Politics and Economics: the United Kingdom's changing priorities in EC policy

May 12, 1995

by Howard Fienberg for Dr. Turner

There is no doubt that Prime Minister Edward Heath was committed to entering the EC. Heath had been a member of Jean Monnet's Action Committee for the United States of Europe, and had been the chief negotiator when Harold MacMillan applied for membership the first time. He was perhaps the only British prime minister "to date to have been fully committed to" Europe overall. (footnote 1)

The third British application to the European Community, without a DeGaulle to crush it, was successful, and an accession treaty was signed in January 1972, and ratified by Parliament in February. On January 1, 1973, the UK finally became a full member of the EC, with all the accompanying rights and responsibilities.

But one must question Britain's motives for joining the Community, and decide if they were mostly economic or political. It can be illustrated that political motives were most prevalent on all sides, although the whole matter was portrayed as an economic issue to the British public at large. Once entry was essentially gained, priorities shifted. Economic issues came to the forefront for all three administrations, from Heath to Wilson to Callaghan, until the end of the 1970's.


One must first deal with the varied political aspects of the decision to enter the EC: the Anglo-American relationship, the Commonwealth, and Britain's domestic problems.

First off, in dealing with entry, comes the Anglo-American special relationship. Although the world recognized two global powers in the post-war period, the UK insisted that it was one as well. Its wishes to be treated as such were dashed most specifically in 1956, as a result of the Suez crisis. Britain and France seized control of the canal from Egypt, in direct violation of international law. World opinion was resoundingly hostile, and the US intervened. Making a show of force in the region, and then instigating a run on the pound, the Americans made the British back down and retreat. It was becoming obvious that the US either had a different interpretation of the Ôspecial relationship' or simply wanted to deny it altogether. (footnote 2) By the 1970's, the US was primarily concerned with extricating itself from Vietnam; since it was a policy without support in the UK or the EC, the US under Nixon paid little attention to either.

Originally one of the reasons Britain had cited as a reason for not joining the EC, the relationship developed into a prime reason in favor of entry. The withdrawal from East of Suez caused the strategic importance and usefulness of Britain to plummet in the eyes of the Americans, and they were treated with even less deference than before.

Joining the EC then seemed the only possibility of maintaining or improving the relationship. If perhaps Britain could join the EC and become a leader of the grouping, then she might regain her status with both the US and the world. The US hoped that British membership "would strengthen the EC against the internal threat of German revanchism and the external threat of communism." In addition, the Americans believed that Britain would be able to steer the EC towards more liberal trading policies, which would helped to correct the US balance of payments deficit. (footnote 3) As an outsider, however, her future would be one of isolation from both Europe and the US.

The status of the Commonwealth was a second important political motivator behind Britain's decision to enter the EC. The Commonwealth was originally made up mostly of emigrated Britons; there was a socio-cultural link which, above most other ties, kept the Dominions tied to Britain and to each other, but it quickly eroded. The affection for the Commonwealth as a socio-cultural unit was widespread in the UK. It

gave a continued extra-European flavor to the national consciousness even when the bases of its political power had gone.... it helped obfuscate the realities... (footnote 4)

By the 1970's, all that had changed dramatically. The post-war era saw the granting of independence to numerous Third World countries, most of whom agreed to remain within the Commonwealth. This significantly modified the composition of the group by adding a large and growing non-white populace. There was also a much more anti-imperialist sentiment amongst the new arrivals, particularly India, whose ambitious leader, Nehru, would join Nkrumah, the leader of Ghana, in founding the Non-Aligned Movement (NAM).

Following the Suez crisis, Britain's prestige and influence within the Commonwealth deteriorated rapidly, with most of the members denouncing the UK for its actions in one way or another. Its position was to be continually strained by its refusal "either to withdraw its investments from South Africa or to boycott South African produce. In addition, the UK's reaction (economic sanctions) to Rhodesian independence under Ian Smith, though "entirely justifiable given Britain's physical inability to do more," bought it no browning points with the primarily black Commonwealthers. (footnote 5)

Thus did the British people begin to slowly yield to the concept that the Commonwealth no longer belonged to them. Having seen it transformed from a "white man's club into a multi-racial group," a good many Tories turned away with disdain. (footnote 6) Thus was the body politic less resistant to an effectual distancing from the Commonwealth.

