At the ultimate stage economic sovereignty would to all intents and purposes disappear at the national level and the Community would itself be the master of overall economic policy. The degree of freedom which would then be vested in national governments might indeed be somewhat less than the autonomy enjoyed by the constituent States of the USA [9th November 1970 FCO 30/789]1
There is no question of any erosion of essential national sovereignty; what is proposed is a sharing and an enlargement of individual national sovereignties in the general interest. [White Paper, Cmnd. 4715, The United Kingdom and the European Communities, July 1971]
I argue that the claim made by the Heath government in their White Paper of July 1971, that British entry into the Community would not involve any loss of essential national sovereignty, was a big lie. In this first part I show that by that time the British government had agreed to participate in a plan for economic and monetary union, which would involve, as they fully appreciated, the virtual disappearance of national economic sovereignty.
The Werner Plan
On the 11th June 1970, following a meeting of the Council of Ministers of the EEC two days before, the President of the Council Pierre Harmel issued an invitation to the United Kingdom to begin negotiations on the 30th June for our entry into the EEC. Despite a General Election on the 18th June, and the replacement of Wilson’s Labour Government was replaced by Heath’s Conservative Government, the negotiations began as scheduled on the 30th.
At the same meeting on the 8/9th June, the Council of Ministers approved the conclusions of Pierre Werner’s ‘Interim Report on the Establishment by Stages of Economic and Monetary Union’.2 The commissioning of the report had followed a decision taken at the Summit Conference at The Hague on 1/2nd December 1969 that ‘a plan in stages should be worked out during 1970 with a view to the creation of an economic and monetary union.’3 Werner was Prime Minister of Luxembourg. Among the conclusions of his interim report was the following:
Economic and monetary union means that the main economic policy decisions will be taken at Community level and therefore that the necessary powers will be transferred from the countries to the Community. The ultimate goal could be the adoption of a single currency, which would ensure that there was no going back on the decisions taken.4
Just as we were entering into negotiations on our entry to the EEC, therefore, the Community was beginning to plan, at the highest level, for an economic and monetary union that could involve not only the abolition of national currencies, but the transfer of economic policy-making from the previously independent nation states to the Community. The potential implications were by no means lost on the civil servants involved. On 20th June, on his second day as Prime Minister, Heath received two submissions, classified Secret, from Sir William Neild, Permanent Secretary at the Cabinet Office, on the subject of the forthcoming negotiations. In the first, Neild draws attention to two developments in the European scene which ‘significantly affect the background against which the negotiations will be taking place. The first concerned a possible diminution of the role of the United States in Europe. The second concerned a new interest and enthusiasm for European integration after the resignation of De Gaulle in April 1969:
Second, during the sixties Gaullist France prevented not only the enlargement but also the development of the European Communities. It seems quite clear from all our considerable volume of evidence, overt and covert, concerning French policy, that the Pompidou regime sees the need to develop and integrate the Communities for both French and European reasons. The main evidence for this is of course the French initiative for the Hague Conference [of the Heads of State or Government of the Six, 1-2 December 1969]: the success of that conference, and the subsequent completion of the Community’s agricultural and financing arrangements, and their current moves towards monetary, political, economic, and industrial harmonisation. There is thus the new element that a substantial degree of such harmonisation, even if it is still not full union, may be achieved by 1980. The prospect of the emergence in Europe of such a consortium of powers, even if by 1980 it still falls short of a full confederacy, has clear implications for our own position.5
In the next paragraph, Neild referred not only to ‘the Community’s development towards full monetary and economic harmonisation’, but also to ‘their intention to require us to accept this as an objective’. Britain would have to agree to this before we would be allowed in. Accordingly, on 30th June, in his statement to the Council of Ministers at the opening of negotiations, Anthony Barber, Chancellor of the Duchy of Lancaster and UK Government spokesman, affirmed that ‘We welcome the moves which you have already made towards closer economic and monetary integration and are ready to play our full part.’6 That this had implications for British sovereignty was also of course not lost on the officials. A note from Nield to the Prime Minister, classified Secret, and dated 2nd July 1970, two days after the start of negotiations, advised that:
