e he
Eu opean Union in iew o i s la ge and g owing popula ion. The Eu o G oup did
no wai o he Cons i u ion bu in Sep embe 2004 appoin ed one o hei
numbe , he Luxembou g P ime Minis e , o chai he Eu o G oup o wo yea s.
This immedia ely p o oked he F ench Chai man o he ECB o hi back saying, ‘I
am e iden ly M Eu o’. I he Eu opean Council eally does wan o gi e up he six-
mon h o a ing p esidency o he Council, i can appoin one o i s own membe s o
chai he Council o wo yea s along wi h he g ouping o coun ies holding he
2Philip Whyman, Ma k Baimb idge and B ian Bu ki
p o-Eu opean a he ime o he 1975 Re e endum on con inued membe ship,
whils leading membe s o he Labou Pa y campaigned on bo h he ‘Yes’ and
‘No’ sides, wi h many o he con ibu o s o his book aking di e en iewpoin s.
Mo eo e , as ecen ly as 1987, he o icial policy o bo h wings o he B i ish labou
mo emen suppo ed wi hd awal om he Eu opean Union. Thus, a his o ical
e iew o he pos -wa pe iod demons a es ha he e has been a consis en
‘p og essi e’ le c i ique o B i ain’s ole wi hin Eu opean in eg a ion.
This book ocuses upon one mani es a ion o his ‘p og essi e eu oscep icism’,
namely he a i udes o he le owa ds he cu en p ojec o c ea e an Economic
and Mone a y Union (EMU) among pa icipa o y membe s a es o he Eu opean
Union. Qui e simply, EMU is one o he mos a - eaching economic e o ms o
he cu en gene a ion, and one ha he B i ish elec o a e will ha e he oppo uni y
o endo se o ejec h ough a na ional e e endum, i he go e nmen o he day
wan ed o apply o membe ship.
In addi ion o he psychological impac o he in oduc ion o a new common
eu ozone cu ency his ini ia i e would ha e a d ama ic impac upon he li es o
B i ish ci izens. Ad oca es claim ha i would enhance compe i ion, h ough p ice
anspa ency and comple ing he Eu opean Single In e nal Ma ke (SIM), he eby
educing p ices o consume s and ensu ing a supe io alloca ion o esou ces as
co po a e es uc u ing acili a ed a enewed global compe i i eness. The
economic in as uc u e, mo eo e , has been es ablished o ocus upon he deli e y
o low in la ion, and i is claimed ha his will esul in a supe io economic
pe o mance o he UK economy.
C i ics o UK pa icipa ion in EMU, in con as , poin o he combina ion o
subs an ial ini ial ans e cos s and he dange o being apped wi hin a
pe manen ly ixed exchange a e sys em, magni ied by he po en ially de la iona y
impac o he mone a is -inspi ed ins i u ional and policy amewo k wi hin which
he single cu ency has been in oduced. The ans e o signi ican economic
policy ins umen s o he Eu opean Cen al Bank (ECB), designed o ope a e
independen ly o all democ a ic in luence, has weakened he po en ial o na ional
economic sel -go e nance, whils he a ge o p ice s abili y wi hou e e ence o
all o he mac oeconomic goals is likely o unde mine p og essi e goals o ull
employmen , social solida i y and he p omo ion o economic g ow h. Keynesian
measu es a e u he cons ained by he S abili y and G ow h Pac (SGP), which
places i m limi s upon budge de ici s and he eby es ic s he abili y o coun e -
cyclical economic s a egy. This is qui e in en ional, based upon mone a is
asse ions ha Keynesian economics no longe wo ks, i indeed i e e did.
Howe e , p og essi e eu oscep ics a gue ha he loss o na ional economic
au onomy, combined wi h he mul iple es ic ions ha EMU pa icipa ion places
upon he pu sui o mac oeconomic policy, educes he scope o achie ing
adi ional democ a ic socialis –social democ a ic objec i es. In sho , EMU
membe ship, unde i s cu en ules and ins i u ional amewo k, would be an
economic disas e o he UK economy, whils unde mining he democ a ic
so e eign y o he B i ish people.

The le and he eu o 3
The p og essi e eu oscep ical case es s, he e o e, la gely upon Keynesian
a he han mone a is -neoclassical assump ions, so ha he ma ke economy is
pe cei ed as expe iencing signi ican cases o ma ke ailu e and o cumula i e
causa ion. Consequen ly, go e nmen in e en ion has he po en ial, i p ope ly
di ec ed and accu a ely imed, o imp o ing economic pe o mance. P og essi e
eu oscep ical economics he e o e ejec s he new classical assump ion o ime
inconsis ency, which implies ha all go e nmen in e en ion wo sens hose
ci cums ances i is in ended o imp o e, oge he wi h he mone a is belie in a
long- e m equilib ium a e o unemploymen de e mined solely by labou ma ke
ac o s. Mo eo e , i ejec s he iewpoin ha globalisa ion and he in e na ional
ee low o capi al has ende ed na ional economic policy ins umen s impo en ,
so ha i is di icul (i no impossible) o main ain a dis inc i e mone a y policy and
pu sue exchange a e managemen . I his we e ue, ying economic policy wi hin
he mone a is EMU amewo k would make li le di e ence, since go e nmen
au onomy would ha e al eady been e ec i ely e oded by he ex e nal economic
en i onmen . The con ibu o s o his book clea ly ejec his iewpoin and base
hei al e na i e ision upon ac i e go e nmen mac oeconomic policy, whe he
wi hin a na ional o e o med sup a-na ional amewo k.
In e ms o he poli ical ision exp essed by he p og essi e eu oscep ics ea u ed
in his olume, he p edominan a gumen s ocus upon he impo ance o
democ acy and so e eign y. The na ion s a e is seen as he bes a ailable means
o empowe ing B i ish ci izens o de e mine hei own social and economic
de elopmen . The EU is c i icised as exhibi ing a democ a ic de ici , whils he
s a us o i s legi imacy, being based upon in e na ional ea y, claims p edomi-
nance o e na ional sel -de e mina ion in hose a eas ha ha e been ceded o
sup ana ional compe ence. The endency o he EU Commission o c i icise
Go don B own’s cu en spending plans, despi e B i ain’s op -ou om ull
membe ship o EMU, demons a es he dilemma nea ly: whe he he democ a ic
le should p io i ise he egene a ion o public se ices o submi o he budge
es ain s imposed as an in eg al ea u e o pa icipa ion in EMU.
This book con ains con ibu ions om leading academics, ade union leade s
and p ominen poli icians bo h om he Labou Pa y and he wide p og essi e
le in B i ish poli ics. The ad an age p o ided by ea u ing di ec con ibu ions
om he selec ed g oup o indi iduals a ises om he oppo uni y o compa e and
con as hei a gumen s, assump ions and p o e ed al e na i es. Howe e ,
in e es ing hough he (some imes sub le) di e ences in emphasis p o e o be, he
signi ican ea u e ha a ises om eading his olume is he deg ee o which he
con ibu o s sha e a common pe spec i e ela ing o he impo ance o democ a ic
sel -de e mina ion, a p e e ence o na ional economic managemen , o a leas he
impo ance o secu ing subs an ial e o m o EMU’s policy and ins i u ional
amewo k be o e sup ana ional collabo a ion becomes compa ible wi h p o-
g essi e democ a ic socialis –social democ a ic objec i es.
4Philip Whyman, Ma k Baimb idge and B ian Bu ki
Book ou line
The book is (loosely) di ided in o h ee hema ic sec ions: i s , con ibu ions
p ima ily conce ning he economics o a single cu ency; second, employmen and
social aspec s; and, inally, issues o so e eign y and poli ical de e mina ion.
In he o ewo d, Da id Owen p o ides a unique pe sonal insigh in o he
de elopmen o he B i ish le ’s a i ude owa ds Eu opean mone a y in eg a ion.
He commences by e iewing he ela ionship be ween adminis a ions since he
1920s and a ious exchange a e mechanisms, e alua es he ope a ion o EMU o
da e and concludes ha ‘ he e is a long way o a el be o e he eu ozone econ-
omies con e ge’. When analysing he u u e de elopmen s wi hin he Eu opean
Union he no es, i s , he impo ance o sepa a ing he poli ically ocused Cons i-
u ion om he economics o he eu ozone; second, ha he agenda o ‘social
Eu ope’ is essen ial o ein o ce economic s abili y and compe i i eness. Finally, he
welcomes he widening o EU membe ship o 25 coun ies. Owen’s o e all conclu-
sion is ha ‘i would be be e o concen a e on making he exis ing ea ies . . .
wo k mo e e ec i ely’. This would pe mi he EU o ‘g adually build i s own
p agma ic consensus om he g ound’ a he han ‘accep a new, mo e highly
cen alised and unce ain cons i u ional model o an al eady s ained and
unse led Union in which many o i s ci izens a e al eady showing hei poli ical
discon en ’.
B yan Gould, who has obse ed he deba e wi hin he B i ish le om bo h nea
and a , con ibu es he p e ace o his edi ed collec ion. Gould clea ly s a es his
iew ha ‘as a policy issue, he eu o poses eal challenges, and eal oppo uni ies, o
he le ’. He hen ou lines he key a gumen s ega ding he di icul ies o adop ing
he eu o, oge he wi h he wide implica ion ‘ ha he Uni ed Kingdom’s decision
on he eu o is impo an o Eu ope’ since i could ‘poin he way o a be e
economic u u e o he Eu opean Union as a whole’. In pa icula , Gould
emphasises he e y eal implica ions o economic managemen and he
ine i able p essu es o poli ical union.
The chap e by Andy Mullen, p o ides an in o ma i e backg ound o he la e
con ibu ions h ough i s his o ical summa y o he changing a i udes and policy
posi ions wi hin he B i ish Labou mo emen . Any s udy o con empo a y
eac ions o Eu opean in eg a ion can only sa is ac o ily seek o analyse his
phenomenon i placed in o a his o ical con ex , whe eby labou mo emen
a i udes ha e oscilla ed sha ply om undamen al suppo o EU membe ship o
ou igh opposi ion and subsequen ly o enewed, albei hesi an , en husiasm.
Thus, he Labou Pa y opposed EU membe ship be ween 1971 and 1974, and
again be ween 1980 and 1987, al hough, wi h he excep ion o Michael Foo , he
pa y leade ship emained suppo i e o con inued EU membe ship h oughou
mos o his pe iod. The ade union mo emen , howe e , emained la gely c i ical
owa ds EU membe ship h oughou his en i e pe iod, un il he amous 1988
speech by Jacques Delo s o he TUC Cong ess p o oked a comple e e e sal.
Subsequen ly he TUC, oge he wi h a numbe o leading indi idual unions, ha e
been a he o e on o ad oca ing suppo o Eu opean in eg a ion.
The le and he eu o 5
The second ea u e a ising om Mullen’s chap e ela es o he na u e o he
many a gumen s o ged du ing he Eu opean deba e 30 yea s ago and hei
con inued ele ance o he con empo a y deba e o e B i ain’s u u e ela ionship
wi h Eu ope. Mullen s a es ha ‘ he undamen al issue is whe he he ongoing
p ocess o Eu opean in eg a ion [ owa ds he objec i es o e e -close union]
assis s o hinde s he ad ance o socialism’. In o he wo ds, he ques ions ha
equi e an answe a e undamen al. Should p og essi e mo emen s in B i ain
a ou a na ional o sup ana ional economic and poli ical s a egy? Is Eu opean
in eg a ion he necessa y p e equisi e o he c ea ion o a p og essi e Eu opean
s a egy capable o egula ing globalisa ion in such a way as o p omo e he
in e es s o wo king people and hei amilies? O is he en i e p ojec designed
acco ding o p o-ma ke , mone a is p inciples, and he e o e inconsis en wi h
adi ional p og essi e-le objec i es, such as ull employmen , economic demo-
c a isa ion and de eloping a wel a e s a e designed o decommodi y ci izens and
p o ec he ulne able om he wo se excesses o ma ke de e mina ion? Many o
hese hemes a e explo ed in g ea e de ail in he subsequen chap e s.
The i s sec ion o he book seeks o p o ide a b oad o e iew o he key issues
conside ed signi ican in e ms o hose p og essi e economis s who exhibi
scep icism owa ds he bene i s o B i ish pa icipa ion in EMU. A i udes a y
be ween hose who conside ha membe ship o he eu o can be compa ible wi h
p og essi e objec i es i necessa y s uc u al and policy e o ms a e comple ed,
and hose whose analysis leads hem o conclude ha pu sui o a na ional,
p og essi e s a egy would p oduce supe io esul s.
Jona han Michie highligh s he mone a is na u e o he Maas ich supe -
s uc u e designed as a undamen al ea u e o EMU, in ended o empowe capi al
a he expense o na ional go e nmen . EMU he e o e ep esen s one elemen o a
neo-libe al s a egy o ‘ oll back’ he s a e. I has caused pa icipa o y membe
s a es o pu sue de la iona y policies o mo e han a decade, wi h he esul ing
high unemploymen and ising inequali y eminiscen o he disas ous e u n o
he Gold S anda d in he 1920s and he esul ing G ea Dep ession. Rigidi y in
economic ules c ea es di e gence in he eal economy, which gene a es social
ensions and aises u he ques ions ha democ a s canno igno e. Hence, Michie
concludes ha :
Unless cu en Eu opean economic policy is eo ien a ed owa ds he
objec i e o ull employmen . . . a he han being s uck on he myopic
conce n wi h ze o in la ion, he ou e o wa d mus once again be based on
independen na ional g ow h s a egies which would no only allow coun ies
o help hemsel es, bu by doing so would help each o he .
Philip A es is and Malcolm Sawye join Michie in p o iding a de ailed c i ique
o he Maas ich e sion o EMU. They a gue ha he exis ing mone a is e sion
o mone a y union is a om an ine i able consequence o es ablishing a common
cu ency. The e o e he Eu opean sys em could ha e been designed qui e
di e en ly. In pa icula , hey highligh he undemoc a ic ECB wi h i s oo limi ed
6Philip Whyman, Ma k Baimb idge and B ian Bu ki
policy emi and inadequa e (sole) policy ins umen o in e es a es. Conse-
quen ly, A es is and Sawye emphasise he ‘woe ul lack o ins i u ions and policies
ope a ing a Eu opean le el o suppo he de elopmen o a success ul Eu opean
economy’. Wi hou signi ican e o m, he au ho s conside ha pa icipa ion in
EMU is unaccep able since i mi iga es agains he main enance o ull employ-
men and he achie emen o p og essi e economic objec i es.
Jane Bush concu s wi h he analysis p o ided in he p e ious chap e s h ough
he iden i ica ion o he mone a is o hodoxy ha has domina ed Eu ope as he
main cause o he sluggish g ow h and high unemploymen ha has plagued many
con inen al Eu opean economies o mo e han a decade. Mo eo e , Bush iews
EMU as ep esen ing ‘a ba e ing am owa ds ee ma ke economics’, and poin s
o in e na ional p eceden s, mos no ably in Scandina ia, whe e i is he
p og essi e o ces who oppose membe ship o EMU on he basis ha i h ea ens
adi ions o gene ous social wel a e and labou ma ke p o ec ion. Bush concludes
ha he e is ‘no p ospec ’ o success ul e o m o he SGP and he c ea ion o an
ac i e ede al iscal policy. The e o e, o p og essi e economis s, Bush a gues ha
EMU is a ally lawed and he combina ion o ‘con inued low g ow h, economic
ins abili y and poli ical ensions will w eck he sys em in he yea s ahead’.
Paul O me od adop s a di e en pe spec i e, seeking o examine EMU om he
posi ion o a p ospec i e membe o he eu ozone; wi h pa icula emphasis placed
upon less de eloped na ions om eas e n Eu ope, who ha e s uggled o comple e
he ansi ion om quasi-command o ma ke economy. Acco ding o O me od’s
analysis, EMU ein o ces cen alising endencies wi hin he EU, he eby exace -
ba ing he lack o democ a ic alida ion; many o he key economic decisions a e
aken by poli ical eli es, cen al banke s insula ed om democ a ic in luence and
senio manage s o la ge co po a ions. Each o hese g oups has bene i ed om he
EMU p ocess, ye discon en wi h he emo eness o decision-making p ocesses
con inues o inc ease, as measu ed by he elec o al pe o mance o a numbe o
poli ical pa ies ac oss he EU membe s a es. O me od singles ou he ECB o
pa icula c i icism, sugges ing ha he sole economic ins i u ion es ablished o
sus ain he eu ozone has been ‘designed o igh yes e day’s ba les’, due o i s
obsession wi h in la ion and neglec o all o he economic objec i es.
The chap e by Ma k Baimb idge builds upon his c i ique by p o iding a
de ailed analysis o he ECB, in e ms o i s objec i es, ins i u ional s uc u e and
policy e ec i eness. Ha ing no ed ha he Eu opean Union delibe a ely se ou o
c ea e he mos independen cen al bank in he wo ld – no doub in luenced by he
li e a u e claiming ha cen al bank independence om poli ical in luence
acili a es i s an i-in la iona y policy – Baimb idge de elops a de ailed c i ique o
his app oach, lis ing inconsis encies in he li e a u e and he likely hind ance o
wide mac oeconomic policy coo dina ion. Thus, in conclusion, Baimb idge
sugges s ha he con inued exis ence o an independen ECB would hampe he
ealisa ion o a p og essi e economic s a egy, since i would ‘ensu e ha
mone a is s emained in powe i no in o ice, because i would s ee he economy
by inancial indica o s o he de imen o he eal economy’.
The Gua dian’s Economics Edi o , La y Ellio , p o ides a sho , pi hy
The le and he eu o 7
commen a y upon he inadequacies o he cu en EMU design and he need o
he p og essi e le o pu sue an al e na i e app oach. Scep icism, a gues Ellio , is
‘ he bea ing hea o democ acy’, and he e o e he le should edisco e i s
na u al endency o mis us he agenda se by poli ical and economic eli es by
de eloping a adical al e na i e o he mone a is -domina ed EU economic
amewo k. Ellio a gues ha hose on he le who o e hei suppo o EMU, on
he basis ha i is pa o a package leading owa ds a ‘social Eu ope’, a e ‘li ing in
cloud-cuckoo-land’, since he ECB and EU Commission ha e, o a numbe o
yea s, consis en ly ejec ed an expansiona y mac oeconomic pla o m o one
based upon labou ma ke lexibili y and supply-side e o m. Ul ima ely, Ellio
sugges s ha he eal choice lies be ween a p og essi e-le c i ique o con em-
po a y Eu opean economic policy, based upon he impo ance o ac i e indus ial
policy and mac oeconomic managemen , and a igh -o -cen e al e na i e,
ocused upon ex ending Tha che ism ac oss he EU.
The inal pape in he i s sec ion concludes wi h a chap e by he edi o s, which
seeks o de elop a pos -Keynesian analysis o he EMU. Whyman e al. a gue
ha membe ship o he eu o
equi es he sepa a e o mula ion o money policy om na ionally de e mined
iscal policy, leading o a esul an lack o policy coo dina ion. . . . The esul an
slow-g ow h, high-unemploymen ou come will be u he exace ba ed by he
ans e o mone a y policy o a Eu opean Cen al Bank.
In pa icula , hey no e he ‘incompa ibili y be ween he mone a is model,
upon which EMU is cons uc ed, and he possibili y o c ea ing an al e na i e
economic s a egy g ounded in pos -Keynesian adi ion’. A pos -Keynesian
amewo k is de eloped h ough discussion o disequilib ium and cumula i e
causa ion; inc easing e u ns o scale and economic g ow h; agg ega e demand,
ull employmen and ou pu capaci y; socialisa ion o in es men , oge he wi h he
in e ela ionship be ween demand and supply side. F om his s andpoin ‘in o de
o implemen pos -Keynesian economic policies, he Uni ed Kingdom needs o
a oid he uni o m mone a y policy and he cons ain s upon budge a y measu es
imposed by he adop ion o a single EU cu ency’.
The second sec ion o he book is conce ned wi h he impac o EMU upon
employmen and indus ial ela ions. The i s con ibu ion, made by B ian
Bu ki , examines he widely held pe cep ion ha he eu o should be emb aced
because i would enable he Uni ed Kingdom o enjoy he bene i s o pa icipa ing
in he Eu opean Social Model (ESM). Howe e , Bu ki a gues ha he weigh o
e idence om social policy esea ch is ha such an assump ion is p oblema ic.
Fou di e en kinds o wel a e s a e ha e been iden i ied wi hin he Eu opean
Union; o which o hese models, does he ESM ela e? The adi ional ESM
equi es la ge wel a e expendi u e backed by public suppo o a posi i e s a e
p esence in social policy, bu ensions exis wi hin he model om a democ a ic
socialis pe spec i e. These a e su icien ly se ious o unde mine cen e-le
a gumen s o UK membe ship o he eu o. A bes he ESM p o ides a numbe o

8Philip Whyman, Ma k Baimb idge and B ian Bu ki
mino mic o pension and wo kplace bene i s, bu om wi hin a ailing mac o
amewo k. Agg ega e demand managemen , a he han supply-side ‘ e o ms’
ha impose he cos s o s uc u al adjus men upon he mos disad an aged
ci izens is he key o c ea ing a u u e socially inclusi e communi y.
The chap e by Ma hew McG ego e iews he po en ial impac upon he
wel a e s a e om eu o membe ship, ocusing upon he majo se ious law: he
o e s. Labou o e s ha e consis en ly opposed he Uni ed Kingdom’s membe -
ship o he eu o and show no sign o changing ha s ance. The answe ela es o
wo king-class o e s unde s anding ha he economic e ec s o joining he eu o a
ou weigh any poli ical conside a ions. The lexibili y ha economies need has, in
Eu ope a leas , been based on egional and na ional planning accompanied by
iscal and mone a y policy. In he eu o, hese le e s a e aken away and go e n-
men s a e unable o eac quickly and e ec i ely. I is jobs, public se ices and
wel a e ha Labou o e s a e in e es ed in, and i is he jobs, public se ices and
wel a e policy sphe es ha o e he mos con incing case o s aying ou o he eu o.
Vo ing ‘yes’ would lead o high unemploymen and low g ow h, whils o ing ‘no’
would p o ec he ad ances he Labou go e nmen has won and keep ou abili y o
con inue building ou co ne o social Eu ope secu e. Labou o e s a e agains
joining he eu o because i is no in he economic in e es s o people in his coun y.
The nex con ibu ions come om indus ial ela ions p ac i ione s. Fi s ly, Joe
Ma ino, he Gene al Sec e a y o he Bake s, Food & Allied Wo ke s Union
(BFAWU) no es ha ade union suppo o Eu opean in eg a ion is based la gely
upon he pe cep ion ha i was p e e able o he Tha che ism o he la e 1980s.
Howe e , Ma ino poin s o he ac ha many o he an icipa ed ad an ages a e
suscep ible o shi s in key pe sonnel in he EU Commission and he balance o
poli ical powe ac oss he EU membe s a es. Thus, such social gains as ha e
ac ually been made a e being wa e ed down by ecen ini ia i es championed,
among o he s, by New Labou . Ra he like he ‘i e e sible’ gains umpe ed by
he 1974 Labou Pa y mani es o, a neo-libe al d i in economic app oach
h ea ens he modes social ad ances secu ed by he Eu opean Union. Ma ino
u he sugges s ha he Eu opean Union a ou s he in e es s o capi al a he
expense o wo ke s, and his is likely o become mo e appa en wi h he es ablish-
men o EMU and as employmen p o ec ion is g adually disman led in a ou o
lexible labou ma ke s.
This chap e is complimen ed by ha o Doug Nicholls, Gene al Sec e a y o he
Communi y and You h Wo ke s Union (CYWU) who a gues ha i is ime o
ade unions o econnec wi h hei oo s in he democ a ic s uggle and ejec he
EU al oge he . The d i e owa ds one legal and poli ical en i y unde one cu ency
and cons i u ion has eached a c oss oads. These de elopmen s a e no socialis ,
no can hey be subjec o a p og amme o e o m om wi hin by socialis s. Whils
ade unionis s ha e always suppo ed o he s in hei s uggles o na ional
independence, we ha e been slow o apply his p inciple o ou sel es. I he e o e
comes as a shock o ecognise ha we a e now being aken o e , wi h an ex e nal
powe seeking o emo e ou na ional powe s and democ a ic s uc u es. Much o
he slo enly hinking in he ade unions ela es o he seduc i e illusions
o Eu opean legisla ion. The gene al p agma ism o ade unionis s, bo n o
The le and he eu o 9
con inually nego ia ing be ween a ock and a ha d place, has dulled he sense o
wha could eally be achie ed: huge capi al ese es o e-in es in manu ac u ing
enewal and public se ices; he abili y o plan ou economy o ou sel es; an
independen ene gy policy; go e nmen p ocu emen ha is exclusi ely B i ish
based; employmen laws ha a e egula ed o i ou ci cums ances; axes and
in e es a es le ied o sui ou pace o change.
A hi d ade union Gene al Sec e a y, Billy Hayes o he Communica ion
Wo ke s Union (CWU), a gues o he de elopmen o a le s a egy in Eu ope
compa able o he ype o hegemony ha he neo-libe als ha e gained in he
Uni ed S a es o Ame ica. The p ac ical ques ion is how o secu e he mos
a ou able de elopmen o he EU in he con ex o con ending in e na ional
o ces. Un o una ely, he le c i ique o he single cu ency has ye o sugges an
al e na i e in which ex ended capi al ep oduc ion can be demons a ed. Whils
de ending he ‘social gains’ o he EU he le has ye o demons a e wha pan-
Eu opean economic policy can deli e he ma e ial basis o sus aining hese gains.
A le s a egy would s a om he needs o hund eds o millions o people in
Eu ope and billions ac oss he plane ; i s , o ou line an al e na i e economic
policy o neo-libe alism; second, a la ge expansiona y economic block is an
essen ial p econdi ion o a ‘social Eu ope’; hi d, o be a de ende in Eu ope o
de eloping coun ies agains he Uni ed S a es; and, inally, o seek g ea e
in eg a ion and coo dina ion o assis he s uggle and needs o he wo ke s and
opp essed.
Philip Whyman documen s he shi in B i ish ade union policy om opposing
many aspec s o Eu opean in eg a ion owa ds en husias ic suppo o a ‘social
Eu ope’ and subsequen accep ance o EMU. Whyman’s e alua ion o his shi
sugges s he exis ence o a basic con adic ion be ween he eali y o EMU, i s
mone a is amewo k and he p og essi e objec i es ha he ade union mo e-
men belie es can be ad anced by suppo o EMU. Whyman poin s owa ds he
ne cos o EMU membe ship, due o i s de la iona y in as uc u e and es ic ions
upon coun e -cyclical policy, oge he wi h es ic ions upon public sec o
expendi u e and he likely de e io a ion in public sec o p o ision and ela i e
public sec o pay. Mo eo e , he no es he de e mina ion o leading igu es in he
ECB, EU Commission and, no leas , he cu en B i ish Labou go e nmen , who
ha e ejec ed he ‘old social model’, o achie e labou ma ke lexibili y. Whyman
concludes ha he ade union case o suppo ing EMU is ‘ a ally lawed’, and ha
he B i ish ade union mo emen should de elop an al e na i e s a egy o secu e
i s goals – ei he h ough ba gaining wi h he Eu opean Union o acili a e
necessa y s uc u al e o ms o ia he emphasis upon a na ional basis o social
and economic policy.
This sec ion concludes wi h a chap e by Ma hew Wa son, who no es he
endency o he le o desi e he c ea ion o a ‘social Eu ope’ o coun e he ee
ma ke globalisa ion o he Ame ican a ie y. Howe e , Wa son sugges s ha , in
p ac ice, i is mo e impo an o de end na ional models and ha a simple ‘Eu ope
e sus globalisa ion’ dicho omy is based upon he unjus i iable assump ion ha
mos aspec s o Eu opean in eg a ion a e p og essi e in na u e, whe eas in eali y
hey ha e ended o bind he abili y o na ion s a es o egula e capi al. Mo eo e ,
10 Philip Whyman, Ma k Baimb idge and B ian Bu ki
Wa son a gues ha EMU will cause a shi in he go e nance o Eu opean i ms,
inc easing he impo ance o capi al ma ke s and diminishing he in luence o
banks as he main sou ce o in es men inance. This, Wa son claims, will
encou age he g ow h o sho - e mism and he eby unde mine he abili y o i ms
o sus ain hei elemen o he Eu opean social ma ke app oach, whils he SGP
squeeze upon public spending means ha he s a e will be unable o compensa e
o his educ ion in social p o ec ion.
The inal sec ion o he book is conce ned wi h poli ical issues o democ a ic
de e mina ion and so e eign y. He e, a a ie y o academics and p ominen
poli icians discuss he likely impac o EMU upon he goals pu sued by p og essi e-
le poli ical mo emen s. Fo example he Eu opean Policy o he G een Pa y has
changed signi ican ly o e ime. The sho - e m objec i e o he Ecology Pa y
(1975–85) was wi hd awal, whils i s long- e m objec i e was he c ea ion o a
ede al ‘Eu ope o Regions’. In 1988 he G een Pa y e e sed i s wi hd awal
policy o one o ‘ e o m om wi hin’, ha is, main aining membe ship while
seeking o undamen ally e o m he EU.
In ligh o his, Sco Ca o de elops a ‘G een’ c i ique o EMU, which ocuses
p ima ily upon i s o igins as a esul o p essu e om ‘big business’ – in ended o
ein o ce ends owa ds globalisa ion, he expansion o ee ade and p omo e he
ee mo emen o capi al. The esul is ha ansna ional co po a ions a e capable
o ‘ba gaining’ wi h ade unions and go e nmen s o lowe axes (hence public
spending) and labou s anda ds. Ins ead o pu suing his line, Ca o ou lines an
al e na i e ision, based upon ‘localisa ion’ and u ilising mul iple ime-based local
cu encies o keep liquidi y and pu chasing powe wi hin dep i ed communi ies.
Ca o ejec s EMU on he basis o i s associa ion wi h e o s o suppo global-
isa ion and inc easing in e na ional ade, since hese do no help he poo es
na ions, whils being linked wi h o e -consump ion, obesi y and he des uc ion o
he en i onmen .
B ian Bu ki ad ances his deba e h ough combining he issue o EMU
membe ship wi h B i ish democ acy and so e eign y. He a gues ha ede alis s
a e seeking o ‘build a Uni ed S a es o Eu ope om he op down’, bu ha ‘such a
p ocess o building a ede al union is he opposi e o how e e y o he na ion has
been c ea ed’. In ela ion o he impac upon democ acy, Bu ki a gues ha ‘ he
pa liamen a y democ acy de eloped and es ablished in B i ain is based upon he
so e eign y o he people’ om which ‘ i e basic democ a ic igh s eme ge . . . each
o which is undamen ally diminished by B i ish membe ship o he Eu opean
Union’. This p ocess has commenced wi h powe s ‘subs an ially ceded o he
Eu opean Union, whose Commission and Council o Minis e s a e nei he
collec i ely elec ed no collec i ely dismissed by he B i ish people, o by he
peoples o he EU coun ies pu oge he ’. In ela ion o so e eign y, Bu ki
commen s: ‘such a majo change in he ope a ion o he UK cons i u ion ca ies
p o ound implica ions o he exe cise o na ional so e eign y’. Fo example, he
no ion ha so e eign y ‘can be “pooled” is an e iden absu di y. Powe can be
pooled, bu au ho i y canno . “Pooling” is a dange ous concep , because i alsely
implies ha au ho i y can bo h be e ained and gi en away simul aneously.’
The le and he eu o 11
The ollowing chap e , w i en by Aus in Mi chell MP, claims ha EMU
ep esen s he la ges ‘assaul ’ upon na ional democ a ic so e eign y ha Eu o-
pean in eg a ion has hus a in oduced. Claiming ha so e eign y is a ze o-sum
game, and ha ‘pooling’ simply esul s in he loss o in luence o e key issues o
na ional impo ance, Mi chell a gues ha EMU akes away he mos impo an
economic ools om he con ol o B i ish pa liamen and people, whils he ac
ha i is based upon in e na ional ea y means ha membe ship binds u u e
go e nmen s o abide by policies o e which hey ha e only mino i y impac .
Tony Benn’s con ibu ion o his book cen es upon a Bill he p esen ed be o e
he House o Commons, in ended o es ablish a p og essi e ‘Commonweal h o
Eu ope’. The p oposal was designed as a clea con as o he mone a is
ins i u ional and policy s uc u e con ained in he Maas ich T ea y, which would
unde mine democ a ic accoun abili y. The ‘Commonweal h’ al e na i e demon-
s a es he ac ha p og essi e-le eu oscep icism can be compa ible wi h a s ong
suppo o in e na ionalism. Ra he han Benn’s p oposals ep esen ing a na ow
na ionalism, hey would ha e es ablished a coope a i e ela ionship be ween
neighbou ing coun ies ha would be bo h ou wa d looking and acili a e ( a he
han, like EMU, cons ain) p og essi e economic policy.
The inal con ibu ed chap e o he book comes om he la e Pe e Sho e, who
highligh s wha he desc ibes as New Labou ’s s a egy o downplaying he
signi icance o EMU, e en hough i is, and always was, mean o be pa o a
ansi ion owa ds a Uni ed (Fede al) Eu ope. Mo eo e , Sho e concu s wi h
Mi chell ha EMU des oys he capaci y o u u e UK go e nmen s o use he
powe o he s a e o in luence and con ol he UK economy. Ins ead, hese powe s
ha e been ans e ed o unelec ed Eu opean ins i u ions, loca ed in B ussels and
F ank u . In addi ion, e e ing o he loss o mone a y and exchange a e policy,
Sho e concludes ha p og essi e-le policy equi es con ol o e he policy olls
ha EMU akes away.
The book concludes wi h a chap e by he edi o s ha seeks o ad ance he
o e all a gumen and deba e con ained wi hin he con ibu ed chap e s. Whyman
e al. a gue ha ‘ he na ional in e es o he Uni ed Kingdom equi es he
implemen a ion o a long- un op -ou om EMU, gi en ha i s pa icipa ion is
nei he ine i able no desi able’. In pa icula , ‘a decision o ejec pa icipa ion in
he single cu ency would es o e o na ional go e nmen hose economic
ins umen s essen ial o he managemen o i s economy’ such ha hey ‘will be
able o pu sue a mo e balanced economic p og amme’. The i s policy ou lined
conce ns ‘na ional mone a y au ho i ies seek[ing] a highe long- e m g ow h a e
by p o iding a a ou able clima e o indus ial expansion h ough low in la ion.
. . . Fiscal policy is used o suppo he mo e dominan mone a y policy by
es aining in la iona y p essu es.’ A second policy in ol es he ‘ac i e use o iscal
as well as mone a y policy’ whe eby ‘an app oach o his na u e would p obably be
accompanied by an indus ial policy’. Finally, Whyman e al. ad oca e he
e en ion o a na ional exchange a e policy since, ‘o e a pe iod he desi ed
objec i es o exchange a e policy a e sho - e m s abili y and long- e m lexibili y.
The dange s o a oid a e long- e m ixi y and sho - e m ola ili y.’
18 Andy Mullen
planning and public owne ship. Howe e , as Geo ge B own, he p o-EU Depu y
Leade , explained, NEC suppo o he esolu ion was based on he unde s and-
ing ha i such gua an ees we e ob ained, he pa y would conside joining he
Eu opean Union. Once again, he pa y leade ship used he p ocedu al de ice o
‘quali ied accep ance’ o weaken an Annual Con e ence decision and o main ain
he op ion o en y.
Condi ional suppo o en y (1962–70)
The 1962 Con e ence ag eed i e condi ions ha would ha e o be sa is ied be o e
Labou would suppo en y: sa egua ding B i ain’s Commonweal h ade, ee-
dom o pu sue an independen o eign policy, obliga ions o he EFTA, abili y o
plan he economy and commi men o B i ish ag icul u e. Howe e , he NEC
policy s a emen decla ed ha , i he i e condi ions we e sa is ied, B i ain should
join. Du ing he Annual Con e ence deba e, Pa y Leade Hugh Gai skell s a ed
ha en y would esul in he loss o Commonweal h ma ke s and ha ood p ices
would ise. Poli ically, he wa ned ha he Eu opean Union was no me ely a
cus oms union and ha poli ical in eg a ion would mean he end o 1,000 yea s o
his o y. Howe e , B own a gued ha , on balance, he economic ad an ages o
en y ou weighed he cos s, asse ing ha his iew in used he NEC policy
s a emen . The policy o condi ional suppo o en y was he e o e biased in a ou
o en y. Indeed, he pa y leade ship abled an amendmen in he House o
Commons in No embe 1962 s a ing ha i would suppo en y, subjec o he i e
condi ions. Howe e , F ench P esiden Cha les de Gaulle e oed B i ain’s i s
applica ion in Janua y 1963.
A he 1963 Con e ence, in an a emp o a oid pa y di ision be o e he gene al
elec ion, he pa y leade ship ins i u ed he ‘ h ee-yea ule’ so as o p e en any
deba e on he Eu opean Union. Consequen ly i was no deba ed again un il he
1967 Con e ence.
The 1964 Gene al Elec ion mani es o s a ed ha al hough Labou would seek
close ela ions wi h he Eu opean Union, i s p ima y esponsibili y was o he
Commonweal h. Back in powe , P ime Minis e Ha old Wilson ea i med he
commi men o he i e condi ions. Howe e , unde he in luence o p o-EU ci il
se an s, Wilson began o shi in a ou o en y. In Decembe 1965 he accep ed
A icles 25 and 46 o he Eu opean Con en ion on Human Righ s, e e sing he
op -ou s nego ia ed in 1950. Taken as an execu i e decision using he Royal
P e oga i e, nei he he Cabine no Pa liamen discussed he change, despi e i s
cons i u ional signi icance.
The 1966 Gene al Elec ion mani es o decla ed ha Labou would join he
Eu opean Union, p o ided essen ial B i ish and Commonweal h in e es s we e
sa egua ded. In No embe 1966 Wilson announced o he House o Commons
ha Labou , ha ing e iewed i s Eu opean policy, had decided o explo e he
po en ial o u he nego ia ions. Be ween Janua y and Ma ch 1967 B own and
Wilson ou ed he Eu opean Union o mee ep esen a i es o he Six.
The Eu opean Commission Vice-P esiden , Robe Ma jolin, published he EU

