Former prime minister gave Britain a legal right to stay out of euro which shadow chancellor exploited in full
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John Major, pictured with Margaret Thatcher at the 1996 Conservative Party Conference, did more than anyone else to keep Britain out of the euro. Photograph: Martin Argles
Matthew Parris reminded us over the weekend that history has, so far, been unkind to Sir John Major. The world, Parris wrote, simply decided Major was "hapless".
Margaret Thatcher, on the other hand, will always be seen as the decisive Iron Lady.
These views explain why Conservative eurosceptics see Major as a weak prime minister who sold out British interests to Europe while Thatcher managed to roll back the European superstate.
Major, who believes this version of history is deeply unfair, is too polite to say that their records were rather different. Thatcher signed one of the most integrationist measures (the single European act) while Major resisted the most integrationist measure – the euro.
The government of Tony Blair may have backed away from calling a referendum on British membership of the single currency. But Britain would have had no choice in the matter had it not been for Major.
So this is the time for a roll call of the five British people – all men sadly – who ensured that Britain would not join the euro:
1) Sir John Major
The top slot is reserved for Major who negotiated an opt out from the single currency during the Maastricht treaty negotiations in 1991. This has meant that Britain and Denmark, which negotiated a similar opt out, are the only two members of the 27-strong EU with a legal right to stay outside the euro. Even Sweden, which rejected the euro in a referendum, is technically bound to sign up.
Major is a modest chap. So when Sir David Frost asked him on Al Jazeera English last week why he had kept Britain out of the single currency, the former prime minister simply listed three reasons:
We were very concerned that there wouldn't be convergence, by which piece of jargon we meant that the southern European states wouldn't be able to compete with Germany within a single currency on a level basis. Of course in 1991 Germany was still unifying; but we looked forward to when she'd have a much more powerful economy and ask ourselves whether the southern states would compete. We didn't think so, and we thought that would be chaotic.
The second reason was that we thought having a unification of monetary policy without a unification of fiscal policy would be likely to end in difficulties. We thought countries wouldn't control their deficits in essence and that's exactly what happened. We tried to cover that – a British suggestion by proposing in the Maastricht Treaty that no country should have a fiscal deficit above 3% of GDP. That was agreed, but alas it wasn't kept to. Germany broke that, France broke that everybody else broke it and then you got huge debt beginning to build up.
The real crisis period where this occurred was between 1999 when the Euro started. It actually started in the wrong circumstances because the pre-conditions we had [agreed] at Maastricht weren't met. But between 1997 and 2007 public deficits swelled, public debts swelled. Private debts swelled there was no regulation to control it. And the governments in power then have passed a very bleak legacy onto their successors.
2) Ed Balls
From the moment Major left office in 1997 – and his "wait and see" approach was replaced by Labour's "prepare and decide" – Ed Balls did more than anyone else to keep Britain out of the euro. It is often forgotten that Gordon Brown, who was perceived as the great bloc on British membership of the euro, had traditionally been more pro-European than Tony Blair.
So it was Balls who consistently warned Brown of the dangers of the single currency. There is the famous story of how Balls and Brown drew up the five tests, which eventually kept Britain out, in the back of a New York story in 1997.
But the involvement of Balls went back further than that to his time as a leader writer on the FT in the early 1990s. At the time the FT supported British membership of the Exchange Rate Mechanism (ERM). Balls was hostile, as I blogged recently, and was wary of the idea of a single currency in an Economic and Monetary Union (EMU).
This is what a chap by the name of Edward Balls wrote in a Fabian pamphlet – Euro-Monetarism: Why Britain was ensnared and how it should escape – in December 1992, two months after Britain stumbled out of the ERM. Warning of the "prohibitively high" costs to EMU, Balls wrote:
If countries are affected differently by an economic event – such as an oil shock or German unification – then the desired policy response will not be the same. Tying countries together under these circumstances means large and persistent regional problems – slow growth and high unemployment in different European countries, precisely what has occurred in Europe since German unification.
He added:
In short, monetary union, in the manner and timetable envisaged in the [1991 Maastricht] treaty, is an economically and politically misconceived project. Imposing the same monetary policy on the whole of Europe, without automatic fiscal stabilisers, would mean persistent regional growth and unemployment differentials within the Community, with all the political and social dislocation that brings. Already, Europe is plagued by right-wing nationalism and opposition to the European project as a result of the slow growth and high unemployment that the inflexible version of the ERM has brought.