We ought at least to give some forethought to, for example, the implications of monetary and economic harmonisation for political institutions and sovereignty in the UK and in Europe…7
On the 8th October 1970, Werner submitted the final version of his report ‘on the realisation by stages of economic and monetary union in the Community’ to the Council and the Commission. He did not pull any punches. Economic and monetary union would imply ‘the following principal consequences’:
the Community currencies will be assured of total and irreversible mutual convertibility free from fluctuations in rates and with immutable parity rates, or preferably they will be replaced by a sole Community currency;
the creation of liquidity throughout the area and monetary and credit policy will be centralized;
monetary policy in relation to the outside world will be within the jurisdiction of the Community;
the policies of the Member States as regards the capital market will be unified;
the essential features of the whole of the public budgets, and in particular variations in their volume, the size of balances and the methods of financing or utilizing them, will be decided at the Community level;
regional and structural policies will no longer be exclusively within the jurisdiction of the member countries;
a systematic and continuous consultation between the social partners will be ensured at the Community level.8
In other words, the previously independent nation states would lose their right to manage and develop their own economies. Werner not only states this explicitly, but goes on to argue that monetary and economic union would lead inevitably to political union:
the realisation of economic and monetary union demands the creation or the transformation of a certain number of Community organs to which powers until then exercised by the national authorities will have to be transferred. These transfers of responsibility represent a process of fundamental political significance which implies the progressive development of political cooperation. Economic and monetary union thus appears as a leaven for the development of political union, which in the long run it cannot do without.9
Parliamentary oversight, also, would be transferred from the national to the Community level:
The transfer to the Community level of the powers exercised hitherto by national authorities will go hand-in-hand with the transfer of a corresponding Parliamentary responsibility from the national plane to that of the Community. The centre of decision of economic policy will be politically responsible to a European Parliament. The latter will have to be furnished with a status corresponding to the extension of the Community missions, not only from the point of view of the extent of its powers, but also having regard to the method of election of its members.10
Cabinet Office assessment
Just over two weeks later, on 23rd October 1970, Neild submitted to Heath a Strategic Review of the EEC Negotiations. He expected that from early 1971, it would be necessary to enter into discussions about the Werner Plan and the ability and willingness of the UK to participate in its implementation. He pointed out that although the UK had already indicated its readiness to move with the other member states towards economic and monetary integration,
the greater precision the Plan gives to the Six’s aims and procedures will present the existing political problem in a much sharper form – the Plan is likely to refer specifically to the renunciation of national sovereignties in the economic field, culminating in the achievement by 1980 of a common currency in fact if not in name, common central financial and political authorities, evolved in a conference of Members to agree the necessary additions and amendments to the Treaty of Rome itself. If the Six adopt the Plan we shall be asked it we are prepared to accept its objectives and to co-operate in achieving them. A negative or temporising answer will probably terminate the negotiations; a positive one will make the previously implicit and limited renunciation of sovereignty quite explicit and very much more far-reaching, and will be challenged accordingly.11
Neild made it clear that the Werner Plan, if adopted, would entail ‘the renunciation of national sovereignties in the economic field’. He was also sure that if the Six were to agree to it, then the UK would be required to agree to participate with the programme before we could enter the Community. Obviously, the Six would want to ensure that we would not wield the veto to prevent their plan proceeding.
