Britain’s essay after 1979 in new-right economics and social politics – usually called ‘Thatcherism’ – thus turned out to be only the most urgent and extreme case of a wider trend that was to be replicated, in different national contexts, right across the Community and EFTA. The post-War corpus of ideas which had infused economic growth and political institutions since the 1950s ceased first to have absolute validity, and ended by being virtually obsolete – as the EC’s experience of prolonged high unemployment in the 1990s recession demonstrated.
Within the Community, it was soon clear that as currency cooperation in the OECD had been lost so had unlimited access to cheap energy and the belief in the automatic efficacy of neo-Keynesian macro-economic management. As the IMF’s Committee of Twenty noted, currency cooperation could not be restored until the USA resolved its trade imbalance, or until the surplus countries, Germany and Japan (which had restored themselves to surplus by mid–1975) reduced theirs. As the DM and yen rose, the dollar and sterling declined and, with the IMF’s relaxation of its rules in 1976 (to help out those with the severest problems), international coordination appeared lost in the impasse. France now floated the franc, leaving only four member states clustered around the DM in the ‘Snake’ from which the EFTA countries rapidly distanced themselves.
Certain industrial sectors suffered most: shipbuilding, textiles, above all steel. Car producers and consumer electronics did not escape and, in the general retrenchment of capital investment, a rapid loss of competitiveness ensued vis-à-vis Japan and the Pacific rim ‘tigers’ of South Korea, Taiwan, Singapore and Hong Kong. Low growth, low investment, inflation and unemployment were common to all, but in Europe, as elsewhere, responses varied widely, inhibiting any EC-wide industrial policy.
The West German economy readjusted faster than any other in Europe. After twenty-five years of holding the DM’s value down, to the benefit of trade and industry rather than of the consumer, the Bundesbank allowed the DM to rise, as did interest rates. The subsequent restrictive monetary policy, in conditions of restored price stability and independence from the dollar, made West Germany the natural basis for the ‘Snake’, but this was at the expense of domestic growth. Banks took the lead in the rationalizing process that followed, generally to the detriment of large overstretched firms such as AEG and Volkswagen. However, the harsh social consequences of this monetary policy were offset at government level by the SPD/FDP coalition, based on corporatist understandings with unions to cushion austerity measures.
Meanwhile, on the diplomatic front, and despite the fall of Willi Brandt in 1974, the ostpolitik survived under Helmut Schmidt, insuring stable relations with East Germany as well the Soviet Union, the USA and France. The Franco-German entente remained in place, since all three German parties accepted westpolitik as the only way to balance that in the East.
In France, after Pompidou’s death, despite the Gaullists’ preference for Chirac (RPR) rather than the UDF leader Giscard d’Estaing, it was the latter who succeeded as presidential candidate against the socialist challenge of François Mitterrand, in spring 1974. Giscard’s government held to the 6th plan, hoping to sustain both planned growth and industrial restructuring during the emergency. But being a liberal by inclination, Giscard also wished to diminish the Gaullist emphasis on state direction, while deflating the economy and reducing France’s dependence on external sources of energy. This was a policy which required heavy investment in civil nuclear development, yet which, for fear of a recurrence of the 1968 disorders, proceeded via monetary means rather than by direct wage cutting. It led first to negative growth, then, in 1975, to reflation, and ultimately to a 38 billion franc budget deficit, together with high unemployment accompanied by a weak currency.
In 1976, Giscard replaced Chirac with Raymond Barre (a former Commissioner) as prime minister, who had the more robust aim of cutting feather-bedded state industries down in size, reducing wages, and liberalizing prices. After strikes and much industrial conflict, the Plan Barre achieved surprisingly good results, notably with the rationalizing of steel production into two massive new holdings, Usinor and Sacilor.
In contrast with France, Italy, which had tried to avoid deflation, experienced 26% inflation in 1974 and suffered a steady fall in the lira. A period of political instability saw the regional electoral success of a much-reformed Communist party in 1976 (though it remained excluded from participating in the governing Christian Democrat-Socialist coalition). A strategy of terror mounted by the extreme left culminated in the murder of Aldo Moro, prime minister, in May 1978, and led to reinforcement of the right and extension of political warfare and corruption into almost every level of administration, finance and industry – with long-term repercussions through to the 1990s. Beset by crisis, with constant recourse to the IMF and West German support, Italy failed either to restore confidence in its institutions or to meet the external criteria for fiscal reform.
In Britain inflation continued to rise until it reached 23% in 1976,8 thanks to a period of drift under a Labour government with only a small majority, preoccupied with instituting its Social Contract with the trades unions and sorting out the aftermath of a massive secondary banking crisis. Only in 1976–8, after Britain’s referendum on EC membership, and under the direction of James Callaghan and Denis Healey, did Britain achieve some control of inflation and a sounder monetary policy, together with an industrial strategy which, by the late 1970s, had had some effect on micro-economic industrial adjustment. For economic and political reasons therefore neither Britain nor Italy took much part in determining EC-wide patterns before 1980.
Recovery across the Community was correspondingly varied and patchy, depending on the sector and the level of demand, and was nowhere so strong as in Japan or the United States.9 Currency fluctuations also fragmented agricultural markets and disrupted the CAP, so that the system of monetary compensation amounts (MCAs) grew ever more complex and had to be bolstered by export levies. Attempts by the Commission to reduce guaranteed prices were rejected by the main beneficiary states, so that MCAs, having been merely a temporary expedient, became an integral part of the CAP in six zones of varying price levels. This in turn caused a rift in the Franco-German entente, since the French government believed MCAs worked to the advantage of countries with stronger currencies.
Increased complexity reflected an institutional crisis. The oil shock and member states’ nationalistic responses produced in Brussels a mood of deep gloom: Ortoli declared that the Community had lost its vision and that its institutions were near collapse. Indeed at the OECD Energy Conference in Washington, in autumn 1975, the EC exposed all its differences, and the UK insisted on a separate seat. At home, members applied individual trade safeguards, many of which the Commission was forced unwillingly to accept. Collectively the EC turned protectionist, imposing a 15% anti-dumping duty on Japanese ball bearings. Of greater significance, it agreed to the Multi-Fibre Agreement’s cartel arrangements on September 1977 in order to keep the EC textile industries alive. There was infighting over fisheries, and a wine war between France and Italy which the Commission had to take to the European Court.
Whatever the language still used by EC institutions, the reality lay in national defensiveness, absence of a common energy policy, and inability to address new issues collectively. The EC’s outward appearances by 1976–7 had come to depend on the Franco-German understanding represented by Schmidt and Giscard, and on the DM core of the ‘Snake’. It was hardly surprising that, within the wider periphery, EFTA countries went their own ways, Austria for one set of reasons,10 and Sweden for another. (Norway’s electorate had of course already voted against its government’s entry application in 1972.) Only the two Iberian states and Greece showed signs of wishing to join: all three, unlike the EFTA countries, seemed on balance to be assets of doubtful value.
Nevertheless, the Community’s level of activity maintained a certain momentum with the Commission’s establishment of its science and technology policy, its social action programme (which included