Thatcher’s legacy is Britain’s isolation?

Marie Anne Slaughter has written an article in the FT of April 12, entitled “Thatcher’s legacy is Britain’s isolation”. The article is representative of the State Department view, originally shaped by Dean Acheson’s assertion that the UK had lost an empire, but not found a role. At the time, Acheson’s remark received much attention in the UK, and contributed to fashion an eventual consensus view, shared by Wilson, Jenkins and Heath that the various alternatives, such as free trade, Commonwealth preference, or Atlantic union, were less desirable than membership in the EEC.

The article’s thesis speaks for itself, and is worth reading for the light it casts on State Department thinking, and the predominant view in Brussels. What it does not take into account is the problems that arise from placing a heterogeneous European mosaic of states and peoples into a monetary straitjacket under an ECB that lacks a legitimate political master in the form of a European sovereign.

Margaret Thatcher was the second major proponent of  a Europe of the states, after Charles de Gaulle. But to the continental federalists, a Europe of the states could only perpetuate the region’s fragmentation, perceived as the source of wars in early modern Europe, made much more virulent since the Napoleonic era by the exponential growth of technology and the growth of modern nationalism. To the European federalists, the two dragons that had and have to be slain for Europe to stand tall in world affairs is Europe’s kleinstaaterei, and their accompanying nationalisms.

The UK’s liberal internationalists, who have always been at the heart of the UK’s EU policies, have always been in broad agreement, except for one major difference. The idea of European federalism allows for a deal of diversity in local customs and loyalties, whereas liberal internationalists reason more in terms of large market spaces governed by strong central powers, coordinating policies “at an international level” in such fora as the UN