Rippon’s agreement with the Werner Plan
Just four days later on 27 October 1970, Geoffrey Rippon, who had replaced Barber as Chancellor of the Duchy of Lancaster and the UK Chief Negotiator upon the death of Iain Macleod in July, had a conversation with Werner in Luxembourg. Rippon ‘congratulated M. Werner on the completion of his Committee’s Report on economic and monetary union’, and said that the report ‘well stated our common objectives’. Werner said that ‘the first stage of economic and monetary union envisaged in the report was really experimental, which should serve to put everyone at his ease…. Serious progress would not begin until they were – as he hoped – all safely inside. The proposals for completion of economic and monetary union had of course great political significance and had probably frightened some people.’ Rippon replied that ‘he much welcomed the step by step approach. It was natural for people to be afraid of change; they had to be brought along gradually.’12
In other words, it was thought risky by both parties to move ahead too fast with Werner’s plan, in case it set alarm bells going in those who wanted to preserve our nation’s independence, and thus endanger the entry process. It would be much harder to get out once we had joined, than to refuse to join in the first place.
Foreign Office assessment
Less than two weeks later, on 9 November 1970, the Foreign Office produced an assessment, classified Confidential, of the Werner Plan. They do not fail to appreciate its far-reaching nature:
It should be noted at the outset that the Plan for economic and monetary union (EMU) has revolutionary long-term implications, both economic and political. It could imply the ultimate creation of a European federal state with a single currency. All the basic instruments of national economic management (fiscal, monetary, incomes and regional policies) would ultimately be handed over to the central federal authorities. The Werner report suggests this radical transformation of the present communities should be accomplished within a decade.13
They expected (§3) that the Werner Plan would ‘attract increasing interest in the UK; indeed, it could even become the central point of political controversy over the negotiations themselves, since it will arouse strong feelings about “sovereignty”….’ Not surprisingly, since (§29) the process envisaged was one ‘of fundamental political importance, implying progressive development towards a political union.’
‘There must’, they say in §31:
be no mistake about the final objective; the process of change is ‟irreversible”, and the implications, both economic and political, must be accepted from the outset. … the centralisation of powers must be matched with the surrender of national prerogatives.
The authors compare (§53) the position of the member states in the Community, in the event of the Werner Plan being implemented, with that of the States in the USA, and conclude that, with regard to the economy at least, the latter have more independence than we would:
The long-term objectives of EMU enshrined in the Werner Report are very far-reaching. They go well beyond the full establishment of a Common Market and the formal provisions of the Treaty of Rome (which would require amendment) … the economies of the members of the EMU would be as interlocked as those of the states of the USA. Indeed it could be argued that the independence of the members would be less than that of the States, for the latter have more autonomy over their budgets.
They express concern (§54) at the effect that economic and monetary union could have on regions within member states that were weaker economically:
deficit regions could easily become depressed areas, with serious social and political consequences. It is true that Werner envisages measures at the Community level designed to deal with regional or structural problems, but these would be outside the hands of the member Governments themselves, and there could be no certainty that the measures would be adequate…
They acknowledge (§55) that ‘The thought that all this could come about by 1980 seems to be far fetched, and may well prove to be fanciful.’ But, they warn, ‘the prospect must, nevertheless, be taken very seriously.’ In other words, the Foreign Office did not consider that the Werner Plan was just so much hot air. Rather, their assessment was that the Community was entirely serious about it.
Concerning Werner’s First Stage proposals, they considered (§75) that there ‘would be relatively little surrender of national sovereignty in the economic field’, but even here, ‘as the first stage progressed, sovereignty would pass steadily towards the centre.’
If the Plan were fully implemented, however (§76), we would lose our national economic sovereignty:
At the ultimate stage economic sovereignty would to all intents and purposes disappear at the national level and the Community would itself be the master of overall economic policy. The degree of freedom which would then be vested in national governments might indeed be somewhat less than the autonomy enjoyed by the constituent States of the USA.
Finally, there is consideration of the line that the government should take towards the Werner Plan. They are aware (§81) of Werner’s intention which, as he had expressed it to Rippon, was not to move to the Second Stage until they were all ‘safely inside’. They observe that the first stage proposals
do not of themselves involve any specific and overt surrenders of sovereignty. M. Werner himself reasonably describes the first stage proposals as experimental so that, as he puts it, nobody need get alarmed and so that the candidate countries can expect to be full members before things have gone further.