The Labou Pa y and Eu opean in eg a ion 19
Medium Te m Economic Policy (MTEP) in Ma ch 1966. I s objec i e was o
coo dina e membe s a es’ policies so as o ackle he egional, social and s uc u al
inequali ies caused by in eg a ion. S ua Holland, economic assis an a he
Cabine O ice, sen a memo andum o Wilson a guing ha he MTEP was
Ma jolin’s a emp o ‘ge he F ench planning model adop ed by he EU’. Wilson
was deligh ed, ‘because i mean ha Labou ’s Na ional Plan was no only
compa ible wi h EU membe ship, bu could be ein o ced by he MTEP’ (Holland
1997: 2–3).
A u he indica ion o Wilson’s shi was he Eu opean Technology Com-
muni y (ETC) p oposal. In Ma ch 1967 Holland sugges ed ha Labou should
e ise i s nego ia ing s a egy, ecommending ha i should suppo in e -
go e nmen alism, endo se he MTEP and coope a e wi h he Six on ad anced
echnology. Wilson subsequen ly sen Holland on a sec e mission o sound ou de
Gaulle, who was amenable. In he mee ings ha ollowed, Wilson a gued ha an
ETC ea y should be signed be o e any de ailed p og amme o coope a ion was
ag eed, whils de Gaulle insis ed ha i should be c ea ed on he basis o speci ic
p ojec s. Howe e , Wilson e used o make such a commi men . Re lec ing on his
episode, Holland (1997: 10) concluded ha Wilson’s agenda was ‘classic Wilsonian
sho - e mism. He appeased he igh by applying, and pleased he le by ailing in
he a emp .’
In Ap il 1967 he Cabine o ed 13 o 8 o eopen nego ia ions. Labou subse-
quen ly published a Whi e Pape se ing ou i s e ms. These included ansi ion
a angemen s o he implemen a ion o he Common Ag icul u al Policy (CAP),
plus sa egua ds on he balance o paymen s, Commonweal h ade and egional
policy. In he House o Commons deba e ha ollowed, Wilson a gued ha ,
economically, indus y would p obably bene i om en y. Howe e , he
acknowledged he p oblems posed by he CAP and he end o Commonweal h
P e e ence. I was es ima ed ha he cos o li ing would inc ease be ween 2.5 and
3.5 pe cen , ha ood p ices would inc ease be ween 10 and 14 pe cen , and ha
he ne cos o he balance o paymen s would be be ween £175 and £250 million
pe yea . Poli ically, he dismissed he idea o a ede al Eu ope, whils , cons i-
u ionally, he s a ed ha EU law would only ake p ecedence in ce ain a eas,
claiming ha mos domes ic law would emain unchanged. Howe e , he conceded
ha en y would in ol e he su ende o so e eign y, and ha , in u u e, B i ain
would ha e o e ain om enac ing legisla ion inconsis en wi h EU law.
Du ing he deba e 37 Labou MPs abled an amendmen opposing he Whi e
Pape , a guing ha i ailed o uphold he condi ions laid down by he Annual
Con e ence. Despi e a h ee-line whip, 35 Labou MPs o ed agains and 51
abs ained. Howe e , due o Conse a i e suppo , he Labou mo ion was
app o ed by 488 o 62. B i ain’s second applica ion was o mally submi ed in
May, wi hou a manda e om he Annual Con e ence. Du ing his pe iod an i-EU
o ces es ablished he Labou Commi ee o he Fi e Sa egua ds on he Common
Ma ke .
B own se ou Labou ’s case o en y be o e EU ep esen a i es a a mee ing o
he Wes e n Eu opean Union (WEU) in July 1967. He a emp ed o eassu e he
20 Andy Mullen
Six ha he undamen al ea u es o he Eu opean Union would emain
unchanged i B i ain joined by decla ing ha Labou was willing o accep he EU
objec i es o economic and poli ical union. C i ically, only he p oblema ic issue o
ag icul u e was ese ed o u u e nego ia ions.
The NEC p esen ed a e ised policy s a emen o he 1967 Con e ence, s a ing
ha he pa y’s conce ns abou en y had been allayed. The Annual Con e ence
endo sed he policy s a emen by 4.1 million o es o 2 million, whils a esolu ion
opposed o en y was de ea ed by 997,000 o es ou o 6 million, as was a ede alis
esolu ion. Howe e , de Gaulle e oed B i ain’s second applica ion in No embe
1967.
The 1969 Con e ence endo sed a Pa liamen a y Repo decla ing ha Labou
was commi ed o en y and was eage o engage in u he nego ia ions. I adop ed
an NEC policy s a emen decla ing ha he esul o any nego ia ions, and he inal
decision, would be subjec o a pa liamen a y o e. The Annual Con e ence also
ca ied a esolu ion con aining addi ional sa egua ds, on o eign policy, heal h and
he wel a e s a e, which opposed he de elopmen o a nuclea -a med ede al
Eu opean Union. Facing he possibili y o de ea , B own accep ed he esolu ion,
subjec o quali ica ion. He s a ed ha he NEC would accep he esolu ion on he
unde s anding ha he sa egua ds se ou in his WEU speech in July 1967 we e
included in he esolu ion. C i ically, i should be ecalled ha he only issue
ese ed o nego ia ion in his speech was ag icul u e; he e was no men ion o any
o he sa egua ds.
Labou published ano he Whi e Pape in 1970, conceding ha he conse-
quences o en y would be e en mo e ad e se han he 1967 calcula ions. Food
p ices, o example, we e expec ed o ise be ween 18 and 26 pe cen cumula i ely
o e any nego ia ed ansi ion pe iod, compa ed o he es ima e o 10 o 14 pe
cen in 1967. Ne e heless, he second leg o B i ain’s nego ia ions opened in Ap il,
jus wo mon hs be o e Labou los he 1970 Gene al Elec ion. Labou ’s mani es o
decla ed ha i would nego ia e om a posi ion o economic s eng h. Howe e ,
he mani es o con ained he eassu ance ha i sa is ac o y e ms could no be
secu ed, hen B i ain could p ospe ou side he Eu opean Union.
The NEC u ged he 1970 Con e ence no o change pa y policy jus because i
was in opposi ion. I subsequen ly ea i med he decision o he 1969 Con e ence,
and ejec ed a esolu ion ha was opposed o en y by 140,000 o es ou o 6
million.
Opposi ion o en y on Conse a i e e ms (1971)
The Conse a i es’ p incipal objec i e upon gaining o ice in 1970 was o secu e
B i ish en y. I published a Whi e Pape in 1971 conceding ha ood p ices would
ise and ha B i ain’s con ibu ion o he EU budge would become a bu den unless
he CAP was e o med. Howe e , i neglec ed o men ion Economic and Mone a y
Union (EMU), e en hough he Six had al eady pledged o c ea e a single cu ency
by 1980. On he issue o so e eign y he e was delibe a e ob usca ion; he Whi e
Pape s a ed ha he e would be no e osion o na ional so e eign y.
The Labou Pa y and Eu opean in eg a ion 21
Labou held a Special Con e ence on he Eu opean Union in July 1971. A
esolu ion pledging ha he NEC would p oduce a de ini i e esolu ion on en y,
which he pa y could o e upon a he Annual Con e ence in Oc obe , was
ca ied, whils an a emp o hold an immedia e o e was de ea ed. Al hough he
Special Con e ence ag eed he sugges ed p ocedu e and ime able, he NEC p e-
emp ed he Annual Con e ence by launching a ‘no o en y on To y e ms’
campaign.
The 1971 Con e ence endo sed he policy ecommended by he NEC, namely
opposi ion o en y on Conse a i e e ms, by 5 million o es o 1 million. An amendmen
in a ou o holding a e e endum be o e joining was de ea ed by 4.2 million o es
o 1.9 million, whils a esolu ion ad oca ing a Uni ed S a es o Eu ope was
de ea ed by 3 million o es o 2 million. James Callaghan concluded he deba e on
behal o he NEC and pledged ha , when elec ed, Labou would enego ia e he
e ms. The Pa liamen a y Labou Pa y (PLP) ollowed he Annual Con e ence by
o ing o oppose he e ms by 159 o 89.
The House o Commons deba ed a Conse a i e mo ion in a ou o en y in
Oc obe 1971. As a esul o a sec e alliance be ween he Conse a i es and he
69-s ong p o-EU wing o he PLP, 356 MPs o ed o en y wi h 244 agains in he
inal di ision on 28 Oc obe . In Janua y 1972 he go e nmen signed he T ea y o
Accession and published he Eu opean Communi ies Bill. The e we e 104
di isions du ing he Bill’s passage and, al hough go e nmen majo i ies ell o
single igu es se e al imes, no one o e was los . Using he guillo ine measu e o
expedi e i s passage, he Bill was passed on 17 Oc obe 1972. B i ain joined he
Eu opean Union on 1 Janua y 1973.
Renego ia ing he e ms (1972–74)
Labou ’s a acks on he Conse a i e go e nmen ollowing accession ocused on
he ac ha i possessed no manda e o en y, as he B i ish people had no been
consul ed. Du ing his pe iod Tony Benn launched his campaign o a e e endum
on en y. In Ma ch 1972, ollowing he F ench decision o hold a e e endum, he
Shadow Cabine accep ed Benn’s p oposal by 13 o es o 11. In Ap il he PLP
o ed 129 o 96 in a ou , p omp ing p o-EU Cabine membe s, including Roy
Jenkins, o esign.
The 1972 Con e ence ea i med he pa y’s opposi ion o en y, whils ag eeing
a new policy o enego ia ing he e ms. The NEC policy s a emen lis ed he six issues
upon which Labou would enego ia e: he CAP, he EU budge , powe s o e iscal,
indus ial and egional policy, capi al con ols, he p o ec ion o Commonweal h
in e es s and alue-added ax (VAT). The documen s a ed ha i enego ia ions
we e success ul Labou would pu he decision o he people a a gene al elec ion o
e e endum. The policy s a emen was adop ed by 3.4 million o es o 1.8 million.
A esolu ion suppo ing a boyco o EU ins i u ions was ca ied by 3.3 million
o es o 2.8 million, whils a esolu ion calling o a u u e Labou go e nmen o
wi hd aw was de ea ed by only 118,000 o es ou o 6 million.
Gi en he scale o opposi ion o he Eu opean Union wi hin he pa y, Wilson
22 Andy Mullen
was conce ned ha he 1973 Con e ence would o e in a ou o wi hd awal. He
w o e in his memoi s: ‘I had o lay my leade ship on he line, and made i clea ha
I would esign and ace he Pa y wi h he elec ion o a new Leade i he NEC
ecommended Con e ence o bind us o a policy o wi hd awal’ (Wilson 1979: 51).
His h ea was e ec i e. The NEC suppo ed a esolu ion in a ou o a boyco
and he holding o a e e endum, which was ca ied by 5.2 million o es o
945,000. Howe e , a esolu ion ad oca ing wi hd awal, ollowed by he
cons uc ion o a socialis uni ed Eu ope, was de ea ed by 516,000 o es ou o 6
million. In Decembe he PLP o ed o boyco EU ins i u ions by 140 o 55.
The Feb ua y 1974 Gene al Elec ion mani es o se ou Labou ’s objec i es o
he enego ia ions: e o m o he CAP and EU budge , opposi ion o EMU, he
e en ion o powe s o e he B i ish economy, he p o ec ion o Commonweal h
in e es s and opposi ion o VAT ha monisa ion. Callaghan launched he
enego ia ions in Ap il. The Oc obe 1974 Gene al Elec ion mani es o s a ed ha ,
wi hin 12 mon hs, a Labou go e nmen would gi e he people he choice, h ough
he ballo box, on whe he o e ain membe ship o wi hd aw.
The NEC suppo ed a esolu ion a he 1974 Con e ence insis ing upon balance
in a u u e e e endum, in e ms o inance and media suppo , be ween he an i-
and p o-EU campaigns. The esolu ion was ca ied. Howe e , a second esolu ion
ad oca ing addi ional sa egua ds on capi al con ols, Commonweal h ade,
de ence, ood subsidies, labou mo emen s, pa liamen a y so e eign y, public
owne ship, axa ion and s a e aid was also ca ied, by a majo i y o 158,000 o es
ou o nea ly 6 million.
Wi hd awal (1975)
Following he conclusion o he enego ia ions in Ma ch 1975 he Cabine o ed by
16 o 7 o accep he e ised e ms o membe ship. In Wilson’s absence, he Cabine
also ag eed o allow minis e s o o e agains he go e nmen . The NEC o ed 18
o 11 agains he ou come o he enego ia ions, p omp ing Wilson (1979: 106) o
h ea en esigna ion again. Policy-wise, he pa y leade ship and he NEC we e
opposed, whils he PLP was spli . In Ap il a House o Commons mo ion in a ou
o s aying in he Eu opean Union was ca ied by 396 o 170, mainly due o Conse -
a i e suppo . On he Labou side, 145 MPs o ed agains , 137 o ed o and 33
abs ained. The pa y held ano he Special Con e ence in Ap il, whe e he NEC
documen in a ou o wi hd awal was adop ed by 3.7 million o es o 1.9 million.
Du ing he 1975 Re e endum, B i ain in Eu ope led he Yes campaign, while he
Na ional Re e endum Campaign uni ed opponen s o he Eu opean Union. The
Yes campaign enjoyed a numbe o c i ical ad an ages. I was suppo ed by he
go e nmen , was backed by mos o he business sec o , he ci il se ice and he
media, and ecei ed mo e money. Labou g an ed he Yes and No campaigns a
o al o £125,000 o publici y. Howe e , he Yes campaign managed o aise an
addi ional £1.8 million, whe eas he No campaign me ely secu ed an ex a £8,610.
On 25June, 67.2 pe cen o ed Yes and 32.8 pe cen o ed No. Following he o e
he PLP e e sed i s boyco and sen ep esen a i es o he EU ins i u ions.
The Labou Pa y and Eu opean in eg a ion 23
Re o m o he EU (1976–79)
The 1976 Con e ence deba ed he NEC policy s a emen on di ec elec ions o he
Eu opean Pa liamen . The documen insis ed ha he e was no manda e o di ec
elec ions, as i had no been men ioned du ing he 1975 Re e endum. I u he
a gued ha he pa y should oppose such elec ions because he Eu opean
Pa liamen cons i u ed a h ea o Wes mins e . I was ca ied by a majo i y o
4 million o es o 2.2 million. The 1976 Con e ence also endo sed a adical
Keynesian p og amme, e med he Al e na i e Economic S a egy (AES).
In Ap il 1977 Labou issued a Whi e Pape on al e na i e elec o al sys ems o
Eu opean elec ions. I made no ecommenda ion and ag eed o hold a ee House
o Commons o e. Following a se ies o di isions, MPs o ed by 321 o 222 o ejec
p opo ional ep esen a ion in a ou o 78 single-membe cons i uencies. The
Cabine me in July o discuss a policy pape p oduced by Da id Owen, which
accep ed membe ship, ejec ed a Eu opean ede a ion and suppo ed enla ge-
men . The pape was suppo ed by a majo i y o he Cabine .
The 1977 Con e ence adop ed he NEC policy s a emen , which ea i med he
pa y’s opposi ion o sup ana ionalism and e-emphasised he h ea posed by he
Eu opean Union o i s indus ial s a egy. The policy s a emen ei e a ed he 1976
Con e ence decision o seek speci ic de oga ions om EU law on ene gy, egional
and social policies, and anspo . I pledged o e o m he EU aid policy, he CAP
and he CFP. I also pledged o oppose di ec elec ions, he EMS, EMU and ax
ha monisa ion, including VAT. A esolu ion calling o he undamen al e o m o
he CAP was ca ied. Howe e , ollowing a plea o main ain pa y uni y, he 1977
Con e ence ejec ed wo amendmen s, one o which called o B i ain’s wi hd awal
om he CAP. I also ejec ed a esolu ion calling o ano he e e endum on
membe ship, and emi ed a esolu ion in a ou o amending he 1972 Eu opean
Communi ies Ac o es o e pa liamen a y sup emacy.
In 1978 he Eu opean Council ea i med i s commi men o EMU, launching a
new sys em o mone a y coo dina ion: he Eu opean Mone a y Sys em (EMS) and
i s Exchange Ra e Mechanism (ERM). Callaghan (1987: 493) decla ed ha he
‘ a ou ed he gene al idea as likely o b ing mo e o de in o he cu ency ma ke s
o Eu ope and he wo ld’. Howe e , he complained ha : ‘many people in he
Labou Pa y emained suspicious o wha hey hough was oo close an en angle-
men wi h Eu ope, and his, coupled wi h my own and he T easu y’s belie ha
s e ling was oo high o make ou en y ad an ageous’ led him o ejec ERM en y.
In Oc obe he NEC ejec ed he EMS by 16 o 9.
The 1978 Con e ence ejec ed wi hd awal in a ou o a policy o e o m o he
Eu opean Union. The Annual Con e ence ca ied a esolu ion calling o he nex
Labou mani es o o include a commi men o amend he 1972 Eu opean Com-
muni ies Ac so as o es o e pa liamen a y so e eign y. The esolu ion ejec ed
EMU and suppo ed he e o m o he Eu opean Union. I was ca ied by 4.85
million o es o 1.64 million.
Callaghan used he leade ship e o o e policy, so o en used by Wilson, o
emascula e he policy decisions o he 1978 Con e ence when d a ing he

24 Andy Mullen
mani es o o he 1979 Gene al Elec ion. I decla ed ha Labou would seek he
undamen al e o m o he Eu opean Union. I suppo ed enla gemen , pledged o
e o m he CAP and he EU budge , and p omised o amend, i necessa y, he 1972
Eu opean Communi ies Ac so as o sa egua d pa liamen a y so e eign y.
Unde Benn’s leade ship he NEC d a ed he mani es o o he 1979 Eu opean
elec ion. Ca ied by 19 o es o 4, i wa ned ha , in he absence o undamen al EU
e o m, he pa y would adop a policy o wi hd awal. In he i s di ec elec ions o
he Eu opean Pa liamen , h ee weeks a e Labou ’s gene al elec ion de ea ,
Labou gained 17 Membe s o he Eu opean Pa liamen (MEPs), compa ed o he
Conse a i es’ 60 MEPs.
Wi hd awal (1980–87)
The Eu opean policies o he Annual Con e ence and he pa y leade ship
con e ged unde Michael Foo . The 1980 Con e ence suppo ed a esolu ion
decla ing ha he e had been no p og ess in e o ming he Eu opean Union and
ha Labou should include a policy o wi hd awal in i s nex mani es o. The
esolu ion was ca ied by 5 million o es o 2 million. A he 1981 Con e ence an
a emp o in oduce a commi men o hold a e e endum be o e wi hd awing was
de ea ed by 5.8 million o es o 1 million. The 1983 Gene al Elec ion mani es o
duly included he pledge o wi hd aw, wi hin he li e ime o one pa liamen .
The mani es o o he 1984 Eu opean elec ion acknowledged ha B i ain would
emain a membe o he Eu opean Union o he e m o he nex Eu opean
Pa liamen , bu pledged ha Labou would igh o ge he bes deal o B i ain
wi hin i . I called o he undamen al e o m o he Eu opean Union, opposed he
ceding o any addi ional powe s o he Eu opean Pa liamen , ejec ed he EMS
and ese ed he op ion o wi hd awal. Howe e , i also included a 10-poin ac ion
plan ha ecognised he po en ial con ibu ion o he Eu opean Union o Labou ’s
p og amme. In he second di ec elec ion o he Eu opean Pa liamen , Labou
gained 32 MEPs compa ed o he Conse a i es’ 45 MEPs.
The Eu opean Commission’s plan o c ea e a Eu opean single ma ke by 1992
se ed o accele a e he p ocess o Eu opean in eg a ion. Conse a i e P ime
Minis e Ma ga e Tha che suppo ed he c ea ion o a single ma ke , belie ing i
would lead o a ee ma ke and a ee ade a ea. Wi h Labou opposed, he House
o Commons o ed by 270 o 153 o inco po a e he EU Single Eu opean Ac in o
B i ish law.
Labou ’s 1987 Gene al Elec ion mani es o con ained no e e ence o wi hd awal,
al hough i emained o icial pa y policy. Ins ead, i s a ed ha Labou ’s aim was
o wo k cons uc i ely wi h he Eu opean Union o p omo e economic expansion
and comba unemploymen .
P o-membe ship (1988–)
The a emp o change he pa y’s wi hd awal policy began in 1983, ollowing
Labou ’s gene al elec ion de ea . Once again, Holland was ins umen al in
The Labou Pa y and Eu opean in eg a ion 25
changing he pa y leade ship’s posi ion. The Ou o C isis P ojec , composed o
economis s and Eu opean socialis pa y ep esen a i es, was ounded in 1981.
The esul ing Eu o-Keynesian p og amme, known as he Eu opean AES,
ecommended ha membe s a es should pu sue a policy o coo dina ed e la ion.
Pa y Leade Neil Kinnock wished o suppo he p ojec as means o changing he
pa y’s pe cep ion o he Eu opean Union. Holland ag eed o help Kinnock by
p omo ing he Eu opean AES. He w o e an a icle o Kinnock, publish in New
Socialis , he pa y’s jou nal, b ie ed he Socialis Campaign G oup and he
T ibune G oup o Labou MPs, ob ained he suppo o John P esco , ex-leade o
he Eu opean Pa liamen a y Labou G oup, and joined he NEC In e na ional
Sub-Commi ee.
Kinnock was also in luenced by John Ea well, his economic ad iso , and by John
Smi h, he p o-EU Shadow Chancello . Ea well belie ed ha ‘ he collapse o he
B e on Woods Sys em had led o a de la iona y bias’ and ha ‘an exchange a e
sys em in Eu ope was he means o mi iga ing hese de la iona y e ec s’. He also
belie ed ha ‘ he la ge scale and scope o Eu opean ma ke s could p o ide a
s imula ing en i onmen o B i ish indus y, pa icula ly he inancial se ices’,
ha is he Ci y o London.3
Kinnock la e decla ed ha ‘ he ejec ion o he wi hd awal policy by he o e s
was clea and absolu e’. Howe e , ‘because an i-Eu opeanism was qui e deeply
oo ed in pa s o he mo emen , pa icula ly he ade unions, he change had o
be achie ed by deg ees a he han by a sudden shi ’. This was because ‘as Labou
had al eady demons a ed, pa ies we e se iously in dange o c acking and hen
c umbling o e he issue o Eu ope i he ma e was no handled wi h ca e as well
as de e mina ion’.4
Kinnock’s chosen ehicle o changing pa y policy was he Policy Re iew,
es ablished ollowing Labou ’s 1987 Gene al Elec ion de ea . Se en policy
commi ees we e c ea ed, including he Mode n Wo ld Commi ee, which was
esponsible o Eu opean policy. Commi ee membe Regan Sco e ealed ha
Kinnock ‘packed he commi ee wi h p o-Eu opeans’ o achie e his ‘new policy o
condi ional engagemen ’.5 The mac oeconomic commi ee conside ed he
economic aspec s o Labou ’s Eu opean policy and was chai ed by B yan Gould.
He was c i ical o he Ci y’s in luence o e economic policy, an opponen o he
ERM and an a den de ende o he use o he exchange a e as an ins umen o
policy. Howe e , ou manoeu ed by p o-EU membe s such as Go don B own,
John Ea well and John Edmonds, Gould and his epo s we e sidelined.
P o-EU o ces, ha ing secu ed Kinnock’s U- u n and ma ginalised po en ial
opponen s, we e eady o change pa y policy. Thei oppo uni y came in 1988
when he Eu opean Commission P esiden , Jacques Delo s, add essed he T ades
Union Cong ess (TUC). The big ade unions, commanding a majo i y o
Cong ess o es and a ac ed o he p omise o a ‘social Eu ope’, e e sed he
wi hd awal policy o he TUC. Th ee weeks la e hey o ed o change Labou ’s
policy. The 1988 Con e ence endo sed he i s Policy Re iew epo , which
suppo ed EU-wide employmen s anda ds plus he coo dina ion o membe
s a es’ o eign, indus ial, egional and social policies. I also ca ied a esolu ion
26 Andy Mullen
s a ing ha Labou , in conjunc ion wi h o he pa ies, should use he Eu opean
Union o p omo e democ a ic socialism. A second esolu ion calling o a u u e
Labou go e nmen o amend he 1972 Eu opean Communi ies Ac was emi ed.
I had aken se e al yea s, bu he pa y leade ship had inally secu ed a p o-
membe ship policy.
In he pos -1988 pe iod, judged in e ms o Eu opean policy, he Annual
Con e ence has been pa icula ly complian , consis en ly suppo ing he p o-EU
posi ion o he pa y leade ship, as shown in Table 2.1. The end is e lec ed in he
d ama ic all in he numbe o c i ical esolu ions and amendmen s submi ed o
he Annual Con e ence in he pos -1988 pe iod (13) compa ed o he 1947–87
pe iod (187) (see Table 2.2). I is mani es in he dea h o c i ical speake s du ing
Annual Con e ence deba es on he Eu opean Union: jus 10 in he pos -1988
pe iod compa ed o 199 in he 1947–87 pe iod (see Table 2.3). I is also e iden in
he con as be ween he wo pe iods in e ms o he pa y’s discou se on Eu opean
in eg a ion, illus a ed by Tables 2.4, 2.5, 2.6 and 2.7.The la e poin is discussed
in mo e de ail below.
Labou en e ed he 1989 Eu opean elec ion on a p o-EU pla o m, gaining 45
MEPs compa ed o he Conse a i es’ 32 MEPs. The 1989 Con e ence endo sed
Table 2.2 Numbe o esolu ions and amendmen s on he EU submi ed by a ilia es o
he Labou Pa y Annual Con e ence (1947–97)*
Yea s Wi h- An i- Opposi ion wi hou Neu al Condi ional P o- Re o m Fede al-
d awal EU sa egua ds, o opposi ion o suppo o EU o EU is
om (a) EU ea ies EU
EU (b) Te ms o en y/membe ship
(c) Speci ic EU policies
1947–87** 30 66 91 19 14 29 2 36
1988–97 0 0 13 4 5 37 9 0
Sou ce: Labou Pa y Annual Con e ence Agenda.
No es
** A ilia ed o ganisa ions include cons i uency Labou pa ies, socialis socie ies and ade unions.
** Does no include da a o he 1962 Con e ence, which is no a ailable.
Table 2.3 Numbe o speake s and hei s ance on he EU du ing Labou ’s Annual
Con e ence deba es (1947–2000)
Yea s Wi h- An i- Opposi ion wi hou Neu al Condi ional P o- Re o m Fede al-
d awal EU sa egua ds, o opposi ion o suppo o EU o EU is
om (a) EU ea ies EU
EU (b) Te ms o en y/membe ship
(c) Speci ic EU policies
1947–87 53 59 87 14 26 80 2 23
1988–2000 0 3 7 1 1 93 2 0
Sou ce: Labou Pa y Annual Con e ence Repo .
Table 2.4 P o-EU a gumen s du ing Labou ’s Annual Con e ence deba es (1947–87)
A gumen s F equency
●EU p o ided B i ain wi h a bigge home ma ke 21
●Socialis s and ade unionis s in he EU wan ed B i ain o join/s ay in 14
●EU was in e na ionalism in ac ion 12
●En y/membe ship would aise he B i ish s anda d o li ing 10
●EU was a means o con ol mul ina ional companies 9
●‘Socialism in one coun y’ was impossible 8
●Wi hd awal was a dange ous policy ( isking he loss o jobs and ade) 7
●En y/membe ship would inc ease economic g ow h a e in B i ain 7
●B i ain would lose in luence ou side he EU 7
●EU enjoyed be e wages and wo king condi ions han B i ain 6
●EU ep esen ed B i ain’s des iny/ u u e 6
●The e was no al e na i e o he EU; i was ine i able 4
●EU p esen ed an oppo uni y o socialism 4
●B i ain would bene i om EU egional and s uc u al unds 4
●EU p o ided mo e aid o de eloping coun ies han B i ain 4
●EU ensu ed peace in Eu ope 5
●EU membe s a es enjoyed highe wel a e bene i s 5
●B i ain was al eady pa o Eu ope; he key ques ion was wha so o
Eu ope 4
●T ea y o Rome was no opposed o economic planning, na ionalisa ion
and s a e aid 4
●EU helped o con ain B i ish na ionalism and xenophobia 4
●Na ional so e eign y was an ou moded concep 3
●EU was a ac ha needed o be accep ed 3
●Commonweal h coun ies wan ed B i ain o join he EU/s ay in 3
●Ma ke s o he Commonweal h and Eu opean F ee T ade Associa ion
we e no su icien 3
●B i ish home ma ke was no su icien 2
●EU was no a h ea o na ional so e eign y 2
●EU would enable B i ain o gain independence om he Uni ed S a es 2
●EU membe s a es had highe le els o public owne ship han B i ain 2
●B i ain would be poo e ou side he EU 2
●En y/membe ship would lead o an inc ease in B i ish expo s 2
●En y membe ship would bene i he B i ish wo king class 1
Sou ce: Labou Pa y Annual Con e ence Repo .
Table 2.5 An i-EU a gumen s du ing Labou ’s Annual Con e ence deba es (1947–87)
A gumen s F equency
●En y/membe ship esul ed in highe ood p ices 34
●Common Ag icul u al Policy was damaging o B i ain 33
●En y/membe ship wo sened B i ain’s balance o paymen s and ade
de ici p oblems 33
●EU was capi alis 28
●P o-EU o ces eso ed o decei /p opaganda 27
●EU unde mined pa liamen a y democ acy 25
34 Andy Mullen
Eu opean and US models o capi alism. Those sec ions ha e he e o e e u ned o
a posi ion o suppo ing a Eu opean socialis s a egy, as e ealed in he adically
al e ed discou se o Labou Pa y deba es on he Eu opean Union om 1988
(Tables 2.6 and 2.7).
In addi ion o hese gene alisa ions, a numbe o speci ic ac o s can be
ad anced o explain he ‘ ec onic’ shi om a p o-Eu opean in eg a ion posi ion
o an an i-EU s ance in he 1960s and 1970s:
● he g owing in luence o he an i-EU Communis Pa y wi hin he Labou
Pa y;
● he shi ing balance o powe wi hin he pa y in a ou o he an i-EU le ;
● he ole o in luen ial indi iduals such as Tony Benn, he leade o he le who
was p o-EU in he mid-1960s and an i-EU om he 1970s, and S ua
Holland, co-a chi ec o he AES.
Simila ly, a numbe o speci ic ac o s can be ad anced o explain he ‘ ec onic’
shi om an an i-EU posi ion o a p o-EU s ance in he 1980s:
● he de ea o an i-EU o ces in he 1975 Re e endum;
● he shi ing posi ion o he pa y leade ship in a ou o he Eu opean Union –
Ha old Wilson om 1965 and Neil Kinnock om 1983;
● he sub e ing o o icial policy, using p ocedu al de ices a he Annual
Con e ence (‘quali ied accep ance’ and he ‘ h ee-yea ule’), he powe s o
pa onage (Policy Re iew commi ee membe ship) and pa y loyal y (Ha old
Wilson’s h ea s o esigna ion and James Callaghan’s e o o e he mani es o)
o secu e a p o-EU policy;
● he de ea o he an i-EU le in he 1983 Gene al Elec ion;
● he pe cei ed edundancy o na ional Keynesianism, ollowing he 1981–3
‘Mi e and expe imen ’ in F ance and he subsequen demise o he AES;
● he associa ion o Labou Pa y ‘mode nisa ion’, unde Neil Kinnock, John
Smi h and Tony Blai , wi h ‘Eu opeanisa ion’;
● he allu e o he ‘Eu opean social model’;
● he ‘con amina ion hesis’, whe eby he le ea s he label o ‘li le Englande ’
and hus associa ion wi h he an i-EU posi ion o he igh (Ramsay 1997);
● he end o he Cold Wa and he pe cei ed de ea o socialism;
● he e ea om Ma xis /class analysis o he EU;
● he changes in public opinion, and Labou Pa y opinion, b ough abou by
p o-EU p opaganda campaigns (Mullen and Bu ki 2003, 2005);
● he in luence o he Uni ed S a es o Ame ica, which suppo ed Eu opean
in eg a ion and B i ish pa icipa ion in he Eu opean Union du ing he Cold
Wa , and which exe ed i s in luence by co e ly suppo ing elemen s o he
p o-EU le (Wil o d 2003);
● he low salience o he Eu opean Union as an issue o he gene al public,
which made i easie o change policy.

