THE EUROSCEPTICAL READER 2 Also by Martin Holmes

BEYOND EUROPE

THATCHERISM: Scope and Limits, 1983–7

THE EUROSCEPTICAL READER (editor)

THE FAILURE OF THE HEATH GOVERNMENT

THE FIRST THATCHER GOVERNMENT: Contemporary Conservatism and Economic Change

THE LABOUR GOVERNMENT, 1974–9: Political Aims and Economic Reality

EUROPEAN INTEGRATION: Scope and Limits The Eurosceptical Reader 2

Edited by Martin Holmes St Hugh’s College, Oxford Editorial matter and selection, Introduction © Martin Holmes 2001 For other chapters see Acknowledgements All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988,

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p. cm. Includes bibliographical references and index. ISBN 0-333-1.

10987654321 10 09 08 07 06 05 04 03 02 01 Contents

List of Tables, Figures and Illustrations vii List of Abbreviations and Acronyms ix Acknowledgements xi Notes on Contributors xii

Introduction 1 Martin Holmes

Part I: Economic Euroscepticism 1 British Influence and the Euro 7 John Coles 2 The Euro and Regional Divergence in Europe 25 Tony Thirlwall 3 British Trade and Europe since the 1960s 50 Martin Holmes 4 The UK and Euroland: Ships Passing in the Night 63 Graeme Leach 5 Towards ‘A Treaty of Commerce’: Euroland and NAFTA Compared 92 Keith Marsden 6 The Bank that Rules Europe: The ECB and Central Bank Independence 121 Mark Baimbridge, Brian Burkitt and Philip Whyman 7 Has the Euro Lived Up to Expectations? 142 Wilhelm Nölling

Part II: Political Euroscepticism 8 The Myth of Europe 151 Russell Lewis 9 Britain, Europe and the United States: Reflections of an Anti-Maastricht Europhile 171 Oliver Wright

v vi Contents

10 Can Self-Government Survive? Britain and the 184 Nevil Johnson 11 Separate Ways 227 Peter Shore 12 Nice and Beyond: The Parting of the Ways 238 Christopher Booker 13 Aiming for the Heart of Europe: A Misguided Venture 269 John Bercow

Index 286 List of Tables, Figures and Illustrations

Tables

2.1 Unemployment rates and living standards in Europe, 1997 34 2.2 Expenditure on structural funds, 1994–9 41 4.1 The impact of monetary policy on output 72 4.2 Credit at adjustable interest rates in the EU 73 4.3 Differences in EU legal systems 75 4.4 Inflation divergence (HICP measure) 79 4.5 Interest rate differentials, UK versus Euroland 79 4.6 Direct investment in the UK 83 5.1 Market size, 1999 96 5.2 GDP per head, 1999 97 5.3 Growth in GDP (annual percentage change, 1993–9) 97 5.4 Merchandise imports 99 5.5 Links with the global economy, 1987 and 1997 100 5.6 Value and growth of merchandise imports 102 5.7 Imports of commercial services 102 5.8 Who subsidises most? (1997) 104 5.9 Agricultural subsidies 105 5.10 Growth in employment (annual percentage change, 1993–9) 105 5.11 Employment ratios and levels 106 5.12 Growth of labour productivity (annual percentage change, 1993–9) 107 5.13 Annual gross wages and net income after taxes in manufacturing, 1996 108 5.14 Human development indicators 109 5.15 Growth of real private consumption (annual percentage change, 1993–9) 110 5.16 General government receipts as % of GDP 111 5.17 Highest marginal tax rates 111 5.18 Capital mobilisation 112 5.19 FDI inflows (US$ billions) 113 5.20 Stock of foreign direct investment 114

vii viii List of Tables, Figures and Illustrations

5.21 Growth of real investment (annual percentage change, 1993-9) 115 5.22 Science and technology strengths 115 5.23 Openness to foreign immigrants 117 6.1 Correlation between central bank independence and macroeconomic variables for EU member states 132 8.1 Relative competitiveness and living standards 155