Finally, domestic politics weighed rather heavily on the decision to apply for membership. Note that the Treasury

was increasingly anxious that ministers should not choose accession to the EC as an easy escape route to avoid implementing any unpopular but necessary domestic measures to cure what was seen as the British economic disease of perpetually recurring stagflationary periods. (footnote 7)

This was precisely what the government hoped to do. It was definitely preferable to shift responsibility from London to Brussels for "the inevitable, hopefully temporary discomforts which would accompany Common Market membership." (footnote 8) Decisions on how to go about the modernization and expansion of the British economy could be forced upon the EC, taking touchy domestic political issues off of the shoulders of the government. The EC could, in this way, make a perfect scapegoat for domestic ills which would otherwise be taken out on the government at the ballot box.

Joining the EC could also prove politically positive. Edward Heath's attempts to reform trade unions was a cause of great domestic upheaval; his necessary changes "became the main issues around which political and social divisions crystallized." (footnote 9) Joining the community might have offered a new, more successful focus for his regime.

"The question of British membership of the EC has been the plaything of party politics." (footnote 10) Luckily enough for Heath, the right wing against accession in the Conservative party had been dying out, but the Labour party had no such good fortune. Labor was split on the EC, both left and right. Wilson came out against Heath's terms of entry, but remained in favor of EC entry on the whole; he had attempted the UK's second application.

Domestic fears of loss of sovereignty to the EC had eased as well. In 1965, DeGaulle had caused a stir by boycotting the Council of Ministers; he was trying to thwart an attempt to increase the powers of the European Parliament. By the time of the Luxembourg agreement, it was decided that any member could still apply a veto, an important issue to the national-power-minded British, as well as other members.

There were good reasons why political reasoning overtook economic rationale in being the primary motivator behind entering the EC. An agreement reached in 1970 had set out new financial structures of tariffs and Value Added Taxes which would turn the UK into one of the largest net contributors to the EC budget. The CAP would suck up most of this revenue, of whose funds little if any would be seen by the British.


Even before the UK had formally entered the EC, however, economic problems became the central focus of the UK, and this dictated her policies towards the EC for the remainder of the 1970's. Britain was entering just as the world economy was plummeting, and the rocketing economic growth of the EC countries was coming to a grinding halt. The early claims of the dynamic boost the UK would receive were too optimistic. Britain's economic growth was the lowest of the ten members. By the late 1970's, Britain had a persistent deficit with the Community, greater than that with the rest of the world. She was caught in a continual cycle of stagflation: stagnant growth and rising inflation.

The UK's five main economic concerns regarding the EC were budget contributions, the Common Agricultural Policy, Commonwealth access to the market, the European Monetary System, and energy policy.

First of all, the UK was perturbed by the inordinate size of its contribution to the budget of the EC. Wilson's government negotiated a rebate formula in Dublin in March 1975. The qualifiers were that the country had to be a main contributor, had to be at least twenty percent below the average EC rate of growth, and needed to be running a balance of payments deficit. Still, by 1977, Britain was the second largest contributor to the EC, and when her transitional period ended in 1980 it was assumed that she would become the largest. This was because Britain imported more goods from without the EC than the other members and because she was consuming far more than her relative economic strength justified. Prime Minister Callaghan asserted at a banquet in 1978 that Britain could not agree to this position "when it was seventh in the economic league table of Community members."(footnote 11) The resulting row was never solved to conclusion in the remainder of Labour's term of office, as the other EC members claimed that the fault in the funding imbalance was in British behavior, not the financial structure, which she had already agreed to several times over.

Second, the Common Agricultural Policy was a continual affront to the UK, being a system that was purported to cause domestic food prices to rise, as well as sucking up an ungodly proportion of the EC budget, of which the UK was a main contributor. Fred Peart, Minister of Agriculture under Wilson, pursued a European-style policy of quiet concessions in return for real gains for the British consumer. (footnote 12) In addition to reforming the CAP, the UK, to varying degrees, supported the construction of the European Regional Development Fund, which would realistically benefit the UK more than other members. But they defended this as a compensation for the inordinate contributions to a CAP-minded budget which served them not a whit. The ERDF, left neglected by Wilson, was established at the December Paris Summit in 1974, but with a far smaller funding base than that for which the UK had hoped.