The Labou Pa y and Eu opean in eg a ion 35
Conclusion
I is clea ha Eu opean in eg a ion has been con en ious o he Labou Pa y and
ha he pa y emains di ided on he issue. Howe e , he balance o a gumen
a ou s hose who a e scep ical o and/o opposed o he Eu opean Union. The
socialis case agains he Eu opean Union, and B i ish pa icipa ion in u he
Eu opean in eg a ion, es s on ou p incipal a gumen s.
The i s a gumen is he economic and poli ical cos o B i ish membe ship o
he Eu opean Union, bo h his o ically and in con empo a y e ms. Al hough no
go e nmen has conduc ed a e iew o he cos s and bene i s o membe ship,
Ba a B own (1974), Bu ki (1974), Holland (1975), Benn (1980), Bu ki e al.
(1992, 1996, 1997) and Ellio and A kinson (1998) assessed he economic cos s.
These included EU budge con ibu ions, he cos s o he CAP, he Common
Fishe ies Policy (CFP) and ERM membe ship, impo pene a ion and he
subsequen loss o manu ac u ing jobs, he loss o o e seas ma ke s and he
cumula i e ade de ici . Two s udies ied o pu a igu e o hese cos s. The i s ,
by Jay (1968), es ima ed he p obable economic cos a be ween £600 and £1,000
million pe yea . The second, by Podmo e and Ka z (1998), es ima ed he
combined cos o EU budge con ibu ions, EMU and ERM membe ship, and he
cumula i e ade de ici be ween 1973 and 1997 a £255 billion. This o al did no
include he cos s o he CAP, he CFP, impo pene a ion and subsequen loss o
manu ac u ing jobs, o he loss o ma ke s in he es o he wo ld. Bu ki (1975),
Benn (1980, 1982), Bu ki e al. (1992) and Benn and Hood (1993) e iewed he
poli ical cos s and concluded ha he Eu opean Union unde mined democ acy,
na ional so e eign y and B i ain’s capaci y o sel -go e nmen . Mo e ecen ly,
Milne (2004) es ima ed he cu en ecu ing annual ne di ec cos o membe ship
a 3–5 pe cen o g oss domes ic p oduc .
The second a gumen is he illusion o he ‘Eu opean social model’ and he alse
choice be ween his and he US model o capi alism. Ac oss he Eu opean Union,
public sec o s and wel a e sys ems a e being sys ema ically p i a ised and disman led
by membe s a es as a esul o he Single Ma ke , eu o and enla gemen p ojec s.
In sho , he Eu opean Union is pu suing a neo-libe al a he han a Keynesian
p ojec , unde which mul ina ional companies (MNCs) a e he d i ing o ce.
Balanyá e al. (2000), o example, ound a signi ican ela ionship be ween he
ecommenda ions o epo s p oduced by Eu opean Round Table o Indus ialis s
(ERT), composed o cap ains o indus y om EU-based MNCs, and he policy
and ea y ou pu o he Eu opean Union. Simila ly, Lucas and Hines (2000)
highligh ed he ole o he ERT in he enla gemen p ocess. A bes , he Eu opean
Union places conside able cons ain s on go e nmen al eedom o ac ion,
mani es in he eu o (SGP) ules o example. A wo s , he Eu opean Union could
o e ule and block he implemen a ion o a socialis p og amme manda ed by he
B i ish elec o a e.
The hi d a gumen is he di icul y, i no impossibili y, o cons uc ing a
democ a ic Uni ed S a es o Eu ope, modelled on he Uni ed S a es o Ame ica,
wi h a sup eme pa liamen , sena e, cou o jus ice and ede al bank. The
36 Andy Mullen
Eu opean Union lacks a common cul u e and language, whils he e is insu icien
popula ion mo emen o c ea e a single, uly Eu opean, poli y. Fu he mo e,
Eu opean pa liamen a y cons i uencies a e la ge and he e o e emo e om
o e s. Consequen ly, he public is unlikely o pay he addi ional, and subs an ial,
EU-wide axes necessa y o und a ede al go e nmen . Fu he mo e, coali ion
poli ics and majo i y o ing in an all-powe ul pa liamen could sub e he will o
he B i ish people. I he Uni ed S a es o Eu ope model was a eal possibili y, a
powe ul case could be made o he o ma ion o a Eu ope-wide socialis pa y o
pu sue a Eu opean socialis s a egy. Howe e , his is no he model ha is on o e .
The Eu opean Union is a hyb id o ede al and in e go e nmen al o ms ha aims
o ele a e powe and decision making away om o dina y people, hus insula ing i
om democ acy. C ucially, he choice o a Eu opean Union un by unelec ed
banke s and bu eauc a s, o a democ a ically elec ed ede al Eu opean go e n-
men , has ne e been o e ed o he B i ish people.
The ou h, and possibly mos compelling, a gumen is he undemoc a ic na u e
o he Eu opean Union. B i ain’s accession o he T ea y o Rome, pa icipa ion in
he Single Ma ke and possible adop ion o he eu o and Eu opean Cons i u ion all
in ol e he su ende o democ a ic con ol o he unaccoun able Council o
Minis e s and he unelec ed Eu opean Commission and Eu opean Cen al Bank.
As no ed by Ca ey (1995: 18):
The wen ie h cen u y has been cha ac e ised by h ee de elopmen s o g ea
poli ical impo ance: he g ow h o democ acy, he g ow h o co po a e
powe , and he g ow h o co po a e p opaganda as a means o p o ec ing
co po a e powe agains democ acy.
The his o ic objec i e o he Labou Pa y, howe e , is o ex end democ acy a he
local, na ional, Eu opean and global le els, no o pa icipa e in cu ailing i .
The socialis p ojec equi es he undamen al e o m o he Eu opean Union
and/o he wi hd awal o B i ain and o he s in o de o cons uc a sys em o
olun a y coope a ion amongs democ a ic, independen na ion-s a es. Whe he
his objec i e can be achie ed is a ma e o deba e. Wha is clea , howe e , is ha
he long-s anding di ision o he Labou Pa y o e Eu opean in eg a ion will
con inue.
No es
1 An ex ended e sion o his chap e , which e alua es he Eu opean policies o he T ades
Union Cong ess and he wide B i ish le , can be ound a www.andymullen.com.
2 Fede alis suppo e s included Clemen A lee, Fenne B ockway, G.D.H. Cole,
Richa d C ossman, Michael Foo , Lo d Philip Lo hian, R.W.G. Mackay, Ian Mika do,
R.H. Tawney and Ha old Wilson.
3 Co espondence om John Ea well, 20 No embe 2003.
4 Co espondence om Neil Kinnock, 29 Janua y 2003.
5 In e iew wi h Regan Sco on 8 Oc obe 2002.
Pa I
The economics o a single
cu ency
3 Economic consequences o
B i ain
Jona han Michie
In oduc ion
Eu ope seems s uck wi h high le els o unemploymen as we en e he wen y- i s
cen u y, wi h all he economic and social mise y which goes wi h ha . The blame is
pu al e na i ely on ‘ igid labou ma ke s’, a ‘ oo cos ly wel a e s a e’, o new
echnology – almos anywhe e excep on go e nmen economic policy. Ye he
go e nmen s o he Eu opean Union ha e been delibe a ely pu suing de la iona y,
low-g ow h, high-unemploymen policies, i s unde he auspices o he Maas ich
con e gence c i e ia and now unde he pos -Single Cu ency ‘S abili y Pac ’.
The esul ing unemploymen should come as no su p ise. Simila policies we e
pu sued in B i ain unde he gold s anda d1 o he 1920s, wi h pa allel esul s in
e ms o de la iona y go e nmen economic policies and he c ea ion o mass
unemploymen (Ki son and Michie 1994). I seems ha no hing has been lea ned.
The wo ld economy only managed o pull i sel ou o he G ea Dep ession2 in he
1930s by abandoning ixed exchange a es, cu ing in e es a es and boos ing
g ow h. Ye when simila policies we e ad oca ed p io o 16 Sep embe 1992,
when B i ain was o ced ou o he ERM agains i s will by he cu ency
specula o s, such policies we e denounced as ‘an i-Eu opean’. Bu i does ou
Eu opean pa ne s no a ou s o ha e ou economy in ecession, any mo e han we
a e cu en ly being helped by ou EU pa ne s pu suing es ic i e policies.
Unless cu en Eu opean economic policy is eo ien a ed owa ds he objec i e
o ull employmen , emb acing an ac i e indus ial and egional policy, a he han
being s uck on he myopic conce n wi h ze o in la ion, he ou e o wa d mus once
again be based on independen na ional g ow h s a egies which would no only
allow coun ies o help hemsel es, bu by doing so would help each o he .
Compe i i e de la ion, no compe i i e de alua ion, was he eal ‘begga my
neighbou ’ policy o he 1990s. As he economis Joan Robinson pu i : ‘O all bad-
neighbou ly conduc among ading na ions, he wo s is o go in o a slump’
(Robinson 1966).
The ERM
The Exchange Ra e Mechanism (ERM) o he Eu opean Mone a y Sys em (EMS)
ied o b ing na ional cu encies mo e o less in o line. B i ain joined he ERM in

40 Jona han Michie
Oc obe 1990. The pound was pegged a 2.95 Deu schma ks. This was oo high a
a e, making goods p oduced in B i ain ela i ely expensi e compa ed o goods
p oduced elsewhe e. This means ha ma ke sha e is los ab oad, bu also a home
as impo s become mo e compe i i e agains domes ically p oduced goods. The
o e alued a e a which he pound was pegged in he ERM he e o e caused
ma ke s o be los and p oduc ion o be cu back, wi h i ms going o he wall and
wo ke s being sacked.
Why hen was an o e alued exchange a e chosen by he go e nmen when
hey en e ed he ERM? In pa i was o he s a ed objec i e o squeezing in la ion;
wha was no s a ed is he ou e by which i was hoped i would wo k, by
delibe a ely making hings ha d o B i ish i ms, he eby o cing hem o y o cu
cos s by u ning on hei wo ke s, cu ing wages and o cing inc eased wo k
p essu es. This is no he i s ime ha go e nmen s ha e allowed he cu ency o
be o e alued in his way. Wins on Chu chill as Chancello ook B i ain back on o
he gold s anda d in he 1920s a an o e alued a e, wi h Keynes wa ning a he
ime, in his pamphle The Economic Consequences o M Chu chill, o he disas ous
likely consequences o his policy, consequences which we e o include he Gene al
S ike o 1926 (Keynes 1925). Simila ly, he i s Tha che ecession o 1979–81
was exace ba ed by he high exchange a e caused no only by he coming on
s eam o No h Sea oil, inc easing he demand om o e seas o s e ling wi h
which o buy ha oil, bu also by he high in e es a es which ollowed om he
go e nmen ’s mone a is policies. Tha che ’s a emp s o educe money supply
g ow h we e pu sued h ough inc easing in e es a es, aimed a educing he
amoun people would hen wan , o be able, o bo ow. Bu he high in e es a es
also a ac ed money in o he coun y, pushing up he exchange a e (Michie 1992).
In he in e -wa pe iod B i ain was indeed o ced o abandon he gold s anda d.
And he exchange a e simila ly ell a e 1981, dep ecia ing nea ly 30 pe cen by
1986 and helping o uel he eco e y. Likewise, he o e alued a e a which
Chancello Majo en e ed he ERM mean ha ou membe ship was always
doomed o ailu e. Ye hose who poin ed his ou a he ime we e dismissed ou o
hand. I was said amongs o he hings ha i s e ling le he ERM hen in e es
a es would ha e o ise; his p o ed alse. The leade ship o all h ee majo
poli ical pa ies suppo ed con inued membe ship a he o e alued a e. E en i
his had been a genuine op ion, i would ha e been a disas ous one. Bu in eali y i
was no e en an op ion. I was unsus ainable. As B yan Gould has a gued, B i ain’s
ERM membe ship was i ia ed by a leas h ee policy mis akes:
Fi s , we chose a plainly o e alued pa i y. This was no an acciden , bu a
delibe a e a emp o use o e alua ion as a means o bea ing down on cos s
and imposing a coun e -in la iona y discipline. The esul , o cou se, was so o
en eeble ou p oduc i e economy ha he gap be ween he exchange a e
dec eed by he ERM and he a e ha could be jus i ied by he pe o mance o
he eal economy widened inexo ably and e en ually became unsus ainable.
Second, he obliga ions imposed by ERM membe ship we e asymme ical.
The whole bu den o s aying wi hin he pa i y bands ell upon he weake
Economic consequences o B i ain 41
economies, who ound ha , in a ain a emp o main ain sho - e m
compe i i eness and o sho e up hei cu encies, hey we e obliged o y o
cu cos s h ough de la iona y measu es like high in e es a es and cu s in
public in es men . The Ge mans, on he o he hand, whose app ecia ing D-
Ma k pu cons an p essu e on he pa i y bands, ecognised no obliga ion o
b ing hei cu ency back in o line by e la ing and cu ing in e es a es. I was
o his eason ha he ERM became a de la iona y engine. I was no acciden
ha wes e n Eu ope became he wo ld’s unemploymen black spo .
Thi d, he ERM i sel changed in na u e. I ceased o be a ‘c awling peg’
a angemen – a sensible means o secu ing g ea e exchange a e s abili y by
damping down excessi e ma ke ola ili y. I became ins ead he essen ial
p econdi ion o and means o he ansi ion o a single cu ency. As a esul ,
no adjus men s could be pe mi ed. The pa i ies had o be se in conc e e.
Such in lexibili y was ine i ably sha e ed in o agmen s by he shee o ce o
economic eali ies and ma ke p essu es.
(Gould 1993)
So he p oblems o he ERM lay deepe han jus ha ing joined a he w ong
a e. I was a high-unemploymen mechanism, because all he p essu e was on he
weak economies o ake ac ion, a he han on he s ong ones.3 And wo se, ha
ac ion was designed mo e o p op up he cu encies o he weak economies han o
s eng hen hose economies’ p oduc i e po en ial, which is he only sus ainable
basis o main aining a heal hy cu ency. Inc eased in e es a es we e o de ed.
These dep ess in es men plans and lea e he economy in ques ion u he
weakened. Ye i is mos likely he weakness o he economy ha unde lay he
weakness o he cu ency in he i s place. So a weak economy p oduces a
weak cu ency; he ERM hen equi es he go e nmen in ques ion o aise in e es
a es; and inc eased in e es a es squeeze he coun y’s economy, lea ing i s ill
weake .4
The Maas ich T ea y
The h ee key poin s o he Maas ich T ea y we e as ollows:
All powe o he cen al banke s
The Cen al Bank would be independen ,5 ha is independen o any democ a ic
in luence, con ol o accoun abili y. The elec o a e o B i ain and o he Eu opean
Union would no longe be able o decide on, o e en in luence, mone a y policy.
Indeed, such in luence would be ou lawed. This is undamen ally undemoc a ic.
I is ue ha he Bank o England was made independen by he Labou
Go e nmen elec ed in 1997, bu he Chancello Go don B own a leas pledged
ha new mechanisms would ensu e ha he Bank would ne e heless be
accoun able (al hough i is ue ha a he ime o w i ing he p oo o his is ye
o be seen).
42 Jona han Michie
P ice s abili y
No only would he cen al banke s be independen o he elec o a e, hey would be
cons i u ionally p e en ed om p io i ising ull employmen ; hei one p ima y
objec i e would be o achie e and main ain ‘p ice s abili y’ ( his is e e ed o
se e al imes; see, o example. A icle 3a). E e y hing else would ha e o be
seconda y, ‘wi hou p ejudice o his objec i e’ (o p ice s abili y – same A icle).
Why, hen, did he T ea y’s d a e s ha e such a mania o p ice s abili y? And
should we objec o his? The idea o p ice s abili y is o en p esen ed as p e e able
o in la ion because i would be mo e s able, in he sense ha i would be easie o
hold in la ion a ha ze o (o low) a e han i would be o hold in la ion s able
a ound a highe a e. Bu he e is no eason why his should be so. The in la ion
a e is he a e age o housands o p ice mo emen s, some alling, like he p ice o
pe sonal compu e s a he momen , some s able and some ising. I ze o in la ion is
achie ed i would no be because p ices we e s able, bu because hese mo emen s
happened o cancel each o he ou on a e age. And he e is no eason why ha
a e age a e o in la ion should emain s a ic jus because i was p e iously
a e aging a a alue o ze o o 1 pe cen , a he han say 7 o 8 pe cen . A a mo e
p ac ical le el, he eason o he Maas ich T ea y’s p eoccupa ion wi h he a e
o in la ion is because i a ose om he delibe a ions o he Delo s Commi ee
(composed la gely o banke s) be o e he Eu opean Union’s economy slumped in o
i s ea ly 1990s ecession. In pa , hen, Maas ich was jus yes e yea ’s T ea y,
ocusing on issues o he 1980s when wha is needed a e policies o expansion and
employmen . The o he p oblem wi h he T ea y – and now wi h he pos -Single
Cu ency ‘S abili y Pac ’ – is ha he goal o s able p ices is no o be pu sued
h ough posi i e in e en ionis measu es, such as p ice con ols o he
eju ena ing o indus y, which migh allow cos inc eases o be abso bed by
p oduc i i y inc eases a he han being passed on in highe p ices. The way ha
p og essi e economic policies can help ackle in la ion a e se ou in de ail by
Deakin e al. (1992), bu he key poin is ha low in la ion should be pu sued on he
basis o a s ong economy which can abso b cos inc eases (see also Michie and
Wilkinson 1992, 1993). The T ea y ins ead limi s he economic policy op ions o
he ee ma ke pu sui o mone a ism, plus a e capping.
Na ional a e capping
Go e nmen bo owing in membe s a es is capped a 3 pe cen o na ional
income (GDP). Simila ly, go e nmen deb mus be kep below 60 pe cen o
GDP. I GDP alls – as i did in B i ain h oughou 1991 and 1992 – his could
equi e deb o be cu in line, which could exace ba e he decline in na ional
income i sel . Also, he Maas ich T ea y se s he deb c i e ion in e ms o g oss
a he han ne deb – ha is, o ally igno ing all asse s. This is a e y na ow iew
o he go e nmen ’s balance shee . In e ec , i o bids go e nmen s o ake accoun
o e en hei mos liquid asse s in se ing iscal policy. Selling asse s o pay deb ( o
example, h ough p i a isa ion) – which in eali y lea es he go e nmen no be e
Economic consequences o B i ain 43
o , since hei asse s will ha e allen – is seen as an imp o emen . Indeed, he
si ua ion is e en wo se han his, because unde he Maas ich condi ions he
go e nmen ’s pe o mance is hough o ha e imp o ed e en i i sells o asse s o
less han hey a e wo h. The amoun o money b ough in om he sale, howe e
low, is seen as pu e gain in educing g oss deb , while he loss o he asse is o ally
igno ed.
Maas ich and he al e na i es
On al e na i es, i s , he e is no eason o ha e any such ules; he Uni ed S a es o
Ame ica does no pu any such ules on i s s a es, and he B i ish Go e nmen
ne e used o pu such ules on i s local au ho i ies un il he Conse a i e go e n-
men s o he 1980s in oduced a e capping. Second, on iscal edis ibu ion, he
MacDougall Repo (Commission o he Eu opean Communi ies 1977) sugges ed
ha a Communi y budge equi alen o 7 pe cen o GDP would be necessa y jus
o ackle 40 pe cen o exis ing inequali ies, ye he budge a p esen is se a 1.27
pe cen ; he mo e ambi ious p oposal ejec ed a he 1992 Edinbu gh summi was
o his o ise o only 1.38 pe cen .
The e would be some hing o be said o c ea ing a new supe s a e, wi h a single
go e nmen , iscal policy, indus ial policy and so on. One a ac ion would be he
powe o in e ene in he economy o o ce h ough socially bene icial ou comes.
Bu i is qui e dishones (o else nai e) o p esen Maas ich o he Single Cu ency
as ep esen ing any hing along hese lines. I ep esen s he p ecise opposi e: an
a emp o oll back he s a e on a Eu opean scale, o gi e capi al ee eign.
I is some imes a gued ha he powe o he in e na ional ma ke s o dic a e o
na ionally elec ed go e nmen s is such ha no one coun y can any longe de end
i s cu ency. Bu his is ha dly new. I is ue ha his powe has been boos ed in
ecen yea s by he ee-ma ke , de egula o y policies pu sued by go e nmen s.
Bu p obably he clea es example o such a p ocess, designed o inc ease he powe
o mul ina ional capi al and inancial ma ke s, has been he p og amme o
inc eased Eu opean Communi y/Union in eg a ion. I is qui e w ong o in e p e
his p ocess as a eac ion o he inc eased powe o mul ina ional capi al. On he
con a y, he Single Eu opean Ma ke p og amme6 and he single cu ency ha e
shi ed he balance away om go e nmen s and in a ou o p i a e capi al.
To espond e ec i ely o he challenges o g ow h and employmen will equi e
he exac opposi e o e e y hing ha he single cu ency p ocess ep esen s. The
single cu ency inc eases he le e age o in e na ional ma ke s o beha e exac ly as
hey wish, and p e en s elec ed go e nmen s om pu suing he policies on which
hey we e elec ed – unless o cou se hese happen o coincide wi h he in e es s o
hose inancial ma ke s. And his is he e o e likely o happen: he policies o
poli ical pa ies will become de e mined less and less in esponse o people’s
aspi a ions and mo e and mo e by wha is deemed accep able o he con inued
undis u bed ope a ion o in e na ional inancial ma ke s and mul ina ional
co po a ions.
50 Jona han Michie
cen al bank dedica ed o he achie emen o p ice s abili y. The emphasis has o
be shi ed owa ds es o ing ull employmen .
Conclusion
Unemploymen in Eu ope is due o he in e ela ion be ween mac oeconomic
policy, balance o paymen s cons ain s and de-indus ialisa ion. The idea o
pu suing ac i e mac oeconomic and indus ial policies has gi en way o an
adhe ence o mone a ism, p i a isa ion and labou ma ke de egula ion. Ye he
esul ing g ow h in low pay, po e y and unemploymen has, i onically, placed an
inc easing bu den on he public pu se. A he same ime, p oduc i e e iciency is
ha med by he esul ing ins abili y in he labou ma ke – pa icula ly wi hin he
inc easingly low-paid sec o s – and he loss o incen i es o p oduce s o upg ade
hei p oduc i e sys ems. A icious ci cle o low-wage, low-p oduc i i y, low-
in es men ac i i y is gene a ed, leading o loss o compe i i eness and g owing
unemploymen , wi h he inc easing bu dens on he excheque p o oking ye
u he mo es down he ecessiona y spi al (Michie and Wilkinson 1994, 1995).
An al e na i e agenda would include, i s , pushing o global expansion a he
han being he mos o hodox, 1920s-s yle block in he wo ld. Second, he e a e a
se ies o measu es (such as e-es ablishing exchange con ols) which he e seems
li le hope o ge ing adop ed, bu , o pa aph ase Keynes, jus because people won’
lis en o sense is no excuse o alking nonsense. The ac ha such policies would be
an imp o emen on he cu en s a e o a ai s should s ill be poin ed ou . Thi d,
he e a e hings which would appea accep able o call o e en in oday’s ee-
ma ke clima e, such as keeping he go e nmen esponsible o mone a y policy
a he han handing i o e o unaccoun able cen al banke s; keeping he
go e nmen esponsible o iscal policy, i,e. abandoning he Maas ich T ea y’s
es ic ions; keeping he possibili y o cu ency ealignmen s in he e en o one
membe s a e’s ou pu becoming uncompe i i e, a he han adop ing a single
cu ency; and es o ing he igh o pu sue in e en ionis indus ial policies which
a e inc easingly alling oul o ee-ma ke dic a s om B ussels. In o he wo ds,
membe s a es should pu sue hose indus ial, in e es a e, exchange a e and
iscal policies ha we e in o ce be o e mos o hem became ou lawed by he
Maas ich T ea y.
Wha is w ong is he ee ma ke , laissez- ai e cha ac e o he p ocess o
Eu opean in eg a ion a p esen . So he basic poin abou wha needs o be done is
ha Eu opean go e nmen s and he Eu opean Commission should s op
in oducing 1920s-s yle policies and ules; he coun ies o Eu ope should hen
pu sue in e en ionis policies o ackle unemploymen e c., and should coope a e
in e na ionally o e i .
The powe o in e na ional capi alism o dic a e o na ionally elec ed
go e nmen s is no new, al hough i is ue ha i has been boos ed in ecen yea s
by he ee-ma ke , de egula o y policies pu sued by go e nmen s. P obably he
clea es example o such a p ocess, designed o inc ease he powe o mul ina ional
capi al and inancial ma ke s, has been he p og amme o inc eased Eu opean