Figures

2.1 Absolute dispersion of regional unemployment in the EU, 1983–94 38 4.1 UK–Euroland output gap differential 64 4.2 Costs and benefits of a monetary union 66 4.3 Changes in structural unemployment (NAIRU) in the 1990s 68 4.4 Economic models and GDP growth 69 4.5 Alternative economic models 69 4.6 Economic growth and regulation 70 4.7 Outstanding residential mortgage debts as % of GDP 71 4.8 Household equity holdings as % of net wealth 72 4.9 Economic divergence or convergence? 76 4.10 UK GDP correlation coefficients pre-Euroland, 1990–8 78 4.11 UK–Euroland cumulative output gap differential (sign) 81 4.12 UK-Euroland cumulative output gap differential (no sign) 82 4.13 Inward investment: number of projects 84 4.14 Pension assets as % of GDP, 1999 85 4.15 Bank representation 86 4.16 Foreign exchange turnover: global market share 88 4.17 No political convergence 88 4.18 Generational balances 89

Illustrations

Map I GDP per head by region (PPS) 36 Map II Unemployment rate by region, 1997 37 List of Abbreviations and Acronyms

APEC Asia Pacific Economic Community ASEAN Association of South East Asian Nations BoE Bank of CAP Common Agricultural Policy CBI Confederation of British Industry CEPR Centre for Economic Policy Research CFP Common Fisheries Policy CFSP Common Foreign and Security Policy COMECON Council for Mutual Economic Assistance CRCE Centre for Research into Communist Economies EAGGF European Agricultural Guidance and Guarantee Fund EC European Community ECB European Central Bank ECE Economic Commission for Europe ECJ European Court of Justice EEA European Economic Area EEC European Economic Community EERU European Economies Research Unit EFTA European Free Trade Area/Association EMS European Monetary System EMU Economic and Monetary Union/European Monetary Union ERDF European Regional Development Fund ERM Exchange Rate Mechanism ESCB European System of Central Banks ESF European Social Fund EU European Union FCO Foreign and Commonwealth Office FDI foreign direct investment FEER fundamental equilibrium exchange rate FET five economic tests FO Foreign Office FSA Financial Services Authority GATT General Agreement on Tariffs and Trade GDP gross domestic product GNP gross national product

ix x List of Abbreviations and Acronyms

HICP harmonised index of consumer prices HDI Human Development Index HMG Her Majesty’s Government HMT Her Majesty’s Treasury IGC Inter-Governmental Conference IMF International Monetary Fund IoD Institute of Directors ILO International Labour Organisation IT information technology MEP Member of the European Parliament MP Member of Parliament MPC Monetary Policy Committee (Bank of England) NAFTA North American Free Trade Area NAIRU non-accelerating inflation rate of unemployment NATO North Atlantic Treaty Organisation NIC newly industrialised country NIESR National Institute for Economic and Social Research NUTS Nomenclature of Statistical Territorial Units (France) OECD Organisation for Economic Co-operation and Development PCY per capita income ppp purchasing power parity PPS purchasing power standard PSE producer subsidy equivalent QMV qualified majority voting R&D research and development TUC Trades Union Congress UKIP United Kingdom Independence Party UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme VAR variable VAT value added tax WTO World Trade Organisation Acknowledgements

I wish to thank all the contributors to this book for permission to reprint articles or speeches which had already entered the public domain. I am particularly indebted to those contributors who reduced in length previously published longer articles which could not appear in full in this voulme because of necessary space constraints. I would also like to thank the Principal and Fellows of St Hugh’s College for providing an atmosphere conducive to scholarship and appreciative of research. Alison Howson at the publishers handled the manuscript with cus- tomary courtesy and efficiency and I am grateful to her. Needless to say, any errors in the following pages are my responsibil- ity alone. MARTIN HOLMES

St Hugh’s College, Oxford June 2001

xi Notes on Contributors

Dr Mark Baimbridge is Lecturer in Economics at the University of Bradford and European Economies Research Unit’s Director of Research. He co-authored What 1992 Really Means: Single Market or double cross? (1989), From Rome to Maastricht (1992), There is an Alternative (1996) and A Price Not Worth Paying: The economic cost of EMU (1997) for the Campaign for an Independent Britain. He has published over 100 art- icles, primarily concerning Britain’s relationship with the EU, in learned and current affairs journals in economics, politics and social policy. He is a frequent contributor and commentator on economic issues to radio and in newspapers, including the Sunday Times, , the Financial Times and .