Thirdly, the access to the Community market of Commonwealth goods weighed in on the British. Heath and Wilson both pressed for preferential access for New Zealand's dairy products and for Caribbean sugar. Judith Hart, the Minister of Overseas Development under Wilson, also put fire behind the attempts to aid the developing world. She got the Community to support the LomŽ Convention, which would allow maximum access to the EC market for these states' products without requiring a reciprocal opening of their own markets to EC goods. (footnote 13)

Fourth of all, Britain was concerned with the development of a European Monetary System. The EMS had three major components: an Exchange Rate Mechanism; a European Currency Unit (ECU) which would be determined by a basket of Community currencies; and a European Monetary Cooperation Fund, which contributed gold holdings in exchange for ECUs. The EMS was approved in 1978, and implemented one year later, but Britain was alone among the Community members to not fully participate. Designed to replace the post-war Bretton Woods system based around the US dollar, which had come apart at the seams when US president Nixon had taken it off of the gold standard, Callaghan felt that such a plan was too exclusive. He favored a solution with a more comprehensive Western flavor, incorporating the IMF, since Sterling was a widely-used currency in international investment, even following the decline of the Overseas Sterling Area. As well, Callaghan feared tying Sterling to the Deutsche Mark, because the resulting low inflation rates might bring a halt to economic growth in Britain.

Finally, energy became a prime focus of all parties in the Community. The 1973 Arab-Israeli War was the impetus for the OPEC oil cartel to start an oil embargo, and then to jack up prices astronomically. This was a main cause for the general economic problems of the developed world. Most of the Community members wished to seek a common internal regulation of the Community oil market, a proposition anathema to the UK, which preferred a common external policy. Only just beginning to tap into the oil reserves of the North Sea, Britain had no wish to be forced to supply her fellow members with cheap oil; on the contrary, she wished to make as much profit from the world prices of oil as possible. At the Paris conference in 1975, Britain made a fuss over representation, refusing until the last moment to be represented solely by the Community; Wilson desired an independent representation, which recognized the importance of an EC member who produced oil and had interests separate from the rest. The German PM Helmut Schmidt gave Wilson a scathing shout about his economic place in the world, and Britain gave in, but not until Foreign Secretary Callaghan had overrun his two minute speech allotment at the conference by ten minutes.


In conclusion, though the economic situation appears to be important in Tory decision making, it can be seen more clearly to hinge upon politics. The administration was mostly acting upon the desire to save the special relationship with the US, to assuage and avoid the Commonwealth, and to find a way out of numerous domestic political difficulties.

There was also a grander political vision involved in the decision. Macmillan had said in his term that

it was in the interest of the Western World as a whole to create a truly united Europe. If there was an economic price to be paid in the short run by going in, nevertheless, a much higher forfeit would have to be paid in the long run by our staying out. (footnote 14)

But this grand political vision, mostly shared by Heath, was diluted in the face of a wave of economic concerns that dominated British EC policy for the remainder of the decade after accession.


Citations

  1. An Awkward Partner, 49
  2. Western Europe Since 1945: A Poltical History , 211
  3. The Politics of the Anglo-American Economic Special Relationship , 187
  4. The Realities Behind Diplomacy, 336
  5. Losing an Empire , 149
  6. The Realities Behind Diplomacy, 335
  7. "To Join or Not to Join", 145
  8. Britain Faces Europe , 75
  9. An Awkward Partner , 48
  10. Britain Within the EC , 41
  11. An Awkward Partner , 133
  12. An Awkward Partner , 83
  13. An Awkward Partner , 81
  14. At the End of the Day , 6

WORKS CITED

Dobson, Alan P. The Politics of the Anglo-American Economic Special Relationship 1940-1987 . Sussex: Wheatsheaf Books Ltd., 1988.

El-Agraa, A. M. Britain Within the EC: The Way Forward . London: The MacMillan Press Ltd., 1983.

George, Stephen. An Awkward Partner: Britain in the European Community. Oxford: Oxford University Press, 1990.

Kaiser, Wolfram. "To Join or Not to Join: the Appeasement Policy of Britain's First EEC Application." Brian Brivati and Harriet Jones, eds. From Reconstruction to Integration: Britain and Europe Since 1945 . London: Leicester University Press, 1993. (144-156)

Kennedy, Paul. The Realities Behind Diplomacy . Glasgow: Fontana Press, 1981.

Macmillan, H. At the End of the Day, 1961-3 . London: Macmillan London Ltd., 1973.

Pfaltzgraff, Robert L., Jr. Britain Faces Europe . Philaddelphia: U of Pennsylvania Press, 1969.

Sanders, David. Losing an Empire, Finding a Role: British Foreign Policy Since 1945. London: Macmillan Press Ltd., 1990.

Western Europe Since 1945: A Political History . Essex: Longman Group Ltd., 1991.


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