Economic consequences o B i ain 51
Communi y/Union in eg a ion. I is qui e w ong o in e p e his p ocess as a
eac ion o he inc eased powe o mul ina ional capi al; on he con a y, he Single
Eu opean Ma ke p og amme and now he single cu ency ha e hemsel es
delibe a ely shi ed he balance away om go e nmen s. EMU is a hea a
poli ical p ocess ha will p e en go e nmen s – whe he a na ional o EU le el –
om pu suing policies o p omo e economic and social wel a e. Such a scena io is
no mo e sus ainable now han when i was las in place, namely in he 1920s and
1930s. I is likely o come o he same unpleasan end, wi h indi idual coun ies
being e en ually o ced o ake ac ion ega dless o he powe o in e na ional
capi alism. Bu wi h he Eu opean poli ical eli e so wedded o he laissez- ai e
poli ics o he single cu ency, any a emp by he popula ion o insis ha hey
should be allowed o exp ess poli ical p e e ences isks aking ugly na ionalis ic
o ms – agains he ‘in e na ionalism’ o he Eu opean cen al banke s and he
en i e exis ing poli ical eli e.
No es
1 A coun y is said o be on he gold s anda d when i s cen al bank is obliged o gi e gold
in exchange o any o i s cu ency p esen ed.
2 The ‘G ea Dep ession’ e e s o he global ecession o 1929–32.
3 Mo e esponsibili y should ha e been placed on hose coun ies whose cu encies we e
a he op o he cu ency ange o ake ac ion, a he han ha e he bu den alling on
hose economies al eady in di icul y. The s onge economies could cu in e es a es
and boos go e nmen spending. As hei economies expanded, hey would be likely o
impo mo e. And as hei cu ency is o e ed on he o eign exchange ma ke s o pay o
hose impo s, i s p ice agains o he cu encies would end o decline back owa ds i s
cen al a e.
4 On he impo ance o c ea ing indus ial capaci y as a p og essi e way o o e coming
balance o paymen s and in la ion cons ain s see Michie and G ie e Smi h 1996, in
pa icula he chap e by Ki son and Michie (1996b), and also Ki son and Michie
1996a.
5 See o example he ‘P o ocol on he S a u e o he Eu opean Sys em o Cen al Banks
and o he Eu opean Cen al Bank’ a he end o he Maas ich T ea y.
6 The Single Eu opean Ma ke (SEM), also known as he In e nal Ma ke o simply
‘1992’, consis ed o a ime able o 300 measu es ag eed a he Milan EC summi o 1985
in p epa a ion o 1 Janua y 1993. Also known as he Cock ield plan a e Commis-
sione Cock ield.
7 The a gumen ha balance o paymen s de ici s do no ma e , o ha hey would be
elimina ed wi h a single cu ency, a e comp ehensi ely demolished by he con ibu ions
in The Economic Legacy (Michie 1992) om B ian Reddaway, om Ken Cou s and
Wynne Godley, and om John McCombie and Tony Thi lwall.
8 Fo a ull c i ical assessmen o he Delo s Whi e Pape , see G ie e Smi h (1994).
4 Wha ype o Eu opean
mone a y union?
Malcolm Sawye and Philip A es is
In oduc ion
The c ea ion o a mone a y union ine i ably in ol es he use o a single cu ency
o he paymen o axa ion and ha p ices, wages e c. a e denomina ed in ha
cu ency. Fu he , a single cu ency ine i ably in ol es he c ea ion o a single
mone a y au ho i y (cen al bank) wi h he powe o se mone a y policy. Bu he e
is li le else ha ollows ine i ably om he c ea ion o a mone a y union. The e
a e, hough, a hos o economic policy and ins i u ional a angemen s which
su ound he eu o and i s in oduc ion and which would ha e p o ound
consequences o he e ec i eness o he single cu ency and, mo e gene ally, he
economic well being o he Eu opean Union. In his b ie chap e we indica e some
o he ea u es o he ins i u ional and policy a angemen s su ounding he
implemen a ion o he eu o and hin a some al e na i e ones.
One pa icula and no able ea u e o he c ea ion o he Eu opean Mone a y
Union is ha in e ec he only economic ins i u ion which has been c ea ed a he
Eu opean le el is he Eu opean Cen al Bank (ECB). The c ea ion o o he
ins i u ions a he Eu opean le el has been no iceable by hei absence. A u he
ea u e o he EMU is he cons ain s which a e imposed on na ional go e nmen s
in espec o budge de ici s and go e nmen deb . Speci ically, he e a e limi s on
budge de ici s o 3 pe cen o GDP, and ailu e o mee ha equi emen could
lead o a se ies o ines depending on he deg ee o which he de ici exceeds 3 pe
cen . The S abili y and G ow h Pac , which has been ag eed o go e n he
ope a ion o he eu ozone, de ails ‘escape’ clauses which allow a membe s a e ha
has an excessi e de ici o a oid sanc ion in he e en o an economic down u n.
Ne e heless, his uppe limi o 3 pe cen o GDP o budge de ici s means ha ,
du ing he cou se o he business cycle, budge s may well be in su plus o small
de ici (gi en he la ge swing in he size o de ici s du ing he business cycle), and
na ional go e nmen s will be es ained in esponding o ecessions.
The S abili y and G ow h Pac and he Maas ich T ea y (along wi h he
con e gence c i e ia o membe ship o he eu o) e lec a pa icula neo-libe al
agenda. The Maas ich T ea y, which p o ides he ins i u ional amewo k o he
in oduc ion o he single cu ency, was signed in la e 1991, a ime when neo-
libe al ideas held sway and poli ical powe was gene ally held by he igh .
Wha ype o Eu opean mone a y union? 53
Neo-libe al ideas s ill p e ail hough pe haps a e in some decline, as e idenced by
he elec o al ic o ies o cen is pa ies in many o he EMU coun ies. Bu he
neo-libe al agenda has moulded he en i onmen wi hin which he eu o will be
in oduced. The eu o (a leas o hose 12 coun ies which ha e signed up) is
embedded wi hin an ins i u ional and policy se ing which we ha e elsewhe e
desc ibed as ‘new mone a ism’ (A es is and Sawye 1998). I is he implici
a gumen o his chap e ha economic policies e lec ing such neo-libe al agenda
will no be success ul.
This chap e is o ganised in o h ee main sec ions. Fi s , he ole o he ECB is
c i ically examined. I is a gued ha he ECB is undemoc a ic and has been gi en
oo na ow a emi . Fu he , he policy ins umen a he disposal o he ECB ( ha
is in e es a es) is inadequa e o he pu pose o con olling in la ion (o indeed
any hing else).
Second, he e is a woe ul lack o ins i u ions and policies ope a ing a he
Eu opean le el o suppo he de elopmen o a success ul Eu opean economy.
Speci ically he e is a lack o a Eu opean le el iscal policy (o e en coo dina ed
iscal policies ac oss na ions) which could be used o smoo h luc ua ions in
economic ac i i y o e ime.
Thi d, he e is no se ious a emp o educe dispa i ies be ween egions (in e ms
o unemploymen , employmen , income e c.). The e has been a speci ic ejec ion
(a he Nice summi in No embe 2000) o he de elopmen o a Eu opean-le el
social secu i y sys em.
Eu opean Cen al Bank
The c ea ion o a so-called independen Eu opean Cen al Bank was much in line
wi h he economic doc ine which we ha e elsewhe e (A es is and Sawye 1998)
desc ibed as he ‘new mone a ism’.1 The essen ial ea u es o new mone a ism a e:
1 Poli icians in pa icula , and he democ a ic p ocess in gene al, canno be
us ed wi h economic policy o mula ion wi h a endency o make decisions
which ha e s imula ing sho - e m e ec s ( educing unemploymen ) bu which
a e de imen al in he longe e m (no ably a ise in in la ion). In con as ,
expe s in he o m o cen al banke s a e no subjec o poli ical p essu es o
cou sho - e m popula i y and can ake a longe - e m pe spec i e whe e i is
assumed ha he e is a con lic be ween he sho e m and he long e m.
2 In la ion is a mone a y phenomenon and can be con olled h ough mone a y
policy. The money supply is di icul (o impossible) o con ol di ec ly, bu he
cen al bank can se he key in e es a e ( he ‘ epo’ a e) o in luence mone a y
condi ions, which in u n in luence he u u e a e o in la ion.
3 The le el o unemploymen luc ua es a ound a supply-side de e mined
equilib ium a e o unemploymen , gene ally labelled he NAIRU (non-
accele a ing in la ion a e o unemploymen ). The le el o he NAIRU may be
a ou ably a ec ed by a ‘ lexible’ labou ma ke , bu i is una ec ed by he
le el o agg ega e demand o by p oduc i e capaci y.
54 Malcolm Sawye and Philip A es is
4 Fiscal policy is impo en in e ms o i s impac on eal a iables and as such i
should be subo dina e o mone a y policy in con olling in la ion. I is
ecognised, hough, ha he go e nmen budge posi ion will luc ua e du ing
he cou se o he business cycle, bu in he con ex o an essen ially passi e
iscal policy.
The independen ECB is gi en he ask o using mone a y policy o con ol
in la ion. Fiscal policy is la gely neu e ed and cons ained by he 3 pe cen limi on
budge de ici s wi h no EU-le el iscal policy.
The e a e (a leas ) h ee basic objec ions o he manne in which he ECB has
been se up. Fi s , he e is he essen ially undemoc a ic na u e o he ECB in he
name o p o ec ing i s independence. A icle 107 o he amended T ea y o Rome
s a es ha :
When exe cising he powe s and ca ying ou he asks and du ies con e ed
upon hem by his T ea y and he S a u e o he ESCB, nei he he ECB, no a
na ional cen al bank, no any membe o hei decision making bodies shall
seek o ake ins uc ions om Communi y ins i u ions o bodies, om any
go e nmen o a Membe S a e o om any o he body. The Communi y
ins i u ions and bodies and he go e nmen s o he Membe S a es unde ake
o espec his p inciple and no o seek o in luence he membe s o he
decision making bodies o he ECB o o he na ional cen al banks in he
pe o mance o hei asks.
This p ecludes in luence om say he Eu opean Pa liamen on he decisions o
he ECB, e en hough he ECB is he only Eu opean-le el economic policy-
making body.
Second, he objec i e gi en o he ECB when se ing mone a y policy is he
achie emen o low in la ion. Objec i es such as a high le el o economic ac i i y,
low unemploymen o e en he ex e nal alue o he eu o a e o be conside ed. I
he ‘new mone a ism’ we e alid, his would no ma e since i is deemed ha
mone a y policy does indeed con ol in la ion, and ha he le el o unemploymen
is una ec ed by mone a y policy. Bu in he eal wo ld, he se ing o in e es a es
has a di e en ial impac ac oss egions and na ions, and can ha e an in luence on
he exchange a e (and he eby on expo s and impo s). Di e ences in in la iona y
expe ience and he a e o unemploymen ac oss egions and na ions make i likely
ha in e es a es will be pu up when in la ion appea s in one pa o he Eu opean
Union e en when o he egions a e no expe iencing in la ion and when he le els
o unemploymen a e high.
Thi d, he in e es a e is a weak policy ins umen o use o he con ol o
in la ion. The ex en o which in e es a es in a single coun y (o in his case in he
Eu opean Union) can be a ied ela i e o in e es a es in o he coun ies is
hea ily ci cumsc ibed. I is di icul o belie e, o example, ha eal in e es a es
could be main ained 2 pe cen abo e o below he eal a e o in e es in he Uni ed
S a es o Ame ica. Fu he , he ex en o which in e es a es can in luence he a e
Wha ype o Eu opean mone a y union? 55
o in la ion is small. This means ha he eu ozone is le wi h li le o coun e any
upsu ge in in la ion. A he p esen ime, wi h in la ion subdued, his may no be a
se ious conce n, bu any upswing in in la ion, whe he gene a ed wi hin he
Eu opean Union o mo e widesp ead, would p esen se ious di icul ies.
I is impe a i e ha he sole economic policy make a he Eu opean Union le el
is b ough unde democ a ic con ol, and ha he objec i es o be pu sued by he
ECB a e b oadened o include high le els o employmen and economic ac i i y.
Bu his should be done wi h he ecogni ion ha mone a y policy is no an e ec i e
way o guiding he economy.
Fiscal policies and edis ibu ion
The adop ion o a single cu ency by eu ozone coun ies clea ly emo es he
possibili y o a ia ion in he alue o hei domes ic cu ency. Changes in he
exchange a e can allow a coun y o o se di e en ial shocks and di e ences in
economic pe o mance. I may be ques ioned how a a coun y can de e mine i s
own exchange a e in he globalised inancial ma ke s, hough since an exchange
a e is he ela i e alue o one cu ency in e ms o ano he i is a ely he case ha
one coun y can comple ely de e mine he alue o i s own cu ency. I is also he
case ha exchange a es ha e been highly ola ile since he b eakdown o he
B e on Woods sys em, and ha exchange a es ha e di e ged signi ican ly om
pu chasing powe pa i y (see, o example, K ugman 1989; Rogo , 1996).
Ne e heless, a ia ion in he exchange a e (whe he in he con ex o a ixed o a
lexible exchange a e sys em) does p o ide an adjus men sa e y al e o di e -
en ial shocks and economic pe o mance, e en hough he sa e y al e may no
always wo k quickly (in he case o ixed exchange a es) o may o en be aul y (in
he case o lexible exchange a es).
I is clea ha he e a e ew, i any, mechanisms wi h he S abili y and G ow h
Pac and he single cu ency o a coun y o egion o adjus o di e en ial shocks
and economic pe o mance. The abili y o na ional go e nmen s o s abilise hei
own economies becomes mo e ci cumsc ibed h ough he equi emen s o he
S abili y and G ow h Pac and he limi s on he size o budge de ici s. I is o en
poin ed ou ha mos single-cu ency zones in ol e a cen al o ede al
go e nmen ax and public expendi u e p og amme, which is subs an ial ela i e
o na ional GDP, and a go e nmen budge , which can un signi ican de ici s.2
The ax and public expendi u e p og amme gene ally in ol es edis ibu ion om
iche egions o poo e ones, whe he as an au oma ic consequence o a p o-
g essi e ax and social secu i y sys em o as speci ic ac s o policy. The edis i-
bu ion ac s as a s abilise wi h nega i e shocks leading o lowe axa ion and highe
social secu i y paymen s in he egion which is ad e sely a ec ed. Wi h he
emo al o exchange a e a ia ions as an adjus men mechanism, i could be
expec ed ha economies would adjus o di e en ial shocks and economic
pe o mance h ough a a ie y o o he ou es. These would include (in esponse o
a nega i e shock) declines in economic ac i i y, educ ions in li ing s anda ds and
ou wa d mig a ion. The e is hen a equi emen o he de elopmen o a la ge

56 Malcolm Sawye and Philip A es is
EU ax base wi hin a p og essi e ax sys em and he use o he ax e enue in a
edis ibu i e manne .
The p oblem o unemploymen will be pa icula ly se ious in hose cases whe e
go e nmen s ha e chosen he w ong exchange a e a en y. An o e alued en y
exchange a e will mean an ex ended pe iod o ecession o accommoda e i s
e ec s, which emana e om he absence o he adjus able exchange a e sa e y
al e. This is accen ua ed by he i ual absence o iscal ans e s, whe he
au oma ic o disc e iona y, om he ela i ely ich egions o he ela i ely poo
ones. The e is clea ly no a ax and social secu i y sys em ope a ing a he EU le el
which would make ans e s be ween ich and poo in an au oma ic manne , and
p o ide an elemen o iscal s abilisa ion. The expendi u es on egional aid
(s uc u al and cohesion unds) and o a lesse deg ee ag icul u al policies do make
some ans e s om ich o poo , bu on a e y limi ed scale. In sho , he Eu opean
budge is nei he on a su icien scale no o he igh design o p o ide signi ican
in e egional insu ance in he EMU (Fa as 1998).
The s uc u e o axa ion and public expendi u e (and he balance be ween hem
as e lec ed in iscal policy) can edis ibu e income (depending o cou se on he
deg ee o p og essi i y o he ax sys em and he ways in which public expendi u e
is alloca ed) in wo pa icula ways. Fi s , i can in e ec edis ibu e income o e
ime – axes ise when income ise, all when income alls. This is he well-known
s abilising e ec o a p og essi e ax sys em. Second, iche egions end o pay
highe le els o ax and (pe haps) ecei e lowe le els o public expendi u e. The e
is a edis ibu ion be ween egions – some o his edis ibu ion may be a delibe a e
design o public expendi u e and some a by-p oduc o a p og essi e ax sys em.
The EU le el o public expendi u e is es ic ed o a ound 1.5 pe cen o he
GDP o he Eu opean Union, and he e is a equi emen ha he EU budge is
balanced so ha axa ion aised h ough na ional go e nmen s is exac ly equal o
he le el o expendi u e. Whils he e is some edis ibu ion (e.g. in he o m o
egional policy), i is ine i ably a he mino , gi en he size o he o e all budge
(and also he size o he common ag icul u al policy wi hin ha ). The MacDougall
Repo (1977), w i en o he Eu opean Commission, ega ded a EU-le el budge
o a ound 7.5 pe cen o GDP as necessa y o p o ide adequa e s abilising
p ope ies.
Fiscal policy a he EU le el (whe he ope a ed by he Eu opean Commission o
h ough he coo dina ion o na ional iscal policies) could make a subs an ial
con ibu ion o he e ec i e ope a ion o he single cu ency. This would be o (a
leas ) h ee easons. Fi s , he e is no pa icula eason o hink ha he le el o
agg ega e demand gene a ed by he p i a e sec o will be su icien o c ea e o o
main ain high le els o economic ac i i y. Indeed, cu en ly many o he EU
economies su e om high le els o unemploymen and insu icien demand (in
pa c ea ed by he d i e o iscal o hodoxy o ul il he Maas ich T ea y
c i e ia). The e a e occasions (such as he USA cu en ly) whe e p i a e sec o
demand is high, wi h low sa ings and/o high le els o in es men , so ha he
esul ing p i a e sec o de ici is hen ma ched by a public sec o su plus. We
may e e o he ollowing na ional income accoun s iden i y o make he poin :
Wha ype o Eu opean mone a y union? 57
(I – S) + (X – M) = (T – G), whe e I is in es men , S is sa ings, X is expo s, M is
impo s, T is axes and G is go e nmen expendi u e. Posi i e alues on he le -
hand side, i.e. ne p i a e dissa ings and expo su plus, a e ma ched by posi i e on
he igh -hand side, i.e. budge su plus. Bu he e will be o he occasions when
p i a e sec o demand is low, and he e is he equi emen o budge de ici s o
main ain demand.
Second, iscal policy p o ides an addi ional policy ins umen (in addi ion o
mone a y policy) h ough which he le el and composi ion o agg ega e demand
can be in luenced. The ‘one-club’ na u e o mone a y policy has o en been no ed,
and also he deg ee o which a uni o m policy is applied ac oss di e se economic
si ua ions.
Thi d, he ex en o ade be ween he Eu opean Union and he es o he wo ld
is ela i ely low, pa icula ly as compa ed wi h he in e na ional ade o he
coun ies which will compose he eu ozone, o much o he ade by one EU
coun y is wi h o he EU coun ies. Fiscal policy (and indeed any policy which
leads o demand expansion) may ha e limi ed e ec domes ically as he demand
spills ab oad. Bu his is no he case o he Eu opean Union, and he impac o
iscal policy on domes ic demand and hen he le el o economic ac i i y can be
expec ed o be subs an ial.
Dispa i ies
The single Eu opean cu ency will come in o being agains he backg ound o high
le els o unemploymen ac oss Eu ope (9.0 pe cen a he ime o w i ing in ea ly
2001) and wi h eno mous dispa i ies: unemploymen a es anging om 2.6 pe
cen in he Ne he lands h ough o 14.6 pe cen in Spain. A e age g ow h o GDP
pe capi a anges om 1.9 pe cen (Aus ia) o 5.9 pe cen (I eland), i.e. by a ac o
o 3. These dispa i ies a e deep sea ed and much mo e han he empo a y
dispa i ies h own up by economies a di e ence s ages o he business cycle. These
dispa i ies aise many ques ions: o example, can a mone a y union unc ion
economically and poli ically in he ace o such dispa i ies? Fu he , wha a emp s
should be made h ough economic policies o educe hose dispa i ies? Also lying
behind hose dispa i ies a e conside able di e ences in he ins i u ions o he
na ional economies such ha he economies beha e and pe o m di e en ially,
and such ha a single policy measu e ( o ins ance, a change in he eu o a e o
in e es ) would ha e qui e di e en e ec s on he na ional economies.
The p esen dispa i ies in egional unemploymen le els (and also in labou
ma ke pa icipa ion a es) wi hin he Eu opean Union would sugges ha e en i
ull employmen we e achie ed in some egions, he e would s ill be e y
subs an ial le els o unemploymen in many o he s. In he p esence o such
dispa i ies in unemploymen , he achie emen o a low le el o unemploymen
o e all (no o men ion ull employmen ) would be well-nigh impossible.
In la iona y p essu es would build up in he ully employed egions e en when he
less p ospe ous egions we e s ill su e ing om signi ican le els o unemploymen .
In e es a es would hen ise o dampen down he in la iona y p essu es in he
58 Malcolm Sawye and Philip A es is
p ospe ous egions wi hou conside a ion o he con inuing unemploymen in
o he egions.
Eicheng een (1997) o e ed he sugges ion ha he Eu opean In es men Bank
(EIB) can bo ow o -budge o pe o m ax-smoo hing unc ions, howe e , his
would exceed he EIB’s p esen emi .3 A icle 198e o he Maas ich T ea y s a es
ha :
The ask o he EIB shall be o con ibu e, by ha ing ecou se o he capi al
ma ke and u ilising i s own esou ces, o he balanced and s eady de elop-
men o he common ma ke in he in e es o he communi y.
Whe he he unc ions o he EIB can be enla ged o include s abilisa ion policy
(dis ibu ion o e ime) is ex emely ques ionable. Howe e , i can en ail
edis ibu ion ac oss coun ies, and i is speci ically his unc ion which should be
expanded and s eng hened om i s p esen o m whe e assis ance is only in he
o m o loans and gua an ees.
The e o e, a u he ecommenda ion would be o ha e a e amped EIB o
supplemen he ac i i ies o he ECB, wi h he speci ic objec i e o enhancing
in es men ac i i y in hose egions whe e unemploymen is acu e (A es is e al.
2001). Enhanced in es men ac i i y will, hus, aim o educe he dispe sion o
unemploymen wi hin he amewo k o educing unemploymen in gene al. This
could be achie ed h ough encou aging long- e m in es men whene e his is
necessa y by p o iding app op ia e inance o i .
We sugges an o e haul o he EIB’s emi because o he changing en i onmen
in which i ope a es. As highligh ed by Honohan (1995), he EIB was es ablished a
a ime when na ional capi al ma ke s we e less de eloped han a p esen . Now,
howe e , many lende s o loanable unds compe e wi h he EIB, and in his espec
i s public policy ole is sh inking. Despi e his end, he e s ill emains scope o
ex end he EIB’s public policy ole. In pa icula one a ea o possible in e en ion
has been iden i ied. The case o a e amped and ex ended EIB is based on h ee
conside a ions. Fi s , he e is a need o di e en ia ed policies, which will enable
he less p ospe ous egions o ca ch up wi h he mo e p ospe ous ones; his in u n
will enable highe a e age le els o employmen and economic ac i i y. Second,
he o ces o cumula i e causa ion in he con ex o a single cu ency and ma ke
will end o s imula e in es men in he mo e p ospe ous egions a he han in he
less p ospe ous ones. Thi d, he high se -up cos s o en u e capi al p ojec s and he
disp opo iona e numbe o small i ms in he EU pe iphe al a eas (which
gene ally expe ience highe le els o unemploymen ) p o ides scope o he
p o ision o subsidies o en u e capi al ac i i ies because cos s a e mainly
independen o he scale o bo owing (Honohan 1995).
Summa y and conclusions
A single cu ency wi h a cen al bank as he only policy-making ins i u ion would,
we a gue, be unaccep able. We would also suspec ha i is an uns able a ange-
Wha ype o Eu opean mone a y union? 59
men . The ECB will be unable o con ol in la ion, and he se ing o in e es a es
will ine i ably disad an age some egions and na ions. The anspa ency o he
single cu ency will be a anspa ency no only o p ices bu also o li ing s anda ds
and le els o unemploymen . I is an open ques ion as o whe he an economy wi h
he deg ee o di e si y (o economic pe o mance and o economic ins i u ions)
such as he Eu opean Union can ope a e e ec i ely wi hou policies which
ecognise hose dispa i ies and which seek o mi iga e he e ec s o he dispa i ies
and o educe hem o e ime. C ea ing a single cu ency wi h he only EU-le el
ins i u ion o he ECB and o impose on ha single cu ency a se o policy
a angemen s which a e de la iona y in na u e a e no good omens o he success
ope a ion o he Eu opean economies. The unc ioning o a single cu ency will
equi e he de elopmen o ede al le el policies and ins i u ions.
No es
1 This ‘new mone a ism’ has, o cou se, in ec ed ‘new Labou ’, as e lec ed in he i le o
ou pape ‘New Labou , new mone a ism’ (A es is and Sawye 1998).
2 The CFA zone in F ancophone Wes A ica is an excep ion.
3 The T ea y o Rome c ea ed he EIB in 1959. I speci ically ocused on he inancing o
in as uc u al and o he ixed capi al o ma ion p ojec s. The scale o i s ope a ion has
been e y small (see Eicheng een 1997).
66 Jane Bush
limi he annual g ow h o public spending o only 1 pe cen in eal e ms. Days
a e Hunga ians o ed o e whelmingly o join he Eu opean Union, hei p ime
minis e e ealed a subs an ial p og amme o public-spending cu s, including cu s
in heal h ca e. In 2002 Hunga y’s de ici ballooned o 9.4 pe cen o GDP. To
mee he eu o en y c i e ia, i has o all o no mo e han 3 pe cen o GDP. The e
is no escape om a ch onic slowdown ahead, led by iscal e enchmen .
In i s end-2000 su ey o he egion, he Eu opean Bank o Recons uc ion and
De elopmen (EBRD) iden i ied he impossible ci cle ha cen al and eas e n
Eu opean economies a e being o ced o squa e i hey a e o comply wi h he
membe ship ules o he Eu opean Union and Economic and Mone a y Union. I
acknowledged ha ‘ apid g ow h o e a sus ained pe iod is necessa y o he
accession coun ies o ca ch up wi h he EU a e age o p oduc i i y and li ing
s anda ds’. In 2001 he a e age income pe head in he en accession coun ies was
only 40 pe cen o he EU a e age. Howe e , he EBRD said, ‘a he same ime
hey will be subjec o he demands o he S abili y and G ow h Pac and, o hose
coun ies s i ing o ea ly adop ion o he eu o, he Maas ich c i e ia’. I no ed
ha he ‘looming equi emen o a gene al go e nmen budge ha is close o
balance o in su plus in he medium e m u he poin s o he need o ea ly iscal
consolida ion in many o he accession candida es’. Fiscal consolida ion is
economis -speak o cu ing budge de ici s ei he h ough lowe public spending
o highe axes.
As in wes e n Eu ope, eas e n Eu ope is coming unde p essu e o cu
unemploymen no h ough he pu sui o highe g ow h bu h ough ‘ ee ma ke
e o m’. Qui e simply, wo ke s in high unemploymen a eas will be expec ed o see
hei wages and condi ions slashed un il hey ‘p ice hemsel es back in o he
ma ke ’. Poland, o example, is planning o make i s Labou Code mo e lexible.
In Ge many, on he same day as he Ins i u e o Labou Ma ke Resea ch issued
i s es ima e o 7.2 million unemployed, he go e nmen announced cu s in
unemploymen bene i en i lemen .
Ins i u ional chaos – he o cing mechanism o poli ical
in eg a ion
I is no an exagge a ion o sugges ha mac oeconomic policy has been se on
maximum squeeze p ecisely because his will enginee a c isis which will be a ca alys
owa ds mo e lexible ma ke s – he aim o neo-libe als – and, i his e o m
p og am ails o li e up o expec a ions (as hose who wan o o ce he pace o
Eu opean poli ical in eg a ion quie ly hope), adically change he ins i u ional
s uc u e o EMU. Romano P odi, P esiden o he Eu opean Commission, came
close o admi ing his in an in e iew wi h he Financial Times on 4 Decembe 2001.
He said:
I am su e he eu o will oblige us o in oduce a new se o economic policy
ins umen s. I is poli ically impossible o p opose ha now. Bu some day
he e will be a c isis and new ins umen s will be c ea ed.