John Bercow was elected MP for Buckingham on 1 May 1999 with a majority of 12,386. He was educated at Finchley Manorhill School and the University of Essex where he graduated in 1985 with First Class Honours in Government. From 1986–7, he served as National Chairman of the Federation of Conservative Students and subsequently as student head of the Conservative Collegiate Forum. After a spell of merchant banking, he joined Rowland Sallingbury Casey, the public affairs arm of the Saatchi and Saatchi group, in 1988. There he rose from a junior executive to a board director in five years. Meanwhile he became a Conservative Councillor in the London Borough of Lambeth in 1986 (until 1990) and served from 1987 to 1989 as Deputy Leader of the 21-strong Conservative Opposition group. He contested Motherwell South in the 1987 General Election and Bristol South in 1992.

Christopher Booker, through his weekly column in the Sunday Telegraph, is one of the most trenchant and well-informed critics of the European Union system of government and its growing impact on British life. He has been particularly identified with his campaign to highlight the regulatory excesses of Brussels and Whitehall bureau- cracy, as exemplified in the contradictions of the EU’s single market or the social and ecological disaster created by the Common Fisheries Policy. He has extended this analysis in two books, co-written with Dr Richard North: The Mad Officials (1994) and The Castle of Lies (1996), a

xii Notes on Contributors xiii unique picture of how the EU system of government operates in prac- tice. Educated at and Cambridge University, he was found- ing editor of the satirical magazine . He has also written various works of contemporary history, including The Neophiliacs (1969), The Seventies (1980), The Games War (1981) on the Moscow Olympics, and A Looking Glass Tragedy (1997).

Dr Brian Burkitt is Senior Lecturer in Economics at the University of Bradford and Director of EERU. He wrote two widely quoted reports, Britain and the European Economic Community: An economic re-appraisal, and Britain and the European Economic Community: A political re-appraisal at the time of the 1975 referendum on EEC membership. He is also author of Trade Unions and Wages (1975 and 1980), Trade Unions and the Economy (1979), Radical Political Economy (1984) and over 150 art- icles in learned journals. He has previously co-authored What 1992 Really Means: Single market or double cross? (1989), From Rome to Maastricht (1992), There is an Alternative (1996) and A Price Not Worth Paying: The economic cost of EMU (1997). He is a frequent contributor, and commentator on economic issues, to television and radio pro- grammes, including Newsnight and A Week In Politics.

Sir John Coles was, until late 1997, Head of the British Diplomatic Service and Permanent Under-Secretary of the Foreign office. In a career spanning 37 years, he held posts in the Foreign office, the Cabinet office, Cairo, Dubai and Khartoum, and served as British High Commissioner in Australia and British Ambassador in Jordan. From 1977 to 1980, he worked in the United Kingdom mission to the European Communities in Brussels and, from 1981 to 1984, he was private secretary to the Prime Minister, .

Dr Martin Holmes is Lecturer in politics at St Hugh’s College, Oxford, and Director of the College of Business Administration (UNL), Oxford. He is the author of Beyond Europe (1993) and European Integration: Scope and limits (2001). He was Co-Chairman of the Bruges Group 1993–2001, and edited the first publication of The Eurosceptical Reader in 1996.

Nevil Johnson is an Emeritus Fellow of Nuffield College, Oxford, where he held a professorial fellowship from 1965 to 1996. He has spe- cialised in the study of political institutions, especially in Western Europe, and has written extensively on government and politics in xiv Notes on Contributors both Britain and Germany. Amongst his books are In Search of the Constitution: Reflections on state and society in Britain (1997) and State and Government in the Federal Republic of Germany (1982). He was a member of the Economic and Social Research Council from 1981 to 1987 and a part-time Civil Service Commissioner from 1982 to 1985.