The mistake is to let economic schemes run ahead of political realities. The goal of a single European currency, like an ever closer union, is not inherently misconceived. But to work, it requires a much closer degree of social and political cohesion and integration than Europe is likely to achieve in this decade or probably the next too.
The identity of the person in third place in my euro list is provided by Balls in the credits on the first page of the pamphlet. The first person he thanked was:
3) Martin Wolf
The chief economics commentator at the Financial Times has consistently warned of the dangers of the single currency. Wolf was an important influence on Balls at the FT.
In a column on 9 December 1991, the first day of the Maastricht treaty negotiations, Wolf foreshadowed many of today's problems in the eurozone:
Little convergence has occurred since 1987 and there has also been little improvement in levels of performance. Yet, of the large countries, only Italy's position looks hopeless, the main problem being its public finances. To converge on the EC's average ratio of public sector debt to GDP even over 10 years, its budget deficit needs to improve by a daunting 8 percentage points of GDP.
Either Italy manages an unprecedented budgetary transformation, or it defaults on its debts, or it will be excluded from Emu, or the criteria will be ignored. There are no other alternatives. *
4) Gordon Brown
It is perhaps a little unfair to place Brown behind his adviser (Balls) and his adviser's mentor (Wolf). But the single currency was, along with the decision to raise national insurance to pay for an increase in health spending after the 2001 election, one of two areas where Balls played the pivotal role.
In his statement to parliament on 27 October 1997 setting out the five tests, Brown said it would be right for Britain to join if they were met. But he then showed he had cornered Blair and Peter Mandelson, who had wanted to keep open the option of British membership in New Labour's first parliament, when he told MPs:
In applying our economic tests, two things are clear: there is no realistic prospect of our having demonstrated before the end of this Parliament that we have achieved convergence that is sustainable and settled rather than transitory; and Government have only just begun to put in place the necessary preparations that would allow us to do so. Other countries have for some years been making detailed preparations for a single currency. For all the reasons given, we have not.
Therefore, barring some fundamental or unforeseen change in economic circumstances, making a decision to join during this Parliament is not realistic. It is therefore sensible for business and the country to plan on the basis that, in this Parliament, we do not propose to enter a single currency.
Brown's decision to rule out membership for the lifetime of that parliament showed the influence of the fifth most influential Brit in keeping the UK out of the euro.
5) William Hague
The former Tory leader was mocked for being out of touch on Europe and suffered a landslide defeat at the 2001 election when he based his campaign around a pledge to Keep the Pound. But a month before Brown's statement Hague held a ballot of the Tory membership to endorse his view that the party should oppose monetary union at the next general election.
Labour portrayed Hague as a hardline eurosceptic after Kenneth Clarke dismissed the ballot. But the ballot helped create some space for Brown and Balls in their battles with Blair and Mandelson.
In his statement announcing the ballot, Hague showed the party's dismissive attitude towards John Major by echoing his language, though for the opposite reasons. The former prime minister had pleaded with eurosceptic ministers not to rule out membership of the single currency in their election addresses when he said on 16 April 1997:
Whether you agree with me, disagree with me, like me or loathe me, don't bind my hands when I am negotiating on behalf of the British people.
In announcing his ballot on 7 September 1997, Hague said:
As long as our party is distracted by endless debates on the single currency we will always have one hand tied behind our backs. I want to free everyone in the party, whatever their views on the single currency, to fight this government with both hands and provide an alternative to it.
At that stage Hague and the Conservative party were looking back fondly to Margaret Thatcher as the guardian against the European superstate. Major never quite managed to explain that Thatcher was the most pro-European British prime minister after Sir Edward Heath. She was a member of the cabinet which took Britain into the EEC in 1973, campaigned enthusiastically for a Yes vote in the 1975 referendum and as prime minister pushed one of the most integrationist measures – the single European act.
It was the man mocked by the Tory eurosceptics for weakness when he signed the Maastricht treaty who did more than anyone else to ensure that Britain will escape much of the conflagration that will soon engulf the eurozone.
* Research on Martin Wolf by Luc Torres