Economic pe o mance and he eu o 67
The a gumen seems o be ha he eu o would damage Eu opean economies
wi hou poli ical change and is he e o e a use ul o cing mechanism. This is social
enginee ing on a g and scale: T o sky in B ussels – cause economic chaos and hope
o a posi i e poli ical ou come.
Di e gence is ac ually he no m in cu ency unions and he dispa i ies in Eu ope
a e d ama ic compa ed wi h hose o he Uni ed S a es, making he igidi ies o he
eu o sys em e y wo ying indeed. In he Uni ed S a es, unemploymen anges
be ween 2 pe cen and 6 pe cen . In 2001 Eu os a igu es showed a ange in
unemploymen a es in he Eu opean Union o 1.2 pe cen o 33.3 pe cen . In he
en accession coun ies, he ange was simila , be ween 2 pe cen and 32.8 pe
cen . One qua e o EU egions and nine ou o en o he en accession coun ies
had GDP below 75 pe cen o he EU a e age. And he a e age woman in he
Eu opean Union ea ns a qua e less han a man. In la ion a es ha e a ied wildly
in he eu ozone (Figu e 5.5).
Con e gence is no he answe – no economies o egions e e mo e in p ecise
locks ep wi h each o he and he me e exis ence o mone a y union, as some o i s
ad oca es a gue, does no o ce hem so o do. Wha is needed – and wha he US
mone a y union de eloped – is inc eased lexibili y in o he a eas. P o esso
Robe Mundell who won he Nobel P ize in economics o his pape on ‘op imal
cu ency heo y’ concluded ha h ee ing edien s a e needed o make a mone a y
union wo k: labou mobili y, de egula ed labou ma ke s and a edis ibu ion
mechanism h ough a ede al budge .
In Eu ope’s mone a y union, none o hese cu en ly exis s. Labou mobili y in
he Eu opean Union is 27 imes less han in he Uni ed S a es o Ame ica, acco d-
ing o he Eu opean Commission; mo es o make labou ma ke s lexible ha e
ounde ed in he ace o popula Eu opean suppo o a consensual social model;
and he eu ozone iscal amewo k is incapable o playing a ebalancing ole.
In well- un economies, mone a y and iscal policies wo k in ha mony. In
B i ain, e en wi h an independen cen al bank, an obse e om he T easu y si s
Figu e 5.5 UK and eu ozone membe s’ in la ion, ha monised index o consume p ices
(HM T easu y).
▲
▲
68 Jane Bush
in on in e es a e mee ings. Be o e he Chancello un eils his annual budge ,
p i a e soundings o he Bank o England a e aken o asce ain whe he he
package will impac on in e es a es. In he eu ozone, such coo dina ion is
p ecluded by a ho ibly lop-sided ins i u ional se -up. A s ic ly independen
Eu opean Cen al Bank uns mone a y policy. Bu he e is no single ins i u ion o
un iscal policy o he simple eason ha membe s a es we e no p epa ed o gi e
up con ol o ax, spending and bo owing decisions, desc ibed by a ch-eu ophile
o me chancello , Kenne h Cla ke, as ‘ he co ne s one o democ acy’.
Pu blun ly, he ECB could make b illian judgemen s in se ing he eu o in e es
a e – bu , i poli icians play as and loose on he iscal side, he sys em will s ill be
uns able. So he G ow h and S abili y Pac was ag eed, limi ing go e nmen s a all
imes o budge s o 3 pe cen o GDP o less o ace ines. As is now well known, he
GDP, in p ac ice, is unwo kable and damaging.
The elemen al law is ha i is no en o ceable. The heo y is ha ‘pee p essu e’
and a slap on he w is om he Eu opean Commission would o ce membe s a es
o comply. In p ac ice, smalle coun ies wi h less clou ha e kep o he ules and
big coun ies ha e lou ed hem e e mo e ecklessly. The p ime minis e o
F ance, which has al eady bu s he GDP’s limi s, is dismissi e. He said ecen ly:
‘My i s du y is employmen and no o sol e accoun ing equa ions and do
ma hema ical p oblems un il some o ice o o he in some coun y o o he is
sa is ied.’
The second p oblem is ha he GDP equi es membe s a es o do exac ly he
w ong hing when hey hi ough economic wa e s. Ins ead o empo a ily aising
bo owing – as Go don B own has done in B i ain, wi h he e ec ha g ow h is
beginning o eco e – eu ozone membe s ha e o cu bo owing and spending
and aise axes. Take he Ne he lands. I eco ded a GDP con ac ion o 0.5 pe
cen in he second qua e . Ye in Sep embe i announced public spending cu s o
he equi alen o US$12.4 billion. As Romano P odi, P esiden o he
Commission, said o he GDP, i is ‘s upid. The G ow h and S abili y Pac will ha e
o be loosened bu wha is cu en ly on he agenda is me e inke ing.
EMU’s iscal black hole
Mone a y unions do no need ma ginal iscal lexibili y; hey need huge lexibili y.
This b ings us back o P o esso Mundell’s hi d condi ion o a success ul cu ency
union – a ede al budge o ac as an au oma ic s abilise . In he Uni ed S a es o
Ame ica, some 25 pe cen o US GDP is a ailable o edis ibu e esou ces
au oma ically h ough he ans e o ax e enues in p ospe ing s a es o he
unemploymen bene i in s agna ing s a es. Fo e e y $1 all in a s a e’s GDP, 40
cen s will be paid om he ede al budge . This is he glue ha has kep he US
mone a y union oge he .
No such sys em exis s in Eu ope. The EU budge is 1.27 pe cen o EU GDP
and hal o ha goes on ag icul u al subsidies. This is wholly inadequa e and he e
is no ealis ic p ospec o change because o poli ical opposi ion o paying a highe
p opo ion o axa ion o he Eu opean Union. A e a Belgian p oposal in mid-
Economic pe o mance and he eu o 69
2001 o a new EU ax, e en he mos commi ed Eu opean in eg a ionis s we e
ho i ied. The Du ch inance minis e obse ed: ‘The las ime a new ax was
launched in he Ne he lands i esul ed in he Eigh y Yea s Wa . I am no su e a
new ax o he EU would be much be e his ime.’ Pos -enla gemen , I suspec
opposi ion o paying a highe p opo ion o axes di ec o he Eu opean Union will
be e en mo e en enched as wes e n elec o a es baulk a hei ax eu os being used
o subsidise ela i ely poo new en an s.
So, he e is a solu ion o bo h he p oblem o iscal en o cemen and edis i-
bu ion, bu i is a poli ical non-s a e . The eu o needs a single iscal au ho i y,
unning a ede al budge . In i s submission o he Con en ion on he Fu u e o he
Eu opean Union, he Commission p oposed i be ha au ho i y, an ‘economic
go e nmen o Eu ope’. Bu he d a EU cons i u ion, in i s cu en o m, keeps
na ional e oes o e axa ion. Popula poli ical opposi ion o cen alisa ion o he
Eu opean Union – mos ecen ly exp essed in he decisi e Swedish ‘no’ o e o he
eu o – will ensu e his con inues o be he case. The e is, qui e simply, no p ospec
o a wo kable iscal policy in EMU and his lea es he eu o in limbo. I suspec ha
con inued low g ow h, economic ins abili y and poli ical ensions will w eck he
sys em in he yea s ahead.
Is e en a pe ec mone a y union wo h he ouble?
As a pos sc ip o wha I belie e is a ue desc ip ion o he ex ao dina y economic
and poli ical aul lines in he eu o p ojec , le me look inally a whe he ,
in insically, i is wo h so ing ou his mess on economic, a he han poli ical,
g ounds. The undamen al economic a gumen o eu o ad oca es is ha a single
cu ency is needed o comple e and pe ec he Single Ma ke . Tha heo y is, in
i sel , lawed. Bea in mind ha he iches s a e in Asia is Singapo e, a small island
wi h no na u al esou ces and wi h i s own cu ency. The iches coun y in Eu ope
is Swi ze land, which is no e en a membe o he Eu opean Union, le alone he
eu ozone. The u h is ha membe ship o he Single Ma ke and membe ship o
he eu o is a sepa a e ma e .
One, e en in he iew o he Eu opean Commission, is a mo e po en ially
aluable o i s pa icipan s han he o he . The Commission’s Ceccini epo in he
la e 1980s pu he gains o belonging o he Single Ma ke a some 4 o 6 pe cen o
GDP; (a pos -mo em on his analysis a couple o yea s ago admi ed ha only
a ound 20 pe cen o hese gains had ac ually ma e ialised). In 1990 ano he
epo by he Commission i led ‘One Ma ke , One Cu ency’ concluded ha
joining he eu o would p oduce a gain o 0.5 o 1.5 pe cen o GDP.
I is qui e likely ha , o B i ain, he ac ual igu e would be subs an ially lowe
han his. The Commission had a igu e o 0.4 pe cen o ansac ions, including
lowe ansac ion cos s and lowe exchange a e ola ili y. Howe e , his was an
es ima e o an a e age EU coun y and B i ain is a la ge economy han a e age
and ades less in he Eu opean Union han he a e age. Qui e p ope ly, he e o e,
his componen could be educed o a ound 0.2 pe cen . Then he Commission
had a gain o 0.3 pe cen om mo e p ice ce ain y and less p ice disc imina ion.
70 Jane Bush
This is highly con en ious gi en ha inc easing use o he In e ne means ha he e
is e y li le lack o anspa ency in cu en p ices and ha we li e in a low in la ion
wo ld. The es o he Commission’s pu a i e gain om membe ship o he single
cu ency comes om he heo e ical ex a in es men and ou pu gene a ed by he
i s wo componen s, an e ec o some 0.7 pe cen . Gi en he analysis abo e, le us
cu ha by hal .
So, a c edible case can be pu o he gains o membe ship o he eu o o he
Uni ed Kingdom being only a ound 0.5 pe cen o GDP. The e con inues o be a
case o emaining a membe o he Single Ma ke , bu he case o joining he eu o
seems laughably i ial compa ed wi h gi ing up con ol o bo h mone a y and
iscal policy and so aking a subs an ial s ep owa ds a a mo e cen alised, emo e
poli ical sys em ha , hus a , does no ha e he consen o he peoples o Eu ope.
6 The eu o
An ou side ’s pe spec i e
Paul O me od
In oduc ion
In his chap e I wan y o look om he pe spec i e o , say, a new o candida e
membe o he Eu opean Union as a whole: one o he coun ies o eas e n Eu ope
which has been s uggling o adjus o he concep o a ma ke economy, o he
eali ies o he wo ld economy; o , mo e gene ally, one o he coun ies in Sou h
Ame ica o Eas Asia which, whils no despe a ely poo , a e s ill a long way behind
wes e n Eu ope in e ms o li ing s anda ds. Wha does he eu o ha e o o e o
coun ies which ha e he po en ial o mo e owa ds wes e n Eu opean li ing
s anda ds, bu which ha e no ye ound he elusi e mix o ins i u ional
a angemen s and incen i es which gene a es such a p o usion o weal h?
Wha migh he eu o seem like o a poo e coun y wi h aspi a ions o become
ich? Many coun ies a e anxious o join he Eu opean Union, and we can
immedia ely see why in Table 6.1. This shows he GDP pe capi a o G eece,
I eland, Po ugal and Spain in 1975 and in 2000. The able does no show he aw
da a, bu hei pe capi a GDP ela i e o he ich EU co e o F ance, Ge many, I aly
and Benelux.
In 1975 hese ou coun ies we e ai ly poo , on he inge o wes e n Eu ope.
By 2000 hey had s a ed o mo e owa ds he income le els o he EU co e. All
coun ies in he Eu opean Union g ew in absolu e e ms be ween 1975 and 2000,
bu he ‘F inge Fou ’ o 1975 g ew mo e apidly.
I canno esis men ioning ha he easies way o ge his da a on he web was
om he CIA’s si e. The US go e nmen o e s speedy access o la ge amoun s o
Table 6.1 Pe capi a GDP ela i e o he EU co e (%)
1975 2000
G eece 55 65
I eland 55 90
Po ugal 55 65
Spain 70 75
Sou ce: CIA.

72 Paul O me od
da a o ee – in con as o Eu opean agencies such as Eu os a whose si es end o
be slow o access and who cha ge o almos e e y hing. In e ms o encou aging
he use o new echnology, he e is a lesson he e.
Bu he key poin abou Table 6.1 is ha membe ship o he Eu opean Union
has posi i ely bene i ed i s poo e membe s a es. The e is a s ong incen i e o
o he s o join.
Ye he eu o canno ha e played much o a ole in enabling hese coun ies o
s a ca ching up wi h he a luen co e in e ms o li ing s anda ds. A simple bu
e y impo an eason is ha he eu o did no exis un il 1999. The ca ch-up has
happened in pa because o he dis ibu ion o subsidies om he iche coun ies,
and in pa because o he inc easing in eg a ion o Spain, Po ugal and so on wi h
he wide EU ma ke .
O cou se, i is a gued now ha he eu o will in ensi y his p ocess, by educing
ansac ions cos s and p omo ing p ice anspa ency. Whils his is ue, i is much
less impo an han he need o comple e he p ocess o implemen ing he concep
o he single ma ke . The e a e s ill a oo many ba ie s o ade and compe i ion
ac oss he Eu opean Union. To gi e one example: he puni i e ai a es on mos
Eu opean ou es a e due o he willingness o he Commission o allow, by one
means o ano he , a succession o massi e subsidies o con inue o be paid o
ine icien na ional ca ie s. Ano he example is he mobile phone, and he ailu e
o es ablish common s anda ds ac oss he Eu opean Union. Ene gy spen on
in oducing he eu o could ha e been be e spen on emo ing ade ba ie s and
comple ing he single ma ke .
The s iking ea u e abou he pas hal -cen u y o so is ha a subs an ial numbe
o coun ies, p incipally in Asia, ha e seen apid expansions o hei li ing
s anda ds – i s o all Japan, hen coun ies like Sou h Ko ea and Singapo e,
Malaysia and Indonesia and now India. I is p ecisely hose coun ies which ha e
emb aced he concep o globalisa ion and inc easing in eg a ion wi h he es o
he wo ld which ha e done well. I is s a es such as Bu ma, No h Ko ea and
A ghanis an, which ha e cu hemsel es o , which ha e gone backwa ds.
So membe ship o he Eu opean Union o e s he bene i s o globalisa ion, o
eady access o a huge ma ke . In addi ion, membe ship gi es a clea badge which
ce i ies c edi wo hiness and poli ical s abili y. This enables coun ies o a ac
di ec in es men om o e seas. Fu he , he Eu opean Union p o ides la ge
subsidies o help cushion he shocks which such in eg a ion ine i ably b ings.
Bu i is no clea wha bene i s he eu o as such, a he han membe ship o he
Eu opean Union, b ings. Indeed, a case can be made ha on balance i hinde s
a he han helps Eu ope. Ce ainly, in he ole o a new o candida e membe o he
Eu opean Union, I would be conce ned. The emphasis on he eu o a he han he
single ma ke would make me wo y ha ba ie s o he hings I p oduced migh no
come down as apidly as I would like. Indeed, his is a a om hypo he ical concep ,
as is shown by he deba e on how much mobili y o labou will be allowed om he
eas e n Eu opean coun ies once hey a e in he Eu opean Union.
An immedia e conce n a ises om he wide poli ical economy con ex , a he
han he na owe ocus on echnical economics. The e is legi ima e conce n abou
The eu o: an ou side ’s pe spec i e 73
he impac o globalisa ion on he democ a ic p ocess. La ge co po a ions, i is el ,
a e aking decisions which in luence people bo h much mo e s ongly, and a he
same ime mo e emo ely, han do elec ed go e nmen s.
Much o his wo y is misguided and o en se iously misplaced. Ne e heless,
he e is a sense o unease abou he emo eness wi h which decisions a e aken.
Un o una ely, he eu o b ings wi h i i s e y own democ a ic de ici . I is by no
means clea ha he elec o a es o wes e n Eu ope would ha e gone ahead wi h he
eu o p ojec i i had been submi ed o e e enda. We know ha he only coun y
whe e a o e was pe mi ed ecen ly, Denma k, ejec ed membe ship. This was
despi e he o e whelming suppo o en y on he pa o he poli ical es ablish-
men and he media. No o he Eu opean go e nmen da ed o pu he ques ion
be o e i s elec o a e in he immedia e un-up o he in oduc ion o he cu ency.
New and aspi an membe s o he Eu opean Union in eas e n Eu ope a e o
cou se no s ange s o he idea o ha ing c ucial decisions aken on hei behal by
he poli ical eli e. Bu he lack o democ a ic alida ion is, I belie e, a po en ially
se ious p oblem o he eu o. Ac oss wes e n Eu ope, we ha e al eady seen he
g ow h o pa ies ou side he poli ical mains eam in many o he membe s a es.
Discon en wi h he emo eness o he Eu opean Commission appea s o be a
common ea u e o he o he wise widely dispa a e pla o ms o such pa ies, some
o which a e a he disag eeable.
The c ea ion o he eu o ein o ces cen alising endencies wi hin he Eu opean
Union. Spain, a e all, is no Slo enia, bu a s ong and powe ul economy. Bu
jus how much in luence does he go e no o he Spanish cen al bank ha e on
decisions aken a he Eu opean Cen al Bank (ECB)? I hink we all know he
answe . The eal dange , I would eel looking om he ou side, in joining he
Eu opean Union and he eu o is ha my oice would simply no be hea d a all. In
any ad e se ci cums ances, he eu o p ojec would be adminis e ed solely in he
in e es s o he EU co e.
Bu e en om a F ench o Ge man pe spec i e, he pa icula way in which he
ules o ope a ion o he ECB ha e been amed may p o e a handicap. The
obsession wi h in la ion and he ap o he iscal s abili y pac may p e en he
ECB om ollowing po en ially expansiona y policies du ing any economic
down u n.
Coun ies ou side he Eu opean Union equi e no only access o EU ma ke s i
hey a e o e en ually p ospe , bu hey equi e a heal hy g ow h a e in he
de eloped wo ld o which he Union is such a majo pa . Down u ns in he de el-
oped wo ld a e o en e lec ed in much sha pe ecessions elsewhe e. A squeeze on
expo ea nings in ha d cu encies can be magni ied sha ply in he domes ic
economies o he de eloping wo ld. Fo example, in he gene al wo ld slow-down
be ween 1980 and 1982, he EU 15 g ew in eal e ms by only 1 pe cen . Bu
g ow h in bo h A gen ina and B azil was sha ply nega i e, a –11 and –8 pe cen
espec i ely.
The ole o ins i u ions, o he p ocess and ules unde which economic agen s
ake decisions is in my iew absolu ely cen al o how economies pe o m.
Un o una ely, he ules go e ning he ope a ion o he ECB ha e been designed o
74 Paul O me od
igh yes e day’s ba les. The comple e ocus on he con ol o in la ion is se iously
misplaced. As a esul , he p ospec s o ou pu g ow h in he Eu opean Union, and
hence in he de eloping wo ld, may be a ec ed ad e sely.
Think back – well, some o us can – o he da k days o 1973. Since he ea ly
1950s in la ion a es had been e y simila in all wes e n coun ies. E en in 1973,
wi h huge in la iona y p essu e om wo ld commodi y p ices, and a highe
absolu e le els o in la ion, his s ill ob ained. In la ion in mos coun ies was in he
ange 6–8 pe cen , wi h I aly being somewha highe a 10 pe cen . Following he
oil shock, in la ion ose sha ply e e ywhe e in 1974, eaching o e 12 pe cen e en
in Ge many. Bu by 1975 a huge dispa i y in in la ion a es had occu ed. In
B i ain, in la ion was 21 pe cen , in I aly 16 pe cen and in Ge many jus o e 4
pe cen .
A g ea deal o economic policy since hen has a emp ed o deal wi h hese
disc epancies, which a ose, a e a long pe iod o con e gence, in a pe iod o only
18 mon hs. Policy make s emain obsessed wi h his pe iod, which is a mos
unusual one.
In gene al, he wes e n economies ha e seen ex emely low a es o in la ion. I
a ies, o cou se, om yea o yea , bu on a e age i has been low. E en in he wo
decades o ull employmen in he 1950s and 1960s i was only a ound 3 pe cen .
Wi h he excep ions o wa ime and he unique ci cums ances ollowing he 1970s,
i has usually been e en lowe . Low in la ion is he no m, and he opening yea s o
he wen y- i s cen u y a e no excep ion o his ule.
Low in la ion exis s because o app op ia e ins i u ions and s uc u es. These a e
e y complex bu can be desc ibed e y simply. Fi s , he s uc u es o capi alism,
o a much highe deg ee han any o he p e iously o ac ually exis ing social and
economic sys em, encou age inno a ion. Second, he e is he exis ence o
compe i ion in he p oduc ma ke s. I do no mean by his he idealised wo ld o
pe ec compe i ion in economic heo y, bu we canno igno e he subs an ial
amoun o compe i ion which he e is in mos p oduc ma ke s. These wo ac o s
se he gene al amewo k o low in la ion.
I is no an acciden ha he hype in la ions, when in la ion eaches millions o
pe cen , we ha e seen ha e only aken place in a es ic ed se o ins i u ional
se ings: in siege economies, in wa ime and in socie ies in which he ab ic o ci il
socie y is ex emely s ained – Ge many in he 1920s, a ious cen al Eu opean
s a es a he end o he Second Wo ld Wa , Balkan economies in he 1990s a e
some examples o hype in la ion. All hese we e socie ies unde massi e s ain. We
could hink o some Eu opean coun ies, such as B i ain and I aly in he mid-
1970s, as e y mild examples o his la e phenomenon.
A mone a is migh well say ha i esponsible mone a y policies could p o e
s onge han hese wo ins i u ional ac o s. In a logical sense, his is i ially ue.
Bu in p ac ice we ne e , e e obse e a cen al bank in an o de ly, peace ime
wes e n socie y expanding he money supply by one million pe cen , e en
assuming he e we e enough helicop e s in he wo ld o sca e i wi h. I is much
ha de o imagine a coun e - ac ual in which his happens han i is o imagine he
wo ke s o B i ain and I aly being disciplined by mone a y policy in 1974.
The eu o: an ou side ’s pe spec i e 75
An implica ion o his is ha de ailed, sho - e m a ge ing o in la ion a es is
mo e o less meaningless. We should decide he kind o in la iona y egime we a e
in – a low one a p esen – and no wo y abou yea -on-yea luc ua ions. The
ECB should be a mo e conce ned wi h ou pu g ow h han wi h in la ion.
The lack o any s able ela ionship be ween he g ow h in demand and in la ion
in he Eu opean Union is shown in Figu e 6.1. This plo s he annual a e o
in la ion in he EU 15 agains he a e o g ow h o eal GDP o e wha migh be
e med he ‘ ansi ion’ pe iod o 1971–94. In la ion ose in he ea ly 1970s, was
g adually con ained and by he mid-1990s had allen o unde 3 pe cen .
The s iking ea u e o he cha is he lack o any ecognisable pa e n in he
ela ionship be ween in la ion and g ow h. The pic u e is he same i he g ow h in
he p e ious yea is used ins ead. Ye policy make s con inue o ac as i as e
g ow h leads au oma ically o highe in la ion. In eali y, as g ow h can coincide
wi h low in la ion, he Uni ed S a es o Ame ica in he 1990s being bu he la es
example o his.
I is he misplaced emphasis on con aining in la ion which is my main conce n
abou he ope a ion o he eu o. I his has he e ec o es ic ing ou pu g ow h in
he Eu opean Union, he de eloping wo ld is likely o su e e en mo e han he
Union i sel . Fa om assis ing he es o he wo ld, he eu o may damage i . The
po en ial pa allels wi h he G ea Dep ession o he 1930s and he policies o
cen al banke s a e oo close o com o in he p esen ci cums ances.
So, o e all, i I we e a po en ial EU membe I would say ha he case o joining
emains e y s ong. Bu his is because o he access gained o he eno mous EU
Real GDP
In la ion
012345
4
6
8
10 75
93
81
82
80
91
92
94
87
88
89
86
85
90
84
83
74
77
73
76
72
79
71
78
Figu e 6.1 In la ion and eal GDP g ow h in he EU15 (%).
82 Ma k Baimb idge
no allow he op imal a e o in la ion o be p ecisely de ined; i indica es he need
o an in la ion objec i e embodying a su icien sa e y ma gin agains de la ion. In
esponse o his c i icism he ECB (2003) sugges ed ha in la ion objec i es abo e 1
pe cen p o ide su icien sa e y ma gins o ensu e agains hese isks.1
In ela ion o he i s pilla , i s key cha ac e is ic is he announcemen o a
e e ence alue o he annual g ow h o M3. Hence, he ECB seeks o communi-
ca e he medium- e m ocus o mone a y policy o he public, as i elie es he
cen al bank om esponding o sho - un luc ua ions in inancial and o he
a iables (ECB 2003). Fu he mo e, by signalling con inui y o he Bundesbank’s
s a egy, he ESCB hoped o quickly es ablish c edibili y ( on Hagen and B ückne
2002). Howe e , he ole o money and mone a y analysis has gene a ed
con o e sy ega ding he obus ness o he chosen leading indica o ’s p ope ies
wi h espec o p ice de elopmen s, on he g ounds ha he co ela ion be ween
money g ow h and in la ion appea s o ha e declined o e ime in pa allel wi h
es o ed condi ions o p ice s abili y (Begg e al. 2002). In his con ex , he necessi y
o announcing a e e ence alue o money g ow h has also been que ied, oge he
wi h he use ulness pe se o a sepa a e ‘money’ pilla (S ensson 2003).
In con as , he second pilla consis s o an assessmen ega ding u u e p ice
de elopmen s (ECB 1998). Ini ially, i ep esen ed he analysis o sho - un p ice
de elopmen s based on measu es o eal ac i i y, wage cos , asse p ices and iscal
policy indica o s, oge he wi h indica o s o business and consume con idence
(ECB 1999). Howe e , no amewo k was speci ied as o how hese a iables would
be used o assess p ice de elopmen s, no was any guidance gi en on he ela i e
weigh o he a iables in such assessmen s. I is he e o e an opaque pa o he
ESCB’s s a egy, being oid o sys ema ic analysis and being ully disc e iona y
( on Hagen and B ückne 2002). Fu he mo e, Gaspa e al. (2001) sugges ha he
analysis is now o ganised in he o m o a mac oeconomic p ojec ion, al hough he
ECB does no p o ide con idence in e als o i s p ojec ions (Gali 2001).
Finally, acco ding o he ECB (2003), he wo pilla s a e used in pa allel in
mone a y policy decision making. Howe e , he e is no indica ion o wha hei
ela i e weigh s a e, hus esul ing in an incomp ehensible s a egy, as Issing e al.
(2001) pa ially acknowledge. Al hough he e is no hing ha would make he use
and e ela ion o he ela i e weigh s o he wo pilla s impossible, he eason why
he ECB has so a denied he public anspa ency o i s s a egy is mo e likely
ela ed o he in e nal decision-making p ocesses ( on Hagen and B ückne 2002).
Labou ’s esponse o cen al bank independence
Whe he o no B i ain has an independen cen al bank may seem an obscu e
ma e . Bu i is no . I is c ucial o de e mining whe he a Labou go e nmen can
deli e on a ange o policies om he basics o g ow h and jobs o wide issues o
social jus ice. The cause o cen al bank independence became a 1990s bandwagon
ha a g ea many people sc ambled o join. Fo ins ance, wo o me Conse a i e
Chancello s o he Excheque , Nigel Lawson and No man Lamon , oge he wi h
ex-T easu y Chie Si Pe e Middle on, p essed he case o an independen Bank

The ECB in heo y and p ac ice 83
o England a e hei espec i e depa u es om go e nmen . Indeed, o hose
s ill clinging on o he emnan s o mone a ism, hey disce ned ha an independen
cen al bank would be he ideal way o secu ing he mone a is legacy beyond he
1980s. An independen bank would ensu e ha mone a is s emained in powe i
no in o ice, because i would s ee he economy by inancial indica o s o he
de imen o he eal economy. Hence, hey belie e ha cen al bank independ-
ence would lock mone a ism and mone a is p io i ies in o he sys em ega dless o
whe he Labou came o powe .
Howe e , pe haps he g ea es ca as ophe in his a ea was he nea uni e sal
accep ance by Labou poli icians and policy ad iso s o he me i s ega ding
cen al bank independence. Many we e swayed by he numbe o commen a o s
who w o e a ou ably on he subjec , a guing ha his p o ided he medicine o
B i ain’s economic malaise; o he s equi ed li le con incing, such as p o-EU
en husias s who happily accep ed ha as pa o he TEU i mus be good; whils a
inal g oup we e a ac ed by he idea o being able o impose a high in e es a e
egime ia an independen cen al bank wi hou ha ing o answe o he public o
o he Labou mo emen o he consequences. Thus, h ough his unholy alliance
he New Labou hie a chy accep ed wi h li le ques ion he concep o cen al bank
independence upon gaining powe in 1997; one o i s i s ac s was o g an he
Bank o England ‘ope a ional independence’ ega ding he se ing o in e es a es
in acco dance wi h an in la ion a ge . Howe e , he Labou Pa y canno accep
his con empo a y swing in opinion i i is o emain ue o i s undamen al belie in
social jus ice (see Bean 1993; Hol ham 1993).
The concep o an independen Bank o England, o an independen ECB,
essen ially seeks o e e o he p inciples o he gold s anda d, unde which he
le el o money wages was compelled h ough he a e o in e es o adjus o he
ope a ion o he inancial sys em. Thus s uc u es o social p o ec ion become open
o unde mining by he ope a ion o unaccoun able ma ke o ces. Independen
cen al banks, na ional o con inen al, a e cu en ly being ad oca ed as he ehicle
o implemen his sea change in he class s uggle. Socialis s, on he o he hand,
mus con inue o asse he p imacy o democ a ically accoun able con ol o e he
money supply, in o de ha he goals o ull employmen , ising li ing s anda ds
and dis ibu i e jus ice can be pu sued. O he wise he business and moneyed
in e es s, which con ol c edi lows and de e mine inancial con idence, will exe
a silen e o h ough he ‘independen ’ cen al bank o e he ange and cha ac e
o go e nmen ac ion deemed o be ‘pe missible’. The exe cise o such a e o
would mean pe manen de la ion and ins i u ionalised highe unemploymen
h oughou he Eu opean Union and he Uni ed Kingdom.
Conclusion
The heo e ical and empi ical e idence su eyed in his chap e sugges s ha he
c ea ion o an independen cen al bank is a mo e inely balanced exe cise han is
equen ly po ayed, in pa icula gi en na ional economies which con inue o
expe ience a ying economic cycles and possess di e gen economic s uc u es.
84 Ma k Baimb idge
Mo eo e , he in e es a e decisions aken by cen al banks a e amongs he mos
sensi i e ac ions deployed in a mode n economy, in luencing g ow h, li ing
s anda ds, he le el o unemploymen and he cos o c edi and mo gages.
The ECB’s p oblems a ise om i s lack o democ a ic accoun abili y, anspa -
ency and democ a ic legi imacy as well as om i s a bi a y objec i es, ques ion-
able economic philosophy and he po en ial o in e mi en con lic wi h he
na ional go e nmen s whose des inies i possesses conside able in luence o e . An
al e na i e model o a democ a ically accoun able and con olled ECB, ope a ing
in coo dina ion wi h a combina ion o na ionally de e mined iscal policies, o a
newly es ablished ede al au ho i y, would p o e a mo e e ec i e and desi able
model o EMU.
No e
1 This is also in line wi h he p ac ice ollowed by all o he cen al banks o he majo
de eloped coun ies ha ha e speci ied nume ical alues o hei objec i es; all ha e a
mid-poin abo e 1 pe cen . Fo example: he Bank o England: 2.5 pe cen (RPIX
index, app oxima ely 1.75 on a e age in HICP e ms); S e iges Riksbank: 2±1 pe cen
(CPI); No ges Bank: 2.5±1 pe cen (CPI); Bank o Canada: 1–3 pe cen (CPI); Bank o
Aus alia: 1–3 pe cen (CPI); Rese e Bank o New Zealand: 1–3 pe cen (CPI). The
Fede al Rese e Sys em and he Bank o Japan ha e no speci ied a quan i a i e
de ini ion o hei p ice s abili y objec i es. The Swiss Na ional Bank has adop ed a
de ini ion o p ice s abili y ha is equi alen o ha o he ECB.
8 The le mus wake up –
Eu ope isn’ wo king
La y Ellio
His o y, says Tony Blai , is on his side. Back in 1975, Labou u ned public
opinion a ound o e Eu ope, and i Ha old Wilson could do i hen, Blai sees
absolu ely no eason why he can’ do i now.
I no hing else, you ha e o admi e he p ime minis e ’s con idence, bu he is
deluding himsel i he hinks he condi ions in he mid-1970s a e e en emo ely he
same as hose oday. Wilson had he leade ships o all h ee pa ies on his side,
oge he wi h business and he p ess. I onically, howe e , Wilson’s ump ca d was
ha he was p esiding o e one o Eu ope’s mos dys unc ional economies.
Fo hose no old enough o emembe , 1975 was he yea o s ag la ion –
unemploymen was ising and in la ion hi a pos -wa peak o 27 pe cen . The o e
o e whe he B i ain should pull ou o he Eu opean Economic Communi y came
less han 18 mon hs a e he coun y had been pu on a h ee-day week, and
p uden amilies s ill kep a heal hy s ock o candles in case he ligh s wen ou .
Bu i was no jus ha B i ain’s pe o mance was so dismal; i was ha Eu ope
was doing much be e . Ge many was Eu ope’s powe house, wi h i s eco e y
symbolised by he spanking new s adium buil in Munich o he 1972 Olympics.
Vo e s looked ac oss he Channel and came o he ob ious conclusion: Eu ope
wo ked and B i ain didn’ . In hose ci cums ances, i was no di icul o pe suade
he elec o a e o ha e second hough s.
The compa ison wi h 2004 is s a k. Back in 1975, B i ain was abou o ge an
unwelcome isi om he In e na ional Mone a y Fund, which insis ed on deep
and unpopula cu s in public spending as he p ice o a escue package. Today i is
he eu ozone ha is he a ge o he IMF’s c i icism; i has conce ns abou
B i ain’s housing ma ke , bu says Eu ope is he one pa o he wo ld le
un ouched by he global eco e y. Economic condi ions, i says, emain win y and
jus i y lowe in e es a es o s imula e g ow h. When e en he IMF is u ging
cheape bo owing, you eally ha e go p oblems.
None o which is o a gue ha all is wonde ul wi h B i ain’s economy. Those
who poin o he whopping ade de ici , he wi he ing o manu ac u ing and he
moun ain o consume deb a e igh o be conce ned ha he good imes migh
no las o e e . Bu he signs a e ha , o he nex couple o yea s a leas , B i ain
will con inue o enjoy as e g ow h and lowe unemploymen han he single
cu ency bloc. ‘In con as o he eu ozone, mac oeconomic pe o mance in he
86 La y Ellio
UK emains s ong and he main isk o he ou look is he possibili y o an ab up
co ec ion in he housing ma ke ’, he IMF says. I likes he way he Bank o
England has handled in e es a es and p aises B own o using highe public
spending o unde pin g ow h.
Fo a na ion ha has ended o be indi e en , i no down igh hos ile, o he idea
o close poli ical in eg a ion in Eu ope, all his ma e s. The idea ha B i ain
isked missing ou on a big pa y happening on he o he side o he Channel
p o ed a compelling a gumen in 1975, bu i lacks he same punch oday. Indeed,
gi ing ex a powe s o a Eu ope ha is s uggling si s oddly wi h he go e nmen ’s
app oach o ailing schools and unde pe o ming hospi als.
This p oblem haun ed Blai as he con empla ed whe he o hold a e e endum
on he eu o, and in he end he decided – almos ce ainly co ec ly – ha he could
no hope o con ince o e s ha joining he single cu ency was i al o B i ain’s
u u e p ospe i y a a ime when he eu ozone was doing so badly. The same will
apply o any campaign on a cons i u ion; he go e nmen may ind ha a gene ally
qui e con en ed public ejec s he a gumen ha a Eu ope o 25 na ions equi es
changes o he ela ionship wi h B ussels and will simply ask: ‘I i ain’ b oke, why
ix i ?’
O cou se, hose p essing o a yes o e will say ha B i ain will be b oke unless i
suppo s he cons i u ion and (e en ually) joins he eu o, bu he conse a ism o
he elec o a e should no be unde es ima ed.
The e is an al e na i e scena io, which is ha he p ophe s o doom a e igh
abou Labou ’s economic ‘mi acle’ being buil on sand. Should he e be an
almigh y c ash in he p ope y ma ke which pushed he economy in o ecession
and sen unemploymen su ging back abo e a million, hen i migh be possible o
deploy he 1975 a gumen . This would be good news o Kenne h Cla ke, Michael
Hesel ine and o he Conse a i e p o-Eu opeans, bu i would pu a jeopa dy
Blai ’s chances o winning a hi d elec ion. In sho , he p ime minis e is in a bi o
a ix. I he economy s ays s ong he s ands o win he elec ion, bu lose he
e e endum. I he economy blows up, he wouldn’ be in a posi ion o hold a
e e endum because he will ha e been kicked ou o Downing S ee .
Two conclusions can be d awn om he ecen spa be ween Go don B own
and he Eu opean Commission o e iscal policy. The i s is ha he S abili y and
G ow h Pac is in a e s. The second is ha hose who should be suppo ing he
demise o his mone a is elic isk being on he w ong side o he a gumen .
The a gumen s used o de end he Pac a e no new. Si Geo ey Howe was ully
acquain ed wi h hem when in he sp ing o 1981 he igh ened iscal policy du ing
he dep hs o B i ain’s wo s pos -wa ecession.
This was mone a ism’s momen . Howe jus i ied he budge squeeze by a guing
ha highe de ici s would lead o an inc ease in he money supply. Tha , acco ding o
Mil on F iedman’s disciples, mean highe in la ion. They hailed he chancello ’s
ac ion as a wise mo e which yoked oge he he wo cen al pilla s o mone a ism:
con olling he money supply and balancing he budge . G ow h s a ed o pick up
sho ly a e wa ds. QED.
No e e ybody saw hings his way. The Times p in ed a le e signed by 364
The le mus wake up – Eu ope isn’ wo king 87
membe s o he g ea and good o he economics p o ession. They iewed M s
Tha che ’s ideas as eac iona y, de la iona y nonsense and wa ned ha igh ening
iscal policy in a slump would hold back eco e y and ha unemploymen would
con inue o ise (as i did, o ano he i e yea s).
Wha e e he igh s and w ongs o his a gumen , by he ime o he second big
Conse a i e ecession in he ea ly 1990s, bo h o mone a ism’s main ene s had
been di ched. The money supply was no longe a ge ed and big budge de ici s
we e amassed. Two bou s o high unemploymen pu paid o alk o balancing he
budge , al hough one way o sa ing money was ound – cu ing capi al spending on
B i ain’s in as uc u e. The cumula i e e ec o his neglec – exace ba ed by
Labou ’s pa simony in i s i s e m – is now gla ingly e iden .
Fo una ely, since he dea h o mone a ism he Uni ed Kingdom has ound a
be e way o achie e heal hy public inances. G ow h has a e aged 3 pe cen a
yea and unemploymen has allen. The esul has been ha he a io o public deb
o GDP has d opped o abou 30 pe cen and he budge on cu en spending was
in su plus o o e ou yea s. The go e nmen decided o exploi his s ong iscal
posi ion by pledging o bo ow money so ha i can double ne in es men o 1.7
pe cen o GDP by 2003–4. E en so, his will only epai a small ac ion o he
damage caused by yea s o neglec , aking ne in es men back o he le els o 1989,
Tha che ’s las ull yea in powe , and s ill well below he a e age o he Eu opean
Union as a whole.
So wha ’s w ong wi h ploughing money in o he na ion’s in as uc u e, you
migh ask. No hing, p o ided you accep ha he e a e posi i e e u ns o be made
on in es men in capi al in as uc u e in a coun y like B i ain, which has a e y
sound iscal posi ion.
Bu – o cou se, he e is a bu – M P uden ’s plans a e seen as no p uden
enough by he Eu opean Commission, which iews he in en ion o bo ow 1.2 pe
cen o GDP (£10bn a yea in eal money) as a b each o he S abili y and G ow h
Pac , which equi es membe s a es o keep hei budge s in he black. B own wen
ballis ic when he Commission published i s iews. The go e nmen has a manda e
o wha i is doing, ha ing ough and won he 2001 Gene al Elec ion on he issue
o inc easing spending on public se ices.
Mo eo e , i is clea ha he go e nmen ’s iscal se -up is a mo e lexible and
app op ia e o cu en economic condi ions han he S abili y and G ow h Pac ,
unde pinned as i is by he same mone a is belie in balanced budge s ha ga e us
he 1981 budge . B i ain’s iscal ules dis inguish be ween cu en and capi al
spending, and ensu e ha public inances a e sus ainable o e he economic cycle
as a whole. The Pac does nei he .
B own is no he only inance minis e o ealise ha he e a e se ious laws in he
Pac . A mee ing o Eu opean Union economic and inance minis e s las summe
ag eed a new code o conduc o in e p e ing he Pac , including he need o ake
in o accoun he s a e o he economic cycle, whe he he le el o public deb is
sus ainable and he case o highe spending on in es men . The Commission, o
easons bes known o i sel , igno ed all his and p oceeded o in e p e he Pac
igidly when i looked a he s a e o EU budge de ici s.