Indeed, they envisage (§82), and accurately as it turned out, that the UK could become a Member State by January 1973 and able to take part ‘in any conference which might later be convened to set up central [economic and monetary] authorities’. There is of course no suggestion that we would then prevent such a development. Rather, one supposes, the intention would be to attempt to shape it in a way conducive to British interests.
They foresee (§83) the possibility that British Ministers might be forced to take a definite position on the longer-term implications of economic and monetary union. (At this point a reader of the document, presumably at a higher level than the authors, has pencilled in ‘NO’ to this suggestion, suggesting that he was determined to avoid such an outcome.) It is suggested that the ‘best general line might be to stress the importance of a pragmatic approach, and of concerted Community effort to improve structural and regional policies’.
The Six agree to a plan for economic and monetary union
After protracted negotiations, and after the deadline that had been set of the last day of 1970, the Six did come to agreement at a meeting of Ecofin (a configuration of the Council of Ministers) on 8/9 February 1971, on a programme for ‘achievement by stages of economic and monetary union in the Community’. The resolution was adopted officially by the Council and the Representatives of the Member States on 22 March 1971. The preamble referred to the Council’s previous adoption in June 1970 of the conclusions of the interim Werner Report, one of which was that ‘the main economic policy decisions will be taken at Community level’. Among other points it was agreed that:
the Community shall:
3. hold the powers and responsibilities in the economic and monetary field enabling its Institutions to organise the administration of the union. To this end, the required economic policy decisions shall be taken at Community level and the necessary powers shall be given to the Institutions of the Community.
Powers and responsibilities shall be distributed between the Institutions of the Communities, on the one hand, and the Member States, on the other hand, in accordance with the requirements for the cohesion of the union and the efficiency of Community action.
The Institutions of the Community shall be enabled to exercise their responsibilities with regard to economic and monetary matters with efficiency and speed.
The Community policies implemented within the framework of the economic and monetary union shall be subject to discussion and control by the European Parliament.14
Even if there had been a modest retreat from ‘main economic policy decisions’ to ‘required economic policy decisions’, there was now definite agreement on a transfer of economic policy-making, and parliamentary oversight of that policy-making, from the national to the Community level. The consequences for national economic sovereignty that had been foreseen by British civil servants in the event of the adoption of the Werner Plan, would now have to be faced.
1FCO 30/789 §76.
2Directorate-General for Economic and Financial Affairs, Towards Economic and Monetary Union (EMU) A Chronology of major decisions, recommendations or declarations in this field. (Occasional Paper, No. 13, February 2005) p. 8.
4Council/Commission of the European Communities, Interim Report on the Establishment by Stages of Economic and Monetary Union (Supplement to Bulletin 7 -1970 of the European Communities) p. 16.
5Sir William Neild to Prime Minister, 20th June 1970, http://www.margaretthatcher.org/archive/arcdocs/PREM%2015%20062%20(3%20of%203).pdf pp. 89-90 of pdf.
7Note to Prime Minister, 2nd July 1970 (PREM 15/62), p. 3. http://www.nationalarchives.gov.uk/documents/nyo_2001.pdf
8Council/Commission, Report to the Council and the Commission on the realisation by stages of economic and monetary union in the Community [Werner Report], (Luxembourg: 8 October 1970) p. 12.
9Werner Report, p. 12.
10Werner Report, p. 13.
11Neild to Prime Minister, The EEC Negotiations – Strategic Review (PREM 15/62, 23 October 1970)
12Conversation between Rippon and Werner, (CAB 164/771, 27th October 1970)
13Foreign Office, Economic and Monetary Union (FCO 30/789, 9 November 1970)
14Resolution on the achievement by stages of economic and monetary union in the Community (22 March 1971)