Graeme Leach joined the Institute of Directors (IoD), as their Chief Economist, in 1998. Graeme has written widely on the euro and EU- related economic issues. His publications include ‘The UK and the euro – better out than in’ and ‘EU membership – what’s the bottom line?’ He is also a frequent speaker and media commentator arguing against UK participation in the euro. Prior to joining the IoD, he was Associate Director at the Henley Centre, analysing all aspects of future economic and social change. In 1998 he was awarded the WWP Atticus Award for original published thinking. He has also worked as an economic adviser to the Scottish Provident Investment group.

Russell Lewis was formerly Director of the European Foundation. He has been a prominent and distinguished commentator on European affairs for over 20 years, serving as a leader writer on the , Director of the Bow Group, and General Director of the Institute of Economic Affairs. His much acclaimed Master Eurocrat: The making of Jaques Delors was published by the Bruges Group in 1991. He also authored the Bruges Group Occasional Paper No. 21, Delors, Germany and the Future of Europe.

Keith Marsden is an economic consultant to several UN agencies, based in Geneva. He was previously an operations adviser at the World Bank, an expert and senior economist in the International Labour Office, and an economist in British industry. He has undertaken studies and advisory missions in over 50 countries, and has written numerous articles on economic policy for the International Labour Review, Finance and Development and the Wall Street Journal. Other recent publications include Miracle or Mirage?: Britain’s economy seen from abroad (Centre for Policy Studies, 1997), Is Tax Competition Harmful? (European Policy Forum, 1998), Handicap not Trump Card (Centre for Policy Studies, 1999) and The Five Per Cent Solution (Centre for Policy Studies, 2000).

Professor Dr Wilhelm Nölling teaches in the economics department at the University of Hamburg and is a consultant to government and business. He is a former member of the Bundesbank Council. Notes on Contributors xv

Peter Shore was elected Labour MP for Stepney in 1964 before Ministerial appointments as Secretary of State for Economic Affairs and Secretary of State for Trade and Industry. In opposition he served as Front Bench spokesman for Europe and later Foreign Affairs. Created a Life Peer in 1997 as Lord Shore of Stepney, he died in September 2001.

Professor Anthony Thirlwall has been Professor of Applied Economics at the University of Kent at Canterbury since 1976. He was educated at the University of Leeds and Clark University, USA, and from 1963 to 1964 was a research student at Christ’s College, Cambridge. He has published extensively in the fields of regional economics and the theory of economic growth and development. His major books on these topics include Regional Growth and Unemployment in the United Kingdom (with R. Dixon), Industrialisation and Deindustrialisation in the UK (with S. Bazen), Economic Growth and the Balance of Payments Constraint (with J. McCombie), and Growth and Development with Special Reference to Developing Economies (6th edition).

Dr Philip Whyman is Lecturer in Economics at the University of Central Lancashire and Honorary Research Fellow of EERU. He co- authored There is an Alternative (1996) and A Price Not Worth Paying: The economic cost of EMU (1997). He has published widely in learned journals and a number of policy papers, including submissions to the House of Lords Select Committee on the European Communities (1996) and the House of Commons Treasury Select Committee (1998). His research interests include the impact of European integration upon labour markets, fiscal federalism, international monetary developments and the UK’s future relationship with the EU. In addition, he has written extensively on the economic development of Sweden.

Sir Oliver Wright GCMG, GCVO, DSC was educated at Christ’s College, Cambridge, and served with the Royal Navy in World War II. He joined HM Diplomatic Service in 1945. He served in New York, Bucharest, Singapore, and Pretoria. Sir Oliver was Private Secretary to Prime Ministers the Rt Hon Sir Alec Douglas-Home and the Rt Hon . He was appointed Ambassador to , 1966–9; seconded to the Home Office as UK Representative to the Government 1969–70; Chief Clerk, HM Diplomatic Service, 1970–2; Deputy Under-Secretary of State, FCO, 1972–5; Ambassador to the Federal Republic of Germany, 1975–81; retired, then reappointed, Ambassador to Washington, 1982–6. Sir Oliver has xvi Notes on Contributors served on the boards of directors of many blue-chip companies and has been appointed Distinguished Visiting Professor at the Universities of South Carolina and at Washington University, St Louis. From 1988 to 1992 he was chairman of the Advisory Board of the Institute of United States Studies. He was knighted in 1974.