88 La y Ellio
In B i ain’s case, he e was some jus i ica ion o conce n. The me hod o
calcula ing whe he a coun y’s iscal policy is en e ing he dange zone akes
accoun o how ola ile he economic cycle is and how esponsi e he de ici is o
changes in g ow h. B i ain has seen gy a ions in he economic cycle, and i s low
ma ginal ax a es mean ha he de ici is sensi i e o changes in GDP. As such, he
Commission belie es ha he UK de ici should be 0.5 pe cen o lowe , jus o be
on he sa e side.
B own a gues ha his akes no accoun o he changes made o UK iscal policy
since 1997, and i implemen ed would o ce him ei he o aise axes o cu public
spending o an unaccep able deg ee. Balancing he budge would mean educing
he planned de ici by 1.2 pe cen o GDP – abou £10bn a yea . This is he
inexo able logic o he Commission’s posi ion, despi e i s a emp s o w iggle o he
hook.
This is whe e he un eally begins, because a his poin an a cane a gumen
abou iscal policy becomes in e wined wi h he ques ion o eu o en y and he
iming o a e e endum. The G ow h and S abili y Pac is dumb economics. I was
a 30 pe cen de alua ion and lowe in e es a es ha p omp ed eco e y in
B i ain om he slump o he ea ly 1980s, no Howe’s mone a is budge . One
hing Eu ope’s economy ce ainly does no need a p esen is a p o-cyclical iscal
policy. As a as B i ain is conce ned, dogged suppo o he Pac is e en dumbe
poli ics. Roo -and-b anch e o m o he Pac would make i easie , no ha de , o
con ince a scep ical public o he dubious bene i s o eu o membe ship.
F om B own’s poin o iew, he p ospec o B i ain coming unde p essu e o
cu public spending i i joined he single cu ency is a se ious issue. Mos Labou
suppo e s would ag ee; hey ind i di icul o accep he idea ha he na ional
in e es would be se ed by u he needless cu s in planned spending on he public
in as uc u e. Union leade s, pa icula ly hose s ongly ep esen ed in he public
sec o , a e becoming decidedly wi chy.
All his is deeply unhelp ul o hose who belie e ha i is he T easu y’s job o
igno e he dubious economics o mone a y union and ubbe -s amp an ea ly eu o
e e endum. Opponen s o mone a y union a e supposed o be o hing igh -wing
xenophobes, no ade unionis s and Labou o e s anxious abou public spending
cu s esul ing om he applica ion o ou da ed mone a is dogma. As such,
B own’s en i ely jus i ied insis ence ha he Commission back o has been g ee ed
os ily by hose who would ha e been up he e on he ba icades wi h he 364 an i-
Tha che i es in 1981. They a e now in he con used posi ion o ying o d aw
a dis inc ion be ween wo kinds o spending cu s: Conse a i e spending cu s
( eac iona y and bad) and Eu opean commission ones (p og essi e and good).
Scep icism is ha d-wi ed in o he le . I is scep ical abou he claims made o he
p i a e inance ini ia i e. I is scep ical abou he go e nmen ’s claims o weapons
o mass des uc ion in I aq. I is scep ical abou ickle-down economics, he need
o build o e he g een bel , GM oods and he Wo ld T ade O ganisa ion.
Nobody ba s an eyelid a any o his. Scep icism is he bea ing hea o
democ acy; i is wha in o ms he app oach o a Je emy Paxman when con on ed
by a cabine minis e . Scep icism is seen as igh and p ope in all a eas o policy
The le mus wake up – Eu ope isn’ wo king 89
ba one. Tha , o cou se, is Eu ope, whe e scep icism is iewed as ha mos
heinous o sins – a e nisa ion wi h he swi el-eyed loonies o he igh .
This esponse is u ile and da . Scep icism abou he Eu opean Union is
ine i able and long o e due, pa icula ly on he le . Le ’s ake a ew examples.
Who among us is no scep ical abou he Common Ag icul u al Policy, which cos s
e e y amily o ou an ex a £16 in dea e ood bills and s un s he de elopmen o
poo coun ies by denying hem access o Eu opean ma ke s? Aid agencies such as
Ox am ha e been ou spoken in he need o adical e o m.
And how abou he Common Fishe ies Policy? We e no he en i onmen alis s
igh when hey said i would esul in he wa e s o he No h Sea being hoo e ed
d y by ac o y awle s?
And hen he e’s g ow h and unemploymen . Mo e han a decade ago he
Keynesian le in B i ain wa ned ha a Eu opean cen al bank wi h a de la iona y
manda e would esul in weak g ow h and leng hening dole queues, and hey we e
absolu ely co ec .
Some o he smalle coun ies in Eu ope – I eland and Finland, o example –
ha e be e ecen eco ds han he Uni ed Kingdom, bu o e all he pe o mance
o he 12-na ion eu ozone has been di e. I is 12 yea s since i enjoyed as e g ow h
han B i ain, and he esul has been a big di e ence in unemploymen : below 5 pe
cen in he Uni ed Kingdom, almos 9 pe cen in Eu oland. Wha a e we o do in
he ace o such igu es: exp ess scep icism abou he claims made o he eu o o
shu up?
The answe o many on he p o-eu o le is ha he aid agencies, he g eens, he
an i-globalise s and he Keynesians should pipe down. Yes, hey say, Eu ope has i s
aul s, bu he e a e good easons o he le o suppo i .
These a e se ious a gumen s and a e wo hy o se ious conside a ion. One is
ha Eu ope is he only se ious bulwa k we ha e agains he Ame icanisa ion o he
globe. A second is ha Eu opean capi alism is gen le han i s apacious Anglo-
Saxon cousin ac oss he A lan ic. A hi d is ha Eu ope lea es B i ain o dead
when i comes o oads, ailways and he public ealm in gene al. Finally, close
in eg a ion has mean ha hal a cen u y o wa has been ollowed by hal a cen u y
o peace.
To ake he las a gumen i s , he no ion ha Eu ope has o mo e close
oge he in o de o p e en wa has always seemed as dubious as he idea ha i
was all due o he bomb. A mo e likely explana ion is ha he nine een h-cen u y
balance o powe – which b oke down in he i s hal o he wen ie h cen u y – was
ec ea ed in a new o m by he pos -wa US–So ie Union duopoly.
The p oblem wi h he i s h ee a gumen s is ha hey all es on he same
p emise, and ha is a s ong economy. Poli ical clou is a unc ion o economic
clou , and Ame ica’s lead o e Eu ope has been widening in ecen yea s. Eu ope’s
social democ acy h i ed in an e a when he Ge man economy was humming
along a 5 pe cen a yea and F ance had he lowes unemploymen a e in he
wes ; i is an una o dable luxu y when he eu ozone is g owing by 1 o 2 pe cen a
yea . Ge ha d Sch oede and Jacques Chi ac know ha – which is why hey a e
being o ced o emb ace lexible labou ma ke s and wel a e e o m. Those on he
90 La y Ellio
le who hink ha Eu ope is a e uge om US-s yle labou ma ke s a e li ing in
cloud-cuckoo-land, because wi h he ECB and he Eu opean Commission eschew-
ing expansiona y mac oeconomic policies, he only al e na i e is g ea e lexibili y
and supply-side e o m.
P edic ably enough, his is causing app ehension, p omp ing he Ge mans, o
example, o sa e a he han spend, hus leading o e en lowe le els o g ow h and
e en sh ille calls o oo -and-b anch economic e o m. And o e s a e now
s a ing o ask some sea ching ques ions, ac oss Eu ope and no jus in B i ain.
In he end, he e is a simple choice. The e can be a le -wing c i ique: Eu ope has
a s ong manu ac u ing base and an imp essi e s ock o human and physical
capi al, bu needs o g ow as e and elocalise powe . O he e can be a igh -wing
c i ique: i needs a solid dose o Tha che ism o buck i s ideas up. The s a us quo is
no an op ion, because clea ly Eu ope isn’ wo king. Those who p e end i is a e in
ca ego y-one denial.
9 A pos -Keynesian s a egy
o he UK economy
Philip Whyman, B ian Bu ki and Ma k Baimb idge
In oduc ion
Pos -Keynesians a gue ha he le el o ou pu and employmen depends upon he
in e ac ion be ween o al spending and he economy’s capaci y o p oduce. Thus a
c ucial p oblem wi h ma ke capi alism is ha i possesses no mechanism ha
gua an ees ha ou pu and spending decisions always coincide. The e o e
eno mous scope exis s o go e nmen mac oeconomic policy o ini ia e, pu sue
and implemen s abilisa ion h ough he budge a y mone a y measu es. The
po en ial o gene a e a pos -Keynesian s a egy will, howe e , be hwa ed i he
Uni ed Kingdom pa icipa es in Eu opean Economic and Mone a y Union
(EMU) wi hin he Eu opean Union (EU). Membe ship equi es he sepa a e
o mula ion o money policy om na ionally de e mined iscal policy, leading o a
esul an lack o policy coo dina ion p ejudicial o he cons uc ion o a pos -
Keynesian economic amewo k. The esul an slow-g ow h, high-unemploymen
ou come will be u he exace ba ed by he ans e o mone a y policy o a
Eu opean Cen al Bank (ECB), whose sole legal objec i e is he pu sui o p ice
s abili y. This chap e he e o e seeks o de elop an al e na i e pos -Keynesian
s a egy o he Uni ed Kingdom based upon a long- e m op -ou om he eu o. I s
undamen als a e achie ing a compe i i e exchange a e, highe in es men , a
social con ac o es ain in la iona y p essu es ia planned edis ibu ion, he
ein oduc ion o exchange con ol h ough a ansac ions ax on dealings
un ela ed o ade and he pu sui o an ac i e indus ial policy o inc ease he long-
un compe i i eness o B i ish indus y whe e i al eady possesses a compa a i e
ad an age.
A c ucial idea in oduced by Keynes (1936) in o he co pus o economic hough
is ha he le el o ou pu and employmen unde ma ke capi alism depends upon
in e ac ion be ween o al spending and he economy’s capaci y o p oduce.
Decisions o p oduce a e made p ima ily by p i a e p o i -making i ms;
p oduc ion, he sou ce o employmen , akes place only i companies an icipa e a
ma ke in which goods and se ices can be sold a a p o i . I demand is insu icien ,
p oduc i e capaci y will s and idle and people will be wi hou jobs. The e is no
au oma ic mechanism which gua an ees ha ou pu and spending decisions
always coincide.
98 Philip Whyman, B ian Bu ki and Ma k Baimb idge
Only he s a e could emain impe ious o specula i e inancial gain, and he e o e
app o e su icien p ojec s ‘so as o p ese e s abili y o agg ega e in es men . . . a
he igh and app op ia e le el’. When p essed by ellow economis s in 1943 how
a he would socialise in es men , Keynes eplied, ‘ wo- hi ds o h ee-qua e s
would be indi ec ly in luenced by public and semi public bodies’. Thus ull
employmen could be secu ed h ough he es ablishmen o a Na ional In es men
Bank (NIB) cha ged wi h he s a egic egula ion o he agg ega e low o in es -
men . This would ensu e ‘an adequa e demand o hem, pa ly by making hem
a ailable a a a e which would a ac a su icien demand, and pa ly by s imu-
la ing he unde aking o pa icula in es men p ojec s’. Mo e ecen p oposals o
his ype ha e ad oca ed he democ a ic con ol o capi al o ma ion h ough
pension- und o employee in es men - und socialism (Bu ki and Whyman 1995).
They a e only easible ou side he cons ain s imposed by membe ship o EMU.
In e ela ionship be ween demand and supply side
The ela ionship be ween agg ega e demand and agg ega e supply is one o he
mos signi ican insigh s o eme ge om pos -Keynesian hough (Sawye 1995).
Whils a high le el o agg ega e demand is a necessa y p econdi ion o he ull
employmen o esou ces, i is insu icien i he economy su e s om supply-side
de iciencies. Fo example, ac i e labou ma ke policy is ad oca ed whe e skill
sho ages and labou ma ke bo lenecks h ea en o des abilise he economy.
T aining and educa ional p og ammes can ma ch skills o he demand o labou ,
whils employmen se ices enhance he e iciency o he sea ch p ocess (Laya d e
al.1991; Meidne 1985; T eho ning 1993). Simila ly, incomes policy and/o he
coo dina ion o wage ba gaining can deli e a supe io ade-o be ween in la ion
and unemploymen compa ed o decen alized, de egula ed ba gaining in hose
economies whe e ade unions a e p esen .1 Th ough in e nalisa ion o he cos s o
imp ecise wage le els in o he decision-making pa ame e s o all pa ies o he
nego ia ions, he e is an inc eased likelihood o eaching a comp omise be ween
labou and capi al o e hei espec i e sha es o na ional income, wi hou
damaging in e na ional compe i i eness, g ow h and employmen . Mo eo e , he
deg ee o which wage ba gaining is coo dina ed is associa ed wi h eal wage
lexibili y, because cen alised s uc u es p o ide a mo e lexible adap a ion o
ma ke condi ions.
UK economic policy ou side EMU
The policy impe a i es imposed upon he s a e by cumula i e causa ion and ech-
nology gaps a e unlikely o be achie ed o e he whole o he Eu opean Union’s
membe s a es, as hey possess di e en ade cycles, economic s uc u es,
his o ies, languages and cul u es. Ad anced capi alis economies a e inhe en ly
uns able; le o hemsel es, hey canno main ain ull employmen esou ces while
being ma ed by inequali ies in he dis ibu ion o ma ke powe , income and
weal h. Un e e ed ma ke o ces ia cumula i e causa ion end o exace ba e hese

Pos -Keynesian s a egy o he UK economy 99
ins abili ies and dispa i ies. Conside able scope exis s o go e nmen in ol emen
in ini ia ing, pu suing and implemen ing economic policies; on he demand side
insu icien agg ega e demand and ins abili y o in es men a e he key p oblems o
esol e, whils on he supply side, planning o p ices and incomes, aining, and
ac i e indus ial measu es o di ec in es men o esol e any balance o paymen s
p oblems a e cen al. The p ospec o a EU-wide s a egy o achie e hese
objec i es is emo e, al hough sup ana ional di ec i es may p e en he
implemen a ion o e ec i e, na ional policies.
In o de o implemen pos -Keynesian economic policies, he Uni ed Kingdom
needs o a oid he uni o m mone a y policy and he cons ain s upon budge a y
measu es imposed by he adop ion o a single EU cu ency. A long- e m op -ou will
p o ide he Uni ed Kingdom wi h g ea e economic lexibili y. The e o e, he
c ucial issue becomes: wha amewo ks is needed o he o ma ion o
mac oeconomic policy in an op -ou B i ain? The ini ial s age is a na ional
in o ma ion campaign o acquain he public and indus y wi h he oppo uni ies
c ea ed by, and he dange s a e ed h ough, op ing ou . I should be suppo ed by a
de ailed s a egy o each UK go e nmen depa men , enabling hem o iden i y
he ade, inancial and in es men oppo uni ies a ising om he c ea ion o a eu o-
bloc. Fo ins ance, he Ci y o London will be able o ade in eu obonds, whils
B i ish manu ac u ing and se ice companies will enjoy compe i i e ad an ages
om being ee o he cos s o con e ing o, and implemen ing, he eu o.
A decision o ejec pa icipa ion in he single cu ency es o es o na ional
go e nmen hose economic ins umen s essen ial o he managemen o i s
economy. The e o e, democ a ic accoun abili y is e-es ablished, because ci izens
can once again enjoy he oppo uni y o choose he economic s a egy pu sued by
he go e nmen o he day, a he han i being dic a ed by unelec ed cen al
banke s. Mo eo e , go e nmen s will be able o de elop a balanced economic
p og amme, pu suing he mul iple objec i es o ull employmen , apid economic
g ow h and a sus ainable balance o paymen s as well as low in la ion. The
oppo uni ies a e subs an ial.
A pos -Keynesian economic s a egy seeks o achie e bo h in e nal and ex e nal
balance. In e nal balance e e s o mo e han he Maas ich a ge o p ice s abili y.
Acco dingly agg ega e demand managemen could educe unemploymen , whils a
mix u e o budge a y and mone a y measu es, a p ices and incomes policy, he e-
in oduc ion o c edi con ols and coo dina ed na ional wage ba gaining could
es ain in la ion. Al hough di ec con ols a e unpopula wi h o hodox
economis s, who p e e he supposed alloca i e e iciency o ee ma ke s, he eali y
o s icky p ices wi hin oligopolis ic ma ke s c ea es he po en ial o go e nmen s o
inc ease employmen and g ow h. Mo eo e , a majo i y o he wo ld’s na ions s ill
e ain capi al con ols as pa o hei economic managemen , whils I eland’s
ecen ema kable g ow h was acili a ed by social con ac s wi h he ade unions.
The pos -Keynesian app oach s esses a posi i e ole o go e nmen ac ion o
enhance he compe i i eness o UK indus y. The analysis by El is (2000) o ade
lows demons a es ha B i ain enjoys a compa a i e ad an age in inancial and
media se ices, and in hose a eas o manu ac u ing which ely upon a high deg ee
100 Philip Whyman, B ian Bu ki and Ma k Baimb idge
o scien i ic inno a ion, such as elecommunica ions, pha maceu icals, ae ospace,
ene gy explo a ion and gene a ion, biochemicals and compu e - ela ed ac i i y.
The in e na ional p ice s uc u es o hese ad anced- echnology commodi ies a e
almos all denomina ed in US dolla s, so ha B i ish i ms and expo s will su e in
EMU should he eu o dep ecia e in alue agains he dolla . Ou side he single
cu ency, he UK go e nmen could s eng hen he economy’s compe i i eness by
enhancing he p oduc ion po en ial o al eady s ong sec o s h ough a ge ed
educ ions in co po a ion ax, esea ch and de elopmen , and g ea e spending
upon educa ion.
Wha abou globalisa ion?
An a gumen ad anced by ad oca es o EMU is ha he deg ee o economic
au onomy o he na ion s a e ad oca ed in his chap e is la gely illuso y due o
globalisa ion and he in e na ional in eg a ion o inancial ma ke s. To he ex en
ha na ional economies ail o insula e hemsel es om in e na ional inancial
ma ke s h ough exchange con ols o ‘Tobin axes’, economies became p isone s
o he neoclassical assump ions held by he majo i y o economis s.2 Fo example,
an expansiona y iscal policy is seen by o hodoxy as a p elude o an inc ease in
in la ion and a decline in in e na ional compe i i eness, a he han as a p ecu so
o a highe le el o agg ega e demand, inc eased in es men in u u e capaci y and
he e o e he c ea ion o a po en ially highe u u e a e o economic g ow h. Thus
non-o hodox economic policy is penalised by he wi hd awal o inwa d in es -
men , pe haps igge ing a cu ency c isis o a su icien magni ude o unde mine
he en i e s a egy.
An ex ension o his hesis a gues ha , due o inancial in eg a ion, na ion s a es
can no longe ope a e a dis inc mone a y policy. In e es a es will be se
in e na ionally, wi h a p emium equi alen o he deg ee o he pe cei ed isk o
cu ency de alua ion, p oblems caused by poli ical ins abili y o h ea s o o eign
in es men . The a gumen implies ha UK membe ship o he single cu ency,
oge he wi h accep ance o a single Eu oland in e es a e, will be cos less since
mone a y au onomy no longe exis s. Indeed, he g ea e an i-in la ion c edibili y
o me ly associa ed wi h he Bundesbank, and assumed o pass o i s successo , he
ECB, should ensu e a lowe long- e m eal in e es a e han would be possible o
an independen na ion s a e.
The e ec i eness o de alua ion as a means o es ablishing an in e na ional
compe i i e ad an age is also dismissed, because he p eponde ance o subsidia ies
o o eign ansna ional co po a ions (TNCs) ises as a p opo ion o he UK
manu ac u ing sec o . Subsidia ies o a pa en company will no espond o
de alua ion by allowing hei p ices o all, which would imply compe ing wi h
hei own pa en company in o eign ma ke s a a lowe p ice. Thus hey a e mo e
likely o main ain eal p ices and ake highe s e ling p o i s, he eby nulli ying he
e ec i eness o he policy.
In essence, he economic case o pa icipa ion in EMU es s upon he asse ion
ha he economic e ec i eness o he na ion s a e is o e , so ha only as pa o
Pos -Keynesian s a egy o he UK economy 101
egional economic blocs can go e nmen s easse he use o adi ional economic
ools, such as mone a y and exchange a e policy. Indeed ce ain socialis heo is s
a gue ha Eu opean economic in eg a ion can make possible a o m o eu o-
Keynesianism, which can no longe wo k a na ional (Holland 1985). Howe e ,
he con es ed a i ica ion o he TEU sugges ha he e will be li le appe i e o
enego ia ion, whils he EU Commission’s a acks upon ‘expansiona y’ B i ish
and I ish budge a y policy unde he auspices p he GSP indica es ha a bias
owa ds de la ion emains a he hea o EU economic policy decision making o
EMU en y.
The o e all implica ion o he a gumen is easy o dismiss, as he Uni ed
Kingdom’s ecen expe ience o being ejec ed om he ERM demons a es. The
esul an 20 pe cen de alua ion o s e ling coincided di ec ly wi h a esump ion o
economic g ow h and a all in he a e o unemploymen , whils o he EU membe
s a es ha main ained o e alued exchange a es and de la iona y Maas ich
policies su e ed s agna ing ou pu and pe sis en ly high a es o unemploymen .
Mo eo e , al hough inancial in eg a ion has, o a ce ain ex en , made an
independen mone a y policy mo e di icul , he Uni ed Kingdom was able o i s
loosen and subsequen ly igh en i s policy s ance du ing his pe iod – wi h
p edic able esul s. I i s economy we e o be p o ec ed addi ionally by exchange
con ols, he Uni ed Kingdom’s deg ee o au onomy would ise acco dingly.
Ou a gumen s do no dismiss he eali y o a shi owa ds inc easingly
globalised ade and inancial s uc u es, al hough i would be mo e accu a e o
desc ibe he p ocess as ‘ iadisa ion’, as he wo ld economy becomes inc easingly
domina ed by h ee dominan ading g oups – he No h Ame ican F ee T ade
Ag eemen (NAFTA), he Eu opean Union and an Asian block buil a ound
Japan. Many po s o he wo ld, o example almos he en i e A ican con inen ,
play li le o no pa in hese supposedly ‘global’ ma ke s. Ne e heless, i is ue
ha an explosion in in e na ional mo emen s o inancial capi al, pa icula ly
associa ed wi h specula ion a he han wi h ade in goods and se ices, has
al e ed he en i onmen wi hin which na ional economic s a egy is de e mined.
Ne e heless, he majo i y o coun ies in he wo ld con inue o ope a e con ols on
he in e na ional mo emen o capi al, whils he inancial des abilisa ion in lic ed
upon Mexico, Russia, he ERM and he ‘Asian ige ’ economies has se ed o wa n
wo ld go e nmen s o he pe ils o un egula ed capi al mo emen s. The policy
p esc ip ions should no come as a su p ise, as Keynes ou lined i decades ago
when he pos -wa economy was based upon he igh egula ion o capi al o
p e en in e na ional economic ins abili y. The e o e he choice is be ween
membe ship o EMU, becoming inc easingly imme sed in o a neo-libe al,
iadised sys em, o pu sing an independen , pos -Keynesian s a egy p o ec ed by
a e- egula ion o inancial capi al.
Conclusion
B i ain enjoys an e ec i e long- un op ion conce ning i s u u e economic s a egy;
i can emb ace an essen ially mone a is EU iden i y o , i i decides o op ou o he
102 Philip Whyman, B ian Bu ki and Ma k Baimb idge
eu o, i can pu sue a pos -Keynesian policy. The widely held iew ha B i ain
possesses ‘no al e na i e’ bu o pa icipa e in Eu opean in eg a ion is a odds wi h
he ac s (Bu ki e al. 1996). I B i ain is decoupled om he EMU’s in eg a ionis
momen um, he ou come will be enhanced economic p ospe i y and es o ed
democ a ic choice o he B i ish elec o a e. Indeed, i pos -Keynesian insigh s in o
he wo king o he economy in he eal wo ld a e e e o in luence go e nmen
policy, hey a e mo e likely o be e ec i e ou side EMU han i he Uni ed
Kingdom is a p isone o i s neoclassically designed ins i u ions.
No es
1 The e is a la ge li e a u e on his issue, including: Amo oso and Jespe sen (1992); B uno
and Sachs (1985), Came on (1984); Calm o s and D i ill (1988); Calm o s and Nymoen
(1990); C ouch (1985); Henley and Tsakalo os (1995: 186–9); Ma shall (1995);
McCallum (1983); Row ho n and Glyn (1990); and Sawye (1995).
2 ‘Tobin Taxes’ a e he name gi en o axes le ied upon he 90 pe cen o o eign
exchange ansac ions un ela ed o ade. As some £200 billion daily is cu en ly aded
on he London Fo ex ma ke , such a ax, e en a a low 0.5 pe cen a e, would yield
conside able sums i specula o s’ beha iou emained unchanged. I could be a oided
by mo ing ansac ions o o sho e ha ens, bu such a s a egy is de e ed by exemp ing
all cu ency ansac ions no unde aken h ough a egis e ed exchange om legal
s a us. Consequen ly unpaid, o sho e deb s would no be backed by he o ce o law.
The emo al o he legal suppo and he low a e o axa ion would p e en mos
specula o s om decamping elsewhe e.
Pa II
Employmen and social
aspec s o EMU

10 The Eu opean social model
My h o eali y?
B ian Bu ki
In oduc ion
Cen e-le ad oca es o he UK’s en y in o he single cu ency a gue ha , despi e
i s ob ious de iciencies (e.g. he ine iciency en ailed in submi ing o a uni o m,
one-size- i s-all in e es a e, gi en cyclical and s uc u al di e gences be ween
membe s a es’ economies), he eu o should be emb aced because i would enable
he Uni ed Kingdom o enjoy he la ge coun e ailing bene i s o pa icipa ing in
he ‘Eu opean Social Model’ (ESM). Much ecen wo k cas s doub as o whe he
an ESM ac ually exis s – o ins ance, Kleinman (2002). Howe e , he case o
emb acing i has been deployed mos eloquen ly and mos o ce ully by Edmonds
(2000), o me Gene al Sec e a y o he Gene al Municipal and Boile make s’
Union (GMB). This chap e que ies he e y exis ence o an ‘ESM’ and es ablishes
ha , i i does exis , Edmonds’ easons o pa icipa ing wi hin i a e ou da ed.
Wha e e hei alidi y du ing he Tha che i e 1980s, any cen e-le case o
joining he eu o has become comple ely edundan in he wen y- i s cen u y.
The ESM p oposal o close EU in eg a ion
Edmonds asks: How impo an is i o B i ish ade unionis s ha he Eu opean
p ojec succeeds, and how impo an is i o be close o i s cen e o powe ? He
answe s ha i is c ucial, because ade unionis s iden i y wi h he Eu opean model
o indus ial socie y, combining high le els o p oduc i i y wi h high le els o social
p o ec ion. The ESM is pe cei ed o b ing a li le secu i y in o people’s li es by
making i a he di icul o sack wo ke s. When edundancy occu s, he ESM se s
he sa e y ne su icien ly high o p e en po e y. Jacques Delo s ou lined his
p og amme in his speech o he 1988 T ades Union Cong ess. His message was:
pu up wi h he compe i i e p essu es o a single ma ke , whils he social
dimension p o ec s om he wo s excesses o ma ke capi alism.
The ESM, acco ding o Edmonds, deli e s bene i s o wo king people. I
s eng hened mo es owa ds equal pay, o e ed some p o ec ion o wo ke s in
co po a e akeo e s, imp o ed heal h and sa e y p o ec ion, and has gi en labou a
small bu inc easing in luence o e he s a egies o mul ina ional companies.
Mo e impo an ly, he ESM p o ides ade unions wi h a di ec in ol emen in he
106 B ian Bu ki
design o social legisla ion. The p ocess o collec i e dialogue means ha he Eu o-
pean T ade Union Con ede a ion can nego ia e ag eemen s wi h he employe ’s
o ganisa ion (UNICE) ha a e gi en binding e ec h ough he Eu opean Union.
Edmonds claims ha he ad an age o joining he single cu ency in o de o
bind B i ain mo e igh ly in o he ESM is compelling. Howe e , he also makes
clea ha le -o -cen e suppo o en e ing he eu o should be ully condi ional on
he Eu opean Union’s commi men o he ESM.
Does an ESM exis ?
Unde pinning he a gumen s o Edmonds, and hose o le -o -cen e eu ophiles, is
he assump ion ha a dis inc , inde inable ESM cu en ly exis s. Howe e , he
weigh o e idence om ecen social policy esea ch is ha such an assump ion is
p oblema ic. Mos commen a o s accep ha each EU membe coun y possesses
a wel a e s a e ha g ew in size o e he wen ie h cen u y, bu hey belie e ha
hese wel a e s a es di e signi ican ly om each o he and ha hey can be
classi ied in o sepa a e ‘clus e s’. In he seminal social policy wo ks o he las
gene a ion, Esping-Ande son (1996) dis inguished di e en ypes o wel a e s a e,
based on he concep o ‘decommodi ica ion’. Whe e ma ke s become uni e sal
and hegemonic, wo ke s’ ma e ial li ing s anda ds become en i ely dependen on
he sale o hei labou . The de elopmen o a wel a e s a e in ol es a loosening o
his commodi y s a us, he eby diminishing inancial and psychological insecu i y.
Decommodi ica ion occu s when a good o se ice is p o ided as a ma e o igh ,
so ha a pe son can main ain a li elihood wi hou eliance on he ma ke .
Esping-Ande sen’s wo k gene a ed conside able deba e, documen ed by A s
and Gelissen (2002). I has become accep ed ha all wel a e s a es decommodi y
labou bu o di e en deg ees. On his basis, ou di e en kinds o wel a e s a e
ha e been iden i ied wi hin he Eu opean Union; he social democ a ic (occu ing
in Scandina ia – ‘ he no he n model’), he conse a i e-co po a is (loca ed in
F ance, Ge many and he Benelux coun ies – ‘ he cen al model’), he Medi e -
anean ( ound in G eece, possibly I aly, Po ugal and Spain – ‘ he sou he n model’)
and he uniquely hyb id UK sys em (‘ he o sho e island model’). To which o hese
models, does he ESM, so ex olled by suppo e s o B i ish en y in o he eu o,
ela e? I migh be hough ha he social democ a ic e sion o Denma k and
Sweden, wi h i s explici ly edis ibu i e objec i es, would appeal mos o
democ a ic socialis s. Howe e , he Scandina ian coun ies we e la e en an s in o
he Eu opean Union and ha e exe ed li le in luence upon i s cen al policy goals.
The e o e, he ESM model, o which cen e-le ad oca es o he eu o aspi e, is he
conse a i e-co po a is a ian , implemen ed by he six o iginal signa o ies o he
T ea y o Rome (wi h he possible excep ion o I aly). These coun ies a e now a
mino i y wi hin he Eu opean Union, bu hei long-s anding and ounde s a us
gi es hem an in luence a g ea e han hei numbe s would sugges .
The Eu opean social model: my h o eali y? 107
The ESM o he o iginal six
The ESM de eloped in i e o he o iginal membe s con ained many disc e e
na ional cha ac e is ics, bu essen ially possessed wo dimensions:
1 social insu ance;
2 labou ma ke egula ion.
Con ibu o y social insu ance is a he hea o his sys em. Bene i s a e mos ly
inanced by con ibu ions om employe s and employees, so ha social occupa-
ional and income di e ences a e ep oduced in he pa e n o wel a e paymen s.
Consequen ly, unlike in Scandina ia, he e is li le emphasis on edis ibu ion as an
objec i e o social policy.
Se ice o ganisa ion and deli e y end o be plu alis ic, i.e. non-s a e o pa a-
s a e o ganisa ions p edomina e in he adminis a ion and dis ibu ion o insu -
ance unds, and in p o iding se ices. They e lec he in luence o Ca holic social
eaching, pa icula ly he p inciple o ‘subsidia i y’, which claims ha wel a e
a angemen should be p o ided by he na ion s a e in he absence o adequa e
measu es a some lowe le el, be i he amily, he local communi y, he chu ch,
occupa ional g oups, businesses o ade unions. The e exis s a hie a chy o
solida i ies, he lowes being he mos impo an . The e o e he ESM e lec s and
suppo s an o ganic, hie a chical and in eg a ionis iew o socie y, whe eby
amily, chu ch and occupa ional o ms o wel a e a e supplemen ed by he s a e,
bu no eplaced by i .
Ge many is gene ally aken o be he pa adigma ic case o he ESM, whe e
wel a e measu es a e unde pinned by he social ma ke economy. The s a e’s
gene al commi men o p o iding income and employmen is complemen ed by
an emphasis upon he obliga ions o employe s, ade unions, amilies and
indi iduals o suppo hemsel es. Redis ibu ion h ough he ESM is la gely
ho izon al, wi hin occupa ional and s a us g oups, a he han e ical, om ich
o poo . Pensions and wel a e bene i s e lec income di e en ials. The sho - e m
unemployed wi h a ull con ibu ion eco d ecei e 68 pe cen o p e ious ake-
home pay. Those no eligible o his comp ehensi e insu ance apply o social
assis ance, which is means- es ed; i he means es is passed, applican s ob ain 58
pe cen o ne pay. A hi d g oup, ha ing ailed he means es , a e dependen on
much smalle le els o la - a e bene i , whils 15 o 25 pe cen o he egis e ed
unemployed a e cu en ly no in eceip o any bene i .
Al hough co e social insu ance is ela i ely gene ous by in e na ional s anda ds,
social assis ance is no only hea ily means- es ed bu also ca ies conside able
s igma. Such aspec s o he ESM became inc easingly impo an in he 1990s and
2000s, wi h he ise in unemploymen and he g owing numbe s o hose who, due
o a lack o a achmen o he labou o ce, did no possess con ibu ion eco ds.
These de elopmen s led o a apid inc ease in social exclusion unde he ESM,
wi h he c ea ion o a ‘2/3 socie y’, om which app oxima ely one- hi d o ci izens
a e excluded.
114 Ma hew McG ego
employmen .13 I may be an unwan ed by-p oduc o Pe e Mandelson, bu
i ha dly seems like a good eason o Labou o e s o change hei mind on
he eu o.
The eu o would also a ack he ounda ion upon which he social model is based
– secu i y a wo k. The lexibili y ha economies need has, in Eu ope a leas , been
based on egional and na ional planning accompanied by iscal and mone a y
policy o ensu e s ong g ow h. In he eu o, hese le e s a e aken away and
go e nmen s a e unable o eac quickly and e ec i ely o economic shocks. The
only eac ion o a sha p down u n o demand in he economy is h ough lexibili y
in he labou ma ke – and wo ke s ha e lea n he ha d way ha ‘ lexibili y’
doesn’ usually mean pay ises o mo e job secu i y. One o he a chi ec s o he
eu o has a gued as much. O ma Issing, he Chie Economis o he Eu opean
Cen al Bank has made his case plainly: ‘The mos ob ious [dange o he eu o] is
he lack o lexibili y in he labou ma ke . . . his poses an almos le hal h ea o
mone a y union.’14 The e is a case o sugges ha economies will be mo e
success ul i labou ma ke s a e mo e lexible, wi h wages able o all mo e easily
and companies able o sack s a mo e quickly. Howe e , i is no a le -wing case,
and i is no a case ha appeals o wo king-class people.
Du ing i s pe iod in go e nmen since 1997 he Labou Pa y has buil i s
elec o al appeal a ound inc easing spending on public se ices, pa icula ly on
educa ion and heal h. Bu joining he eu o would mean ha in es men could be
pu a isk. The ules o he eu o, including he S abili y and G ow h Pac (SGP),
we e c ea ed in a way ha imposes a s ai jacke on coun ies du ing imes o
economic down u n. The SGP limi s membe s o he eu o o unning a budge
de ici o 3 pe cen o less yea on yea . The p oblem is ha when a coun y aces
economic p oblems and i s budge de ici ises, he only ecou se is highe axes o
lowe public spending. In he sho ime since he in oduc ion o he eu o
Po ugal, F ance, I eland, G eece, Ge many and I aly ha e announced o
implemen ed plans o cu public spending in esponse o he SGP. Po ugal was
i s in 2002, when he newly elec ed go e nmen o José Manuel Ba oso, now he
EU Commission P esiden , pu in place a se e e aus e i y package in esponse o
he coun y’s b each o he SGP. The package included public spending cu s and
VAT ax ises, and he opposi ion socialis s esponded o he package saying: ‘We
canno a o d o sac i ice ou u u e o he sake o blind adhe ence o a se o
quan i a i e c i e ia.’15 In Ge many, he coun y’s budge de ici emains s ub-
bo nly abo e he limi allowed and measu es o b ing i down ha e included cu s o
wel a e and public se ices. Along wi h a p oposal o sc ap one o Ge many’s bank
holidays, Ge man Finance Minis e Hans Eichel un eiled a plan o impose a
€1billion cu on all minis ies and eeze public sec o pay inc eases.16
I isn’ jus coun ies in he eu ozone ha ha e had public se ices h ea ened. In
2002 he Eu opean Commission sugges ed ha he Uni ed Kingdom’s spending
plans could need o be eined-in as i we we e membe s o he eu o. The P ime
Minis e ’s spokespe son was quick o eac , saying: ‘The UK has no in en ion o
educing public spending by £10billion as he Commission seems o imply. . . . As
we a e ou side he single cu ency we a e no subjec o i s sanc ions.’17 Ad oca es

Vo ing no – he eu o and Labou o e s 115
o ea ly en y o eu o membe ship ha e poin ed o he ac ha many Eu opean
coun ies ha e be e public se ices han he Uni ed Kingdom. I is undoub edly
ue ha coun ies like F ance and he Ne he lands ha e good public se ices. Bu
i hasn’ escaped o e s’ no ice ha hei public se ices we e buil up o e decades
wi h la ge-scale in es men , he so o le els o in es men ha may no be possible
in imes o economic down u n.
Gi en ha public se ice in es men has o med he backbone o Labou Pa y
campaigning o e he las ew yea s, i is ha dly su p ising ha opponen s o ea ly
UK membe ship o he eu o ha e highligh ed he issue in deba es. Ian Da idson o
he Labou Agains he Eu o g oup o MPs said a i s launch ha : ‘We a e nei he
c i icising no con adic ing go e nmen policy. We a e simply saying ha M
Blai ’s p io i y should be public se ices.’18 Si Bill Mo is, he hen Gene al
Sec e a y o he T anspo and Gene al Wo ke s’ Union explained he Union’s
decision o campaign o a ‘no’ in he e en o an ea ly e e endum on he eu o by
saying: “En y a his pa icula poin would be a majo di e sion om he policy o
he go e nmen o inc ease public expendi u e and e o m public se ices.’19
I is jobs, public se ices and wel a e ha Labou o es a e in e es ed in, and i is
he jobs, public se ices and wel a e policy sphe es ha o e he mos con incing
case o s aying ou o he eu o in i s cu en o m. And i isn’ jus he Uni ed
Kingdom whe e his case holds – he e idence om he eu o e e endum in
Sweden in Sep embe 2003 is ema kably simila . Exi polls (o VALU )20 om he
e e endum show ha he la ges g oup o ‘no’ o e s we e social democ a s,21 and
b oken down on class, he la ges g oup o ‘no’ o e s was blue-colla s a .22 Fi e
ou o he se en op easons o o e ‘no’ (i.e. hose easons ci ed as being o ‘ e y
g ea impo ance’) we e economic easons, pa icula ly public se ices and
wel a e. The e idence om Sweden is all he s onge gi en ha he o e whelming
majo i y o he Social Democ a ic Pa y leade ship campaigned ha d o he ‘yes’
campaign. One senio Swedish ‘no’ campaign s a e has desc ibed he si ua ion by
saying: ‘The Pa y leade ship we e ocused on he poli ical capi al o be won in
B ussels, and hey o go ha ou o e s ca e mos abou e e yday issues.’23
As in Sweden, he e idence in he Uni ed Kingdom poin s o a signi ican
ejec ion o he pa y line by o e s who no mally suppo Labou . Bu despi e he
ac ha so many Labou o e s seem willing o buck hei no mal pa y
p e e ences and o e ‘no’ in a e e endum on he eu o, he usual media epo ing o
he deba e is one o le e sus igh . Jou nalis s a e genuinely in e es ed in s o ies
abou le -wing opposi ion o he eu o because i is ou side he no m and he e o e
deemed o be in e es ing. The e is, o some ex en , a simple misunde s anding
abou he na u e o e e enda in his epo ing. Vo e s a e sophis ica ed enough o
unde s and ha o ing ‘no’ in a e e endum doesn’ mean ha he go e nmen will
change, bu epo ing o he eu o deba e s ill ocuses on he iews o pa ies and
pa y poli ical igu es. Equally, he e is some bias in he media, no leas om an
unnamed BBC epo e who in amously old a campaign s a e ha hey a ou ed
joining he eu o because, ‘we like cappuccinos and we don’ like acis s’.24
Howe e , he main cause o he ailu e o no ice and unde s and he opposi ion
om Labou o e s has been he na u e o ha opposi ion. To mos people who
116 Ma hew McG ego
a ou joining he eu o, he economics comes second. As Labou o e s end o
oppose eu o en y on economic, no poli ical, g ounds, hey don’ show up on he
media ada .
In he e e endum on he no h-eas assembly in au umn 2004, he ‘yes’
campaign ied o u n he poll in o a Labou e sus To y con es . The ‘no’
campaign won wi h 78 pe cen o he o e. The e a e many people in he poli ical
wo ld who ha e no g asped he di e en na u e o e e endum poli ics. When
Labou o e s cas hei ballo in elec ions, hey usually look down he pape in
on o hem o ind he Labou candida e. In a e e endum on he eu o, hey will
be looking a a pape ha o e s hem he choice o o ing ‘yes’ o ‘no’. I is a simple
ac , bu one ha has i al implica ions o he campaign.
The pa y loyal ies ha o e s o en eel in elec ions, because o hugely complex
and o e lapping ac o s, a e downg aded, i no e adica ed, in e e enda. Gi en
ha in he e en o a e e endum on joining he single cu ency, he e would be
campaigne s om he labou mo emen on bo h sides o he deba e, o e s will no
ace he conce ed pa y e o o b ing hem o one pa icula conclusion. Tha
b ings o e s o a simple choice: o e ‘yes’ o join a club whe e unemploymen is
high, g ow h is low, and whe e he ide is u ning agains he le ; o e ‘no’ o
p o ec he ad ances he Labou go e nmen has won, and keep ou abili y o
con inue building ou co ne o social Eu ope secu e. I ’s no wonde Labou o e s
a e agains he eu o.
Labou o e s a e agains joining he eu o because i is no in he economic
in e es s o people in his coun y. They ha e no changed hei mind on his since
1997, and hey a e no likely o do so in he nea u u e. Despi e he popula
imp ession o he eu o deba e being one which pi s le e sus igh , he di e en
na u e o e e endum poli ics mean ha Labou o e s will buck he Pa y line i a
o e is called. No wonde Tony Blai has gone om a posi ion o seeing he eu o as
a ‘des iny’25 o he Uni ed Kingdom, o saying: ‘The a gumen abou he single
cu ency – he posi ion has ne e changed he e; he e has go o be a clea case o
joining i , and a he momen he e isn’ .’26
No es
1 I would like o acknowledge he help o G aham Copp in he w i ing o his chap e .
2 Unnamed Downing S ee sou ce, quo ed in he Mi o , 6 Feb ua y 1999.
3 The e a e dozens o examples o his. See, e.g., ‘P o-eu o g oup “a on o labou ”’,
Robe Sh imsley, Daily Teleg aph, 9 No embe 1999.
4 MORI poll su ey commissioned by he Eu opean Mo emen , Augus 1996. 12 pe
cen o Labou o e s suppo ed joining he eu o in p inciple wi h 27 pe cen agains .
Labou o e s agains in p inciple and ‘gene ally opposed’ e sus Labou o e s in
a ou in p inciple o ‘gene ally in a ou ’ spli mo e e enly – 44–5 agains mem-
be ship.
5 Regula ‘eu o acke poll’ by ICM o he Gua dian, h p://www.icm esea ch.co.uk/
e iews/polls-a chi e.asp. The ques ion ICM used was: ‘I he e we e o be a e e en-
dum, would you o e o join he Eu opean Single Cu ency, he eu o, o would you
o e no o join?’
Vo ing no – he eu o and Labou o e s 117
6 I would like o hank Ba clays Capi al o p o iding wi h me hei polling s a is ics
going back se e al mon hs. Ba clays Capi al’s polling is conduc ed by MORI.
7 A majo i y o Labou o e s eplied ha hey would ejec he eu o despi e a
ecommenda ion om he go e nmen in Oc obe 2003, Augus 2004 and Sep embe
2004. The igu es we e ied in June 2004, and he esul s we e wi hin he poll’s ma gin
o e o in h ee o he mon hs.
8 ICM poll o he ‘no’ campaign, 27 Sep embe 2002. Responden s we e asked: ‘Which
wo o h ee o he ollowing do you hink a e p io i ies o he go e nmen o add ess in
his pa liamen ?’ The op ions we e (in o de o popula i y): he NHS, c ime, educa ion,
e o ism, public anspo , he economy, en i onmen , social secu i y, income ax,
de ence, uel ax, con olling in la ion, ge ing id o ed ape, he eu o.
9 Opinion polls ha e consis en ly showed s onge opposi ion o he eu o om wo king-
class o e s. Fo example, an ICM poll om Sep embe 2002 had opposi ion o he
eu o om social classes A and B a 45 pe cen , and opposi ion om social classes D and
E a 67 pe cen . www.icm esea ch.co.uk
10 h p://eu opa.eu.in /comm/employmen _social/publica ions/2004/ke5703265
_en.h ml
11 I am g a e ul o he no-eu o campaign, and he Vo e No g oup o access o eco ds o
hei ocus g oup esea ch.
12 P epa a ions o EMU, UBS Wa bu g, Oc obe 2002
13 Pe e Mandelson, speech o CBI con e ence, 8 No embe 2004. Fo he ull ex ,
see h p://www.cbi.o g.uk/ndbs/p ess.ns /0363c1 07c6ca12a8025671c00381cc7/
577ab ebe84c762880256 4600325c6a?OpenDocumen
14 P o esso O ma Issingwas speaking a he ‘Fo um Dialogue’ o ganised by he Banque
cen al du Luxembou g on 8 Feb ua y 2000.
15 Luis Naze e, a membe o he Socialis Pa y’s na ional leade ship, quo ed in ‘Aus e i y
measu es aim o close he EU gap’, Financial Times, 7 Oc obe 2003.
16 ‘Ge man package aims o pu budge back in o line wi h EU iscal ules’, Financial
Times, 5 No embe 2004.
17 P ime Minis e ’s o icial spokespe son, 31 Janua y 2002.
18 Quo ed in ‘Pu se ices be o e eu o, say MPs’, Daily Teleg aph, 22 Janua y 2002.
19 ‘T&G will wo k o eu o no o e’, Gua dian, 5 Feb ua y 2003.
20 Exi polls conduc ed by SVT, he s a e-owned Swedish b oadcas e .
21 This igu e is o all o e s and does no ep esen p opo ions. As Social Democ a s
ep esen he la ges g oup o o e s, he numbe o Social Democ a s o ing ‘no’ was
g ea e han he numbe o any o he pa y suppo e g oup o ing ‘no’.
22 Blue-colla wo ke s o ed ‘no’ by 69–29, compa ed o a me s (65–35). Whi e-colla
wo ke s and he sel -employed na owly o ed ‘yes’.
23 Pe e Gus a sson (Di ec o o O ganisa ion o Socialdemok a e Mo EMU – he
Social Democ a ‘no’ campaign) speaking a semina in Uppsala, Janua y 2004.
24 Quo ed in Sunday Business, 7 No embe 2004.
25 In his speech o he Labou Pa y con e ence in Sep embe 2002 Tony Blai said:
‘Tha ’s why he eu o is no jus abou ou economy bu ou des iny.’
26 Tony Blai , speaking in a media b ie ing a Downing S ee , 29 No embe 2004: h p://
www.numbe 10.go .uk/ou pu /Page6679.asp
12 Wha u u e in he Eu opean
Union?
Joe Ma ino
In oduc ion
Many my hs ha e been sp ead abou he ade union app oach o he Eu opean
Union. To ead he messages coming om Cong ess House and epo ed in he
media, one could be o gi en o belie ing ha he ade union mo emen was a
wholehea ed chee leade o he Eu opean Union. This is pa and pa cel o he
old misconcep ion ha sees he ade union mo emen as a monoli hic whole.
No hing could be u he om he u h. The issue o he Eu opean Union di ides
ade unions and hei membe s as much as i di ides all poli ical pa ies and
B i ish socie y as a whole. The e is no hing new, no is he e any hing w ong wi h
ha . Is i no called democ a ic deba e? Does his no make us s onge han hose
who would p each unanimi y a any p ice no ma e wha he cos ?
No is his di ision new o ne e changing. Some indi iduals change ‘sides’ as
hei s ances mo e wi h wha hey would call ‘e en s’. One has only o look a he
wo main pa ies o see ha . Ini ially he Conse a i es we e he main champions
o EEC membe ship, pushing i o all i was wo h. The labou mo emen s ini ial
s ance was one o heal hy scep icism, wi h many in he labou mo emen
campaigning o a ‘No’ o e in he e e endum o EEC en y. T ue, some o hose
opponen s a e now chee leade s o he Eu opean Union, o example Neil
Kinnock, an EU Commissione . And he To ies a e a mainly eu oscep ic pa y
(wi hou , o cou se, da ing o ask he $64,000 ques ion on con inued membe ship).
How imes change. Indi iduals and pa ies can, o cou se, change hei iews.
No hing w ong wi h ha , no need such changes be a ma e o c i icism.
Howe e , I would a gue ha he ques ions ha hung o e he o iginal membe ship
o he EEC a e w i la ge o e he cu en deba e on B i ain’s u u e in he
Eu opean Union.
The e is no doub ha a sea change came o e he iews o many ade unions in
ela ion o he Eu opean Union du ing he pe iod o he Conse a i e go e n-
men s o 1979–97. Those go e nmen s we e so an i- ade union and wo king class
ha any hing was seen as be e . Howe e , e en in hose halcyon days some o us
we e wa ning abou g eene g ass in he nex ield. A union con e ence a e union
con e ence I emembe wa ning – bo h in e nally and ex e nally – ha membe -
ship o he Eu opean Union only looked good because he To y go e nmen was so
Wha u u e in he Eu opean Union? 119
bad. Wha ma e ed was ou own con ol o e ou own democ acy – and ha
mean ade union and labou mo emen democ acy no na ionalis ic clap ap.
The coun e -a gumen was always on he ‘bene i ’ o Eu opean Union legis-
la ion ha was a ou able o wo ke s se agains he an i- ade union app oach o
he hen Conse a i e go e nmen s. Tha , we we e old, was wha made membe -
ship o he Eu opean Union a ac i e. I ne e belie ed ha was a sus ainable
a gumen . The b ie his o y o New Labou shows ha i is un enable. Wi h Tony
Blai b agging abou he Uni ed Kingdom ha ing he mos es ic i e labou laws
in he de eloped wo ld, and he New Labou go e nmen seeking op -ou s and he
wa e ing down o any EU issues ha bene i wo king people and ade unionis s –
a e all we mus no upse he CBI mus we? – one has o se iously ques ion he
u u e o wha has been desc ibed as ‘social Eu ope’. Indeed, New Labou is
leading he cha ge o sweep away o , a wo s o hem, wa e down any social gains
he Eu opean Union boas ed o in he pas .
Se e al poin s ha e now become clea ega ding he posi ion o ou union in he
deba e o e he u u e o he Eu opean Union:
Club ules
I B i ain is o be pa o he Eu opean Union i is clea ha , soone o la e an EU
cons i u ion is necessa y. In he sho e m, he issue is no he p oduc ion o a
cons i u ion bu wha is in i . The e is also he longe - e m iew in ela ion o
con ol o e changes in he cons i u ion. T ade unions know only oo well ha
ag eemen s s uck on amalgama ion o ans e o engagemen s a e empo a y
a ai s ha , in he ullness o ime – o en much speedie han ha – a e o e aken
by eali y.
The e is a lo in he p oposed ‘cons i u ion’ ha makes sense o a club. The
eplacemen o he o a ing p esidency by a chai o he council; he educ ion o
commissione s o one pe s a e, and hen es ic ing ha numbe o wo- hi ds o
membe s a es on a o a ion sys em; inc eased powe s o MEPs (al hough hese go
nowhe e nea a enough o democ a ic esponsibili y); a single EU Fo eign
Minis y e c. All hese s eps ecognise he basic ac ha a club mus ha e one se
o ules.
Ye a he same ime we a e asked o belie e ha o he a eas o he wo kings o
he Eu opean Union will no be pa o he cons i u ion; ha he so-called ed lines
ha e no and will no be b eached. Such a claim begga s belie . The e can be no
gua an ee ha hese a eas will emain ‘ ee’ om he cons i u ion, and i is nai e o
hink so and dishones o claim so. Pu simply, he Eu opean Union canno wo k in
he long e m wi h di e ing ules o di e en membe s a es. Once he economy is
cen alised all else mus and will ollow. In such a case he p esen democ a ic
de iciency will mul iply and B i ain will, like o he s, be le a he ma gins o a
Union i canno in luence.
He e he cen al issue is economic managemen , and he ac is ha he isola ion
o he Eu opean Cen al Bank om eali y – no o men ion any kind o democ a ic
con ol and accoun abili y – is cen al. The e is no space he e o a gue his case in

120 Joe Ma ino
de ail; o he s will do ha . Ye i is a ac ha e en p o-Eu opean Union economis s
despai abou he ole and lack o accoun abili y – no o men ion he policies –
o he ECB. The e can be no g een ligh o he Eu opean Union cons i u ion un il
he ECB is b ough unde ha democ a ic con ol. E en he ‘independen ’ Bank o
England aces he inal poli ical con ol – i s e y independence can be e e sed by
a poli ical decision o he House o Commons. No such sanc ion is he e o he
ECB and he e is a undamen al law in he s uc u e o he Eu opean Union. O
cou se, i can be a gued ha powe ul go e nmen s can jus igno e he ECB – as
Ge many and F ance ha e done ecen ly. Tha , o cou se, begs he ques ion o how
long he e y s uc u e o he ECB, he single cu ency and he Union i sel can
su i e unila e alis , indi idual s a e decisions. By hemsel es he ac ions o he
Ge man and F ench go e nmen s show he sham o uni y.
Single cu ency
The same is ue o he single cu ency. We belie e ha membe ship o he single
cu ency would be a disas e o B i ain and ha he issue o he le el o joining – a
wha exac exchange a e – is a ed he ing. We would be bound by he ules o he
eu o and ou economic independence would be gone o good. All ha would be
le is inke ing a he edges. No is i enable o sugges ha once we join we could
hen in luence e en s – ha boa has al eady le he ha bou . Democ a isa ion o
he eu o and he ECB is essen ial – bu much ha de o achie e once le go. And no
one can se iously doub he democ a ic de iciency he e.
O equal impo ance a e he so-called budge ules. The Commission p esiden
may well hail he ecen Eu opean Cou o Jus ice uling ha EU go e nmen s
had ac ed illegally in igno ing a call o punish F ance and Ge many o iola ing
budge ules, bu he ac is hey did. And in doing so hey highligh ed a majo
ailing in hose ules. O equal impo ance a e he in lexibili y o he eu o ules and
he ole o he ECB. E en he mos a den suppo e s o he single cu ency do no
disag ee ha Go don B own’s in es men plans o he NHS and educa ion would
all oul o hese ules. In such ine i able ci cums ances B i ain would ha e o ace
he same ‘dilemma’ aced by Ge many and F ance. Do we heed he eu o ules o
mee he demands o he B i ish people o in es men in heal h and educa ion? I
know my choice – bu I doub ha o some B i ish poli ical pa ies. One has only o
look a he mess he Sch oede and Chi ac go e nmen s a e in o e he eu o/s a e
unding/s abili y pac issues o see he w i ing on he wall. Bo h Ge man and
F ench go e nmen s a e aking he axe o social p o isions, especially pensions, in
o de o minimise hei bus ing o he eu o ules – and, despi e hose sa age cu s,
s ill ailing. I seems he only ‘posi i e’ in he eu o is no ha ing o pay commission
on holiday exchange a es – I can li e wi h ha i i means making ou own
decisions on in es men in B i ish public se ices.
The cons an blea ing ha being ou side he single cu ency – indeed ou side he
Eu opean Union – equals job losses is so a o he ma k one ge s su p ised ha i is
s ill being made. To quo e he ‘Labou Eu o-Sa egua ds Campaign Bulle in’ o
No embe 2003:
Wha u u e in he Eu opean Union? 121
We cons an ly ha e a ade de ici wi h he o he EU coun ies, cu en ly
unning a well o e £10bn pe annum. No is B i ain dependen on he EU
o jobs. The claim ha 3m jobs would be los i we we e no in he EU is
nonsensical. In ac , B i ain’s economic pe o mance has been conside ably
be e ecen ly han mos o he EU Membe S a es, la gely because we a e no
in he eu o and hus no bound by he S abili y and G ow h Pac and he
de la iona y dic a es o he Eu opean Cen al Bank.
I is no a long- e m enable posi ion o suppo membe ship o he Eu opean
Union bu oppose he single cu ency. The issue he e is no jus iming and he le el
a which B i ain joins he single cu ency i i s ays in he Union. The e is also he
issue o democ a ic accoun abili y in ela ion o he Eu opean Cen al Bank and
he need o lexibili y in economic managemen o ake accoun o di e ing needs
in di e en pa s o he single cu ency a ea. These issues a e a om se led and
un il hey a e ou iew emains one o opposi ion o single cu ency membe ship.
As se ou abo e, he weakness shown by he p esen EU ins i u ions does no bode
well o he success o he cons i u ion. I economic sec ions o EU policy can be
igno ed, hen why no o he s? And i is no jus he Ge man and F ench go e n-
men s who claim his igh o di e en ea men .
I ha e a gued ha membe ship o he Eu opean Union only looked good o
B i ish ade unionis s because o he an i-union s ance o he Tha che and Majo
go e nmen s. I emembe wa ning a he ime ha , should a Labou go e nmen
wish o pou money in o he social ab ic o B i ain – in pa icula he NHS and
schools – hen i could well all oul o EU ules. Su e enough, as Go don B own
bela edly began he ebuilding o ou neglec ed public se ices, he ECB issued i s
wa nings agains his spending plans o b eaching EU ules. O cou se, being
ou side he single cu ency he T easu y qui e igh ly igno ed hose ‘sugges ions’. I
would, o cou se, be a di e en ma e i we we e s angled by he single cu ency
ules – as F ance and Ge many ound. Ye o b ush hese p oblems aside by ei he
ollowing he F ench and Ge man example – unsus ainable in e en he medium
e m i he single cu ency is o su i e – o by saying we ne e will join he single
cu ency unless i is on ou own e ms is disingenuous. The single cu ency is he
li eblood o he Eu opean Union and, soone a he han la e , all membe s a es
will ha e o join i hey wan o s ay in he club – he e can be no dispu e abou ha .
The only poin o disag eemen o p o-Eu opeans seems o be he le el a which
we join. Impo an as ha is, i is dishones o gi e any o he signal. Membe ship o
he Eu opean Union mus mean a some s age membe ship o he single cu ency.
Le ’s a leas be hones abou ha .
The e o e he a gumen abou he democ a ic de iciency in economic ma e s is
i al bu is a oided by hose who wish o sho e us in o he Eu opean Union by he
back doo . As wi h o he aspec s o he Eu opean Cons i u ion, a he end o he
day i is all o no hing.
122 Joe Ma ino
Dilu ed membe ship
The issue o de ail is also one ha d i es ou cu en iew on he cons i u ion and
on con inued membe ship o he Eu opean Union. I a cons i u ion is o be ag eed,
i mus be he same o all membe s a es. Tha is a om he posi ion o he B i ish
go e nmen which con inues o seek op -ou s o ha EU legisla ion a ou able o
wo king people in he Uni ed Kingdom. How he go e nmen can hope o win a
e e endum on he cons i u ion whils i akes such an an i-wo ke s ance begga s
belie . And why should we suppo such a s ance ha is clea ly agains he bes
in e es s o ou membe s? I he pe cei ed gains o ‘social Eu ope’ a e o be denied
us, wha a e we in i o ? Indeed ou con e ence was clea on one hing: he
go e nmen need no seek ou membe s’ assis ance in ge ing a ‘Yes’ o e whils i
akes his s ance.
Che y-picking a he cons i u ion is no an op ion. I ha is o be allowed hen
he cons i u ion i sel will be a a ce and would no dese e suppo .
Thus he claim is made by some ha ade unions mus suppo he cons i u ion
because i emb aces he Eu opean Cha e o Fundamen al Righ s. This goes igh
o he hea o he deba e o us – because he claim is spu ious. How can we
campaign o such a laudable aim i , a he same ime, he New Labou go e n-
men is op ing ou o ha same Cha e all o e he place. This is he p oblem wi h
he gua an ees gi en o he CBI and o he employe o ganisa ions. In e ec , B i ish
wo ke s a e being old: he e is wha he es o he Eu opean Union wo k o ce is
ge ing bu we a e ensu ing hey don’ apply he e in B i ain. Vo e o a cons i u ion
ha makes you he poo ela ions o he Union. Wha a a ce – and one we, a leas ,
a e no p epa ed o ake pa in.
Resis ance o ull in o ma ion and consul a ion o B i ish wo ke s; opposi ion o
ull implemen a ion o he wo king- ime di ec i e; e usal o g an B i ish wo ke s
he same igh s o de end hemsel es h ough he igh o ake indus ial ac ion; he
ailu e o gua an ee employmen p o ec ion igh s om day one o employmen ;
he ease wi h which B i ish wo ke s – one o he leas p o ec ed wo k o ces in he
ad anced economic wo ld – can be dismissed . . . The lis is endless. Whils pe haps
we should no be su p ised by New Labou ’s an i-wo ke s and in hese a eas, i is
su ely simplis ic o hem o expec ou suppo o a cons i u ion ha lea es B i ish
wo ke s as he poo ela ions o he Eu opean Union in any e e endum. The
ques ion is ‘wha ’s in i o us?’ And he answe is ‘ e y li le’.
I may well be claimed ha membe ship o he Eu opean Union c ea es jobs in
he Uni ed Kingdom. I don’ accep ha – a he e y leas he ju y is s ill ou on
ha ques ion. Bu wha is he use o job c ea ion i , due o he weakes labou
p o ec ion laws in he ad anced economies, hose same jobs can be aken away a a
me e whim wi h no comeback o p o ec ion?
Conclusion
Ou cu en iew was one o opposi ion o membe ship o a club ha s acks he
ules agains ou membe s and hei amilies. Howe e , we do belie e ha
Wha u u e in he Eu opean Union? 123
membe ship o he Eu opean Union mus mean accep ance o a cons ic ion o
some so ; and ha any a emp by he UK go e nmen o op ou o wo ke -
iendly clauses o he cons i u ion o o he EU laws and di ec i es would lead us o
campaign o a ‘No’ o e in any e e endum. I would simply no be wo h he
candle.
Membe ship o he eu o and suppo o he Eu opean cons i u ion a e
inex icably linked. The Conse a i es and hei suppo e s on he igh , such as
he UKIP, wish o see he Eu opean Union as a ee ma ke o big business wi h
li le o no p o ec ion o wo ke s o consume s. Hence, o example, hei oppo-
si ion o s eng hening labelling laws o he s ic con ol on GM oods. The To ies’
p oblem is ha hey canno ake hei opposi ion o cu en ends in he Eu opean
Union o i s logical conclusion – ha o lea ing he Union. The UKIP is agains
any hing ha smacks o Johnny Fo eigne and wan s o see B i ain e u n o p e-
Elizabe han days when he wo ld was much smalle and we we e bliss ully igno an
o anywhe e pas hese sho es.
Ou opposi ion o he eu o mus be and is based on mo e han li le-Englande
p ejudice. This idea ha economic supe -blocs a e he answe is iddled wi h
con adic ions ha will ine i ably bu s hem apa . Who, ou side Washing on ha
is, se iously belie es ha NAFTA is any hing bu an economic ex ension o he pax
Ame icana and a ehicle o he expo o US capi alism? F om whe e we s and he
cu en s a e o he Eu opean Union is one ine i ably linked o and suppo ing
capi al agains labou . Tha becomes mo e and mo e appa en as wo ke
p o ec ion and social ad ancemen a e abandoned in a ou o lexible ma ke s.
We wan no pa o ha .
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Index
Page e e ences o ables and igu es a e shown in bold, e.g. ba e ca d 162
accession coun ies 65–8
Accession, T ea y o (1972) 21
accoun abili y 119–20, 121; o B i ish
go e nmen s 170
acquisi ions and me ge s 150–2
ad anced echnology s uc u es 100
AES (Al e na i e Economic S a egy) 23, 25
agg ega e demand 97, 99
Al e na i e Economic S a egy (AES) 23, 25
Ame icanisa ion 89
Ams e dam T ea y (1997) 31, 171, 197, 212
Annual Con e ences (Labou Pa y): deba es on
EU (1947–1987) 27–8; deba es on EU
(1988–2000) 29
Anzilo i, Judge D. 171
A es is, Philip 5–6, 58
A gen ina 161, 164; ba e ca d 162
A hu D. Li le (consul ancy i m) 160
A s, W.A. and Gelissen, J. 106
Asia: li ing s anda ds 72; ading block 101; US
powe in 164
asymme ic shocks 212
A kinson, D. 35
Baimb idge, M. 6, 93–4, 204
balance o paymen de ici s 46–7
Balanyá, B. 35
Bank o England, independence o 31, 41, 180
banks, and co po a e go e nance 151; see also
cen al banks; Eu opean Cen al Bank
Ba a B own, M. 35
ba ie s, o ade 72, 150
Ba oso, José Manuel 114
ba e ca d 162
ba e clubs 161–2
BBC, Re e endum S ee (TV p og amme) 182–3
bene i s see cos s and bene i s
Benn, Tony 11, 35, 186–8; e e endum
campaign 21, 30, 31, 157, 187, 188, 195
Be in, E nes 16
Blai , Tony: opposes EU bonds 31; p o-EU
agenda 31, 85, 138, 143; p o-eu o agenda
111, 112, 116, 199; p o- ede alism o 196,
197
Bolks ein, F i s 128
bo de s, c oss-bo de in es men 150
Boyle, D. 161
B i ain see Uni ed Kingdom
B i ain in Eu ope campaign 112
B own, Geo ge 18
B own, Go don 86–7, 88, 121, 134; EMU and
so e eign y 168, 169, 171; eu o en y and
so e eign y 181, 182; p o- ede alism o 196
budge , ede al 67, 68–9
budge ules 120
Bundesbank 212
Bu ki , B ian 7–8, 10, 34, 35, 63
Bush, Jane 6
business o ganisa ions 211; see also i ms;
in e na ional ma ke s; mul ina ional
co po a ions; ade
Callaghan, James 21, 22, 23
campaigns see B i ain in Eu ope campaign;
e e enda
CAP (Common Ag icul u al Policy) 89, 212
capi al accumula ion 134
capi al spending, educ ion o 87, 88
ca bon dioxide emissions 163
Ca ey, A. 36
Ca o, Sco 10
Ceccini epo 69
cen al banks: independence o 78, 80–3;
see also Bank o England; Eu opean Cen al
Bank
Cen e o a Social Eu ope 110, 133
Ce ny, P.G. 143
CFP (Common Fishe ies Policy) 89, 212
Cha e o Righ s (Commonweal h o Eu ope
Bill) 194–5
Chu chill, Wins on 40
Ciampi, Ca lo 199
Index 231
Cla ke, Kenne h 68
Common Ag icul u al Policy (CAP) 89, 212
common cu ency 160–2
Common Fishe ies Policy (CFP) 89, 212
Common Fo eign and Secu i y Policy (CPSP)
212
Commonweal h o Eu ope Bill (1992) 11, 30,
188–95
con e ences see Annual Con e ences
Conse a i e Pa y: an i-Eu opean s ance 178,
180, 197; Labou ’s opposi ion o
Conse a i e en y e ms (1971) 20–1;
opposi ion o single cu ency 60; p o-
Eu opean s ance 1–2, 118–19; p oposals on
FTAs 17
Cons i u ion: and B i ish so e eign y 176; see
also Eu opean Cons i u ion; so e eign y
co po a e go e nance, and EMU 149–52
co po a ions see mul ina ional co po a ions
cos o li ing: e ec s o en y on 19, 20; see also
li ing s anda ds
cos s and bene i s, o EU membe ship 34–5,
71–6, 119–20, 122, 124–31, 200
CPSP (Common Fo eign and Secu i y Policy)
212
c edibili y, o mone a y policy 79
C ow, Bob 110
cumula i e causa ion 96–7
cu encies: common and al e na i e 160–2; he
dolla 163–4; eu o as al e na i e o dolla
164; pound s e ling 168, 178, 181, 183, 207;
see also eu o; exchange a e
cyclical con e gence 212
Da idson, Ian 115
de Gaulle, Cha les 18, 19
Deakin, S. 42
deb , ex e nal 164,165
de la ion 94, 178, 212–13; and cumula i e
causa ion 96; see also Maas ich
Con e gence C i e ia
deg ees o independence 80
Dehaene, Jean Luc 198–9
Delo s, Jacques 25, 48, 105, 138
demand, and supply 98
democ acy: and he ECB 54; in a ede al
Eu ope 36; loss o 130–1, 175, 176; and
new EU membe ships 73; pa liamen a y
169–70
Denma k 73
de alua ion 100, 173, 181–2, 213
de eloping coun ies 162; ex e nal deb o 165
di e en ial shocks 55
di e en ials, in ea nings 162
di ec elec ions 213
dolla : as in e na ional cu ency 163–4; alue
o , agains he pound 207
Dou hwai e, Richa d 163–4
Duisenbe g, Wim 166, 199, 200
Dyson, K. 147
ea nings see wages
eas e n Eu ope, mone a ism in 65–8
Ea well, John 25
EBRD (Eu opean Bank o Recons uc ion and
De elopmen ) 66
EC (Eu opean Commission) 69–70, 134
ECB (Eu opean Cen al Bank) 41, 77–89, 213;
accoun abili y o 119–20; and EMU 2, 52;
mone a y policy and in la ion con ol 54–5,
58–9, 63–4; p ice s abili y and
unemploymen 94; p i a isa ion agenda 61;
and he single cu ency 77–84
economic g ow h see g ow h a es
Economic and Mone a y Union see EMU
economic shocks 148, 212
‘The Economis ’ (jou nal) 64, 150, 151
economy/economic policy: al e na i es o
EMU 203–7; al e na i es o neo-libe al
policies 135–6; al e na i es o single
cu ency 202–3; au onomy o , and
globalisa ion 100–1, 207; economic
consequences o single cu ency 39–51,
120–1; economic cos s o EU membe ship
35, 119–20, 178; economic lexibili y 114,
121, 160, 165; and EU Cons i u ion 126–7;
impac o EMU 140–1; non-economic
ac o s and mone a y policy 80; p oblems
associa ed wi h ESM 108–9; so e eign y as
economic issue 177–8; see also iscal policy;
mone a y policy; ade
ECS (Eu opean Company S a us) 213
Edmonds, J. 105, 106, 139
EDP (Excessi e De ici P ocedu e) 214
EEC, B i ish en y in o 177–8
EFTA (Eu opean F ee T ade Associa ion) 17
EIB (Eu opean In es men Bank) 58
Eichel, Hans 114, 198
Eicheng een, B. 58
Elec ions: as democ a ic igh 170; di ec
elec ions 213; and ep esen a i e poli ics
172; esul s o , and he economy 181
Elec o a e: labou no o e on eu o 111–16;
igh s and p o ec ion o 170; so e eign y and
he eu o 175, 176–7, 178, 179, 182–3
Ellio , L. 6–7, 35, 165–6
El is, W.A. 99
EMI (Eu opean Mone a y Ins i u e) 214
employmen : Keynesian and pos -Keynesian
policies o 97, 98; secu i y o 114; see also
labou ma ke ; unemploymen ; wo ke s
EMS (Eu opean Mone a y Sys em) 23
EMU (Economic and Mone a y Union) 52–9,
213; a gumen s o and agains 2, 207–9;
and B i ish so e eign y 168–74; and B i ish
ade unions 137–44; es ablishmen o 94;
mac oeconomic impac o 145, 146–9;
mic oeconomic impac o 145–6, 149–52;
neo-libe alis policies 62–5; op -ou and
al e na i es policies 11, 203–7, 209–10;
and a pos -Keynesian s a egy 95, 98–100,

232 Index
100–1; social and poli ical cos s o 148–9;
sus ainabili y o 51
ene gy supplies 129–30
en y ( o EU/eu o)a gumen s agains 196–201;
suppo o 17–20, 184; e ms o 177–8;
e ms enego ia ed 21–2, 187; see also
ede alism; so e eign y
en i onmen al cos s 160
en i onmen al policies 130, 173
E ha d, Ludwig 108
ERM (Exchange Ra e Mechanism) 23, 39–41,
92–3, 214; TUC suppo o 138
ERT (Eu opean Round able o Indus ialis s)
158
ESCB (Eu opean Sys em o Cen al Banks) 214
ESM (Eu opean Social Model) 7–8, 105–10,
145–53; as al e na i e o US capi alism
model 35, 138; and dena ionalisa ion 126;
ade unions suppo 138–9, 143
Esping-Ande sen, G. 106
ETUC (Eu opean T ades Union Cong ess)
138, 139
EU bonds 30–1
EU (Eu opean Union) 214; B i ain’s u u e in
118–23; EU e o m (1976-1979) 22–3;
ailu e o 85–90, 180; independen o eign
policies o 136; Labou Con e ence deba es
on 26–9; limi s pa liamen a y democ acy
170–3; membe ship cos s and bene i s 34–5,
71–6, 119–20, 122, 124–31, 200; opposi ion
o en y 17, 20–1, 124–31, 186–8; policies
on unemploymen 48–50; and he US 132–3
he eu o: as al e na i e o dolla 164; bene i s
o , o po en ial membe s 71–6; and B i ish
so e eign y 176–7, 179–80, 181, 182–5; and
EU membe ship 123, 152; Eu opean
adop ion o 197; impac o minimum wage
on 143; and in e na ional issues 157–67;
New Labou policies on 32, 111–16; and he
poo wo ld 162–5; e e enda on 115, 116,
182–3, 184, 200–1; alue o 94–5; and
wel a e s a e 165–6; see also single cu ency
Eu o-A ica plan 16
Eu o-X Commi ee 214
Eu opean Bank o Recons uc ion and
De elopmen (EBRD) 66
Eu opean Cen al Bank see ECB
Eu opean Commission (EC) 69–70, 134
Eu opean Company S a us (ECS) 213
Eu opean Cons i u ion 213; Cons i u ional
T ea y 65; deba e on 119–20, 122, 135;
New Labou policy on 32–3; ade unions’
iews on 124, 127, 129–31
Eu opean Con en ion on Human Righ s 18
Eu opean Council 187–8, 213
Eu opean Economic Communi y 177–8
Eu opean F ee T ade Associa ion (EFTA) 17
Eu opean In es men Bank (EIB) 58
Eu opean Mone a y Ins i u e (EMI) 214
Eu opean Mone a y Sys em (EMS) 23
Eu opean Pa liamen 159; B i ish o es in 175
Eu opean policy, o Labou Pa y and Fo eign
O ice (1945–2004) 13–16
Eu opean Round able o Indus ialis s 158
Eu opean Social Model see ESM
Eu opean Sys em o Cen al Banks (ESCB) 214
Eu opean Technology Communi y 186–7
Eu opean Union see EU
Eu opean Wo ks Councils (EWCs) 141–2,
214
eu oscep icism, p og essi e 2, 3
EWCs (Eu opean Wo ks Councils) 141–2, 214
Excessi e De ici P ocedu e (EDP) 214
exchange con ols: abolishmen o 44–5;
es ablishmen o 92; and globalisa ion 100
exchange a e 40, 55, 182, 183; lexible
exchange a e egime 148–9; and UK
economic policy 206–7, 210
Exchange Ra e Mechanism see ERM
ex e nal shocks 212
Fa Eas 163–4
Fa as, A. 56
ede al budge 67, 68–9
ede alism 17, 169, 172, 196–201; iscal
ede alism 67–8, 68–9, 214
Figa o (newspape ) 166
inal sala y pension 127–8, 129
i ms: ESM and co po a e con ol 149–52; in
UK, and he eu o 158, 159
iscal ede alism 67–8, 68–9, 214
iscal policy 214; and abolishmen o exchange
con ol 44–5; al e na i es o EMU 204–5;
and ailu e o Eu ope 85–90; ha moniza ion
wi h mone a y policy 67–8; and in la ion
con ol 54; lack o Eu opean 53, 68–9; non-
economic ac o s in 80; and edis ibu ion
55–7; ade unionis s’ an i-EU posi ion
124–31
iscal ans e s 45–6, 56, 68–9
Fische , Joschka 198
Fische , S anley 147
i e economic es s 32, 182, 183, 197
lexibili y, economic 114, 121, 160, 165
lexible exchange a e egime 148–9
Flynn, Pad aig 48
Foo , Michael 24
Fo eign O ice, and Eu opean policy (1945–
2004) 13–16
o eign policy, o EU 136
F ance: Mi e and go e nmen 49; social
p o ision cu s 120; unemploymen a es 63
ee ma ke economy: as aspec o in eg a ion
50; and EMU 60, 109; p og essi e
eu oscep ic iews on 3
FTA (F ee T ade A ea) 17
G7 172, 214
Gai skell, Hugh 18
Gaspa , V. 82
Index 233
GATT (Gene al Ag eemen on Ta i s and
T ade) 208
GDP (G oss Domes ic P oduc ) 68, 215; and
ex e nal deb 164; GDP g ow h and in la ion
75; pe capi a GDP ela i e o EU co e 71;
ecessiona y limi s on 94, 140; spending on
EU membe ship 130
Gene al Ag eemen on Ta i s and T ade
(GATT) 208
Geo ge, Susan 164
Ge many: al e na i e cu encies in 161; ESM
in 107–8; g ow h and expendi u e in 64;
in la ion and cen al bank independence 79;
euni ica ion o 141; Social Ma ke Model
139; spending cu s in 114, 120;
unemploymen in 62, 66, 166; wage
ba gaining in 141
gil s 214
global emissions 163
globalisa ion 72–3; and economic g ow h 176;
and EU policies 143; and he eu o 158, 159,
167; and g een economics 162–4; and
mul ina ional capi al 43, 50–1; poli ical
consequences o 172–3; social consequences
o 147
GNP (G oss Na ional P oduc ) 215
Godley, Wynne 44–5
gold s anda d 39, 40, 83, 214–15
Gonzalez, Felipe 198
Gould, B yan 4, 25, 30, 40–1
go e nance: co po a e, and EMU 149–52; and
EU Cons i u ion 126–7, 129–31
G ahl, J. and Teague, P. 146
G eece 71
g een economics 157, 161, 162–4
G een Pa y 10, 157
G os, Daniel and Thygesen, Niels 149
G oss Domes ic P oduc see GDP
G oss Na ional P oduc see GNP
g ow h a es: o B i ish economy 85–6, 87,
130–1, 176; o EU economy 127; and eu o
en y 178, 181; and inc easing e u ns 96–7;
and in la ion 73–4, 74–5, 79; na ional 64;
neo-libe al con ol o 61–5
Ha din, R. 96
Ha monised Index o Consume P ices (HICP)
81
Hayes, Billy 9
HICP (Ha monised Index o Consume P ices)
81
Hines, C. 35
Holland, S ua 19, 24, 30, 35, 140
Honohan, P. 58
Hood, A. 35
hos ile akeo e s 150–1
Howe, Si Geo ey 86
Hund , Die e 166
Hunga y 66
Hu on, Will 159
IMF (In e na ional Mone a y Fund) 215; and
B i ish economy 85–6; on EU economic
g ow h 65
impe ial hi d o ce policy 16
inc easing e u ns 96–7
independence (concep o )and ECB 78–81; o
UK om EU 130–1
indus ial policies 205
indus ial ela ions 141–2
indus ies, manu ac u ing 129–30, 178, 182,
205
in la ion: al e na i e policies on 204–5; and
g ow h a es 73–4, 74–5, 79; and mone a y
policy 53, 54–5, 57–8, 63–4, 67; and policy
c edibili y 79; and p ice s abili y 81–2; and
eal GDP g ow h 75; and he single cu ency
39, 42; and unemploymen 173
in as uc u e 87, 89
Ins i u e o Communi y Cu encies 161
insu ance, social 107–8
in eg a ion: and co po a e go e nance 149–52;
e ec o mone a is policies on 66–7; ESM
p oposal o 105–6; ee ma ke aspec o
50, 146–9; Labou posi ion on 4–5, 12, 17,
34–6, 186, 199–201; poli ical consequences
o 172–3, 208; social consequences o 147
in e es a es: con ol o and he eu o 113, 180,
184; and exchange a e policy 206; and
in la ion con ol 54–5, 173; low in e es a e
s a egy 203–4
in e go e nmen al Eu opean Co-ope a ion 17
in e go e nmen alism 215
in e na ional o ces 130–1
in e na ional ma ke s: and Eu opean in e nal
ade 57; and he poo wo ld 162–4; and
powe o mul ina ional capi al 43, 50–1
In e na ional Mone a y Fund see IMF
in es men , socialisa ion o 97–8
I aq 133
I eland 71, 141
Issing, O ma 82, 114, 143
I aly, g ow h and expendi u e 64
Jay, D. 35
jobs see labou ma ke ; unemploymen
Kaldo , N. 46
Ka z, P. 35
Kenne , J. 148
Keynes, J.M. 40, 91–2, 97–8
Keynesian s a egy 3, 204–5; see also pos -
Keynesian s a egy
Kinnock, Neil 24–5, 118
Kleinman, M. 105
Kohl, Helmu 31, 197, 198
Labou Eu o-Sa egua ds Campaign Bulle in
120–1
labou ma ke : limi ed wo k o ce composi ion
142; need o lexibili y in 67; policies o UK
234 Index
205; p o ec ion o and EU membe ship
122–3; egula ion o and ESM 107–9;
egula ion o and social policy 142–3; see
also employmen ; unemploymen
Labou Pa y: condi ional suppo o en y
(1962–1970) 17–20; EU e o m (1976-1979)
22–3; Eu opean in eg a ion issue 4–5, 12,
34–6, 186, 199–201; Eu opean in eg a ion
schemes (1946-60) 16–17; Eu opean policy
(1945-2004) 12–13, 13–16; opposi ion o
en y on Conse a i e e ms (1971) 20–1;
opposi ion o en y wi hou sa egua ds (1961)
17; policy changes on EU 33–4, 137–8; p o-
membe ship policy (1988–) 24–33, 197–8,
199–200; e ms enego ia ed (1972-1974)
21–2; wi hd awal policy (1980-1987) 24;
wi hd awal scheme (1975) 22; see also New
Labou policies
La on aine, Oska 198
Lamon , No man 82–3
La in Ame ica 162
Lawson, Nigel 82–3
legisla ion 169–70; powe s o 171–2
Lisbon Agenda 215
li ing s anda ds: in Asia 72; see also cos o li ing
Lucas, C. 35
Maas ich , T ea y o Maas ich (Re e endum)
Bill 31, 195
Maas ich Con e gence C i e ia see MCC
Maas ich T ea y 5, 30, 31, 41–3; al e na i es
o 43–7; and B i ish so e eign y 173; on EIB
58; hos ili y o de la iona y p o isions o
199; neo-libe al agenda o 52–3
MacDougall Repo 43, 56
McG ego , Ma hew 8
mac oeconomic impac o EMU 145, 146–9
mac oeconomic policy 62, 66; ou side single
cu ency 99, 203–10
Majo , John 31
majo i y o ing 171
Malcolm, N. 171
Mandelson, Pe e 32, 33, 113–14, 125
Mannesmann 150
manu ac u ing indus ies 129–30, 178, 182,
205
Ma ino, Joe 8
Ma jolin, Robe 18
ma ke ideology: and EMU 146–9; see also ee
ma ke economy; labou ma ke ; single
ma ke
MCC (Maas ich Con e gence C i e ia) 93,
108, 215
media: bias in 115, 183; Labou a ack on 199;
opinions on eu o 176, 182–3
Medium Te m Economic Policy (MTEP) 18–19
me ge s and acquisi ions 150–2
Michie, Jona han 5, 40
mic oeconomic impac o EMU 145
Middle on, Si Pe e 82–3
mili a y powe 163–4
Milne, I. 35
Minimum Funding Requi emen (MFR) 129
Mi chell, Aus in 11, 31
Mi e and, F ançois 48
Monbio , Geo ge 164
mone a ism 62, 86–7; in eas e n Eu ope 65–8;
and ESM 108; ‘new mone a ism’ 53; he
TEU 92–5
mone a y policy 5–6, 215; al e na i es o EMU
203–7; au onomy o , and globalisa ion
100–1, 207; and cen al bank independence
82–3; c edibili y o 79; ha moniza ion wi h
iscal policy 67–8; non-economic ac o s in
80; and philosophy 81–2
mone a y union 52–9; and in e nal ma ke
147–53; and op imal cu ency heo y 67–8;
and poli ical union 47, 198–9, 200–1;
and egional policies 42, 53, 125; alue o
69–70
Mo is, Si Bill 115
MTEP (Medium e m Economic Policy) 18–19
Mullen, Andy 4–5, 32, 34
mul ina ional capi al 43, 50–1
mul ina ional co po a ions 158, 159
Mundell, Robe 67, 68
Mu doch, Rupe 33
NAIRU (non-accele a ing in la ion a e o
unemploymen ) 53, 216
he na ion s a e 3, 184–5; see also sel -
de e mina ion
Na ional Changeo e Plan 199
Na ional In es men Bank (NIB) 98
na ional a es: o g ow h and expendi u e 64; o
unemploymen 62–3
na ional social models, de ence o 146
neo-libe alism 52–3, 60–5, 133–4; al e na i es
o 9, 135–6
Ne he lands 64, 68, 141
New Economics Founda ion 163
New Labou policies: and cen al bank
independence 82–3; on EU membe ship 11,
119; on he eu o 33, 111–16; on
p i a isa ion 61; see also Labou Pa y
‘new mone a ism’ 53
NIB (Na ional In es men Bank) 98
Nice T ea y 31, 215
Nicholls, Doug 8–9
No Campaign 157, 187
nominal wage igidi y 216
non-accele a ing in la ion a e o
unemploymen (NAIRU) 216
OCA heo y 96, 216
Occupa ional Pension Funds Di ec i e 128
OECD 216
opinion polls see elec o a e; public opinion
op imal cu ency heo y 67–8
Op imum Cu ency A ea heo y 93, 216
Index 235
O ganisa ion o Economic Co-ope a ion and
De elopmen 216
O me od, Paul 6
Ou o C isis P ojec 25
o e alua ion 181, 183–4, 213
Owen, Da id 4
pa liamen a y democ acy 169–70
pensions 127–9
people see elec o a e; wo ke s
philosophy, and mone a y policy 81–2
Podmo e, W. 35
Poland 65–6
poli ical business cycle 79
poli ical cos s: o EU membe ship 35, 125,
168–72, 179–80, 183–5; ou comes o
in eg a ion 172–3, 208
poli ical union, and mone a y union 47, 198–9,
200–1
pooling 10, 147
he poo wo ld, and eu o 162–5
Po ugal 71, 114
pos -Keynesian s a egy 7, 91–5; al e na i es o
95–8; and EMU 95
pound s e ling 168, 178, 181, 183, 207
po e y gap 161, 162; see also poo wo ld
Powell, Enoch 168
powe : o mul ina ional capi al 43, 50–1; and
so e eign y 171, 195, 200; o UK ou side EU
membe ship 208–9; US mili a y powe
163–4
p ice s abili y 42, 77, 81–2; and unemploymen
94, 158
p ice s uc u es 100
p i a e sec o 149–52
p i a isa ion: and he Single Ma ke 35; o
wel a e se ices 61
P odi, Romano 66, 68
p og essi e eu oscep icism 2, 3
public expendi u e: cu s in 87, 88; high le el o
182; inc eases in 114–15, 121; and ax 55–6,
64–5
public opinion 176, 178, 179, 198
public se ices see wel a e s a e
quali ied accep ance 216
QVM (Quali ied Vo ing Majo i y) 216
Ramsay, R. 34
a e capping 42–3
Rawnsley, A. 32
eal wage igidi y 216
ecession: and ERM membe ship 39, 40; and
unemploymen 56, 166
e e enda: 1975 Re e endum 23, 85, 188;
Benn’s campaign 21, 30, 31, 157, 187, 188,
195; on eu o 115, 116, 182–3, 184, 200–1
Re e endum S ee (BBC p og amme) 182–3
e la ion 212–13
egional ans e s 56
egions: dispa i ies in 57; policies and mone a y
union 42, 53, 125
emi ed/ emi ing 216
ep esen a i e poli ics 172
esou ces: compe i ion o 124–5; supply o
129–31
e alua ion 213
igh s: democ a ic 169–70; igh o s ike 135
Robe son, J. 161
Robinson, Geo ey 180
Robinson, Joan 39
Rogo , Kenne h 61
Rome, T ea y o 54
sa egua ds, o en y 17
Sawye , Malcolm 5–6
scep icism 7, 88–9; p og essi e eu oscep icism
2, 3
Schioppa, Tommaso Padoa 65
Sch oede , Ge ha d 198
Schuman Plan 216
Sco , Regan 25
sel -de e mina ion 3, 125–7, 169, 173–4,
184–5, 202–3, 210–11
SEM (Single Eu opean Ma ke ) 216–17
se ices: o ganisa ion o and ESM 107;
see also wel a e s a e
SGP see S abili y and G ow h Pac
shocks, economic 148, 212
Sho e, Pe e 11
SIM (Single In e nal Ma ke ) 2, 216–17
single cu ency: ad an ages and disad an ages
o 158–60, 207–9; a gumen s o 106; and a
common cu ency 160–2; he ECB 77–84;
economic consequences o 39–51, 120–1;
economic pe o mance and he eu o 60–70;
es ablishmen o 92, 93; ailu e o Eu opean
sys em 85–90; ea u es o mone a y union
52–9; pe spec i es on he eu o 71–6; and
UK economic s a egy 81–102, 197, 202–3;
and unemploymen 39, 41, 89, 113, 166
Single Eu opean Ac (1986) 133, 171, 178, 188
Single Eu opean Ma ke (SEM) 216–17
Single In e nal Ma ke (SIM) 2, 216–17
single ma ke : ESM and o ms o co po a e
go e nance 150; and p i a isa ion 35;
Tha che ’s suppo o 24
The Six 217
Smi h, Go don 134
Smi h, John 25
Social Cha e /Social Chap e 30, 31, 217
Social Dialogue 217
social insu ance 107–8
social models see Eu opean social model;
na ional social models
social policy, and labou egula ion 142–3
socialisa ion o in es men 97–8
socialis hi d o ce policy 17
so e eign y 175–85; concep o 171–2; and he
EMU 10–11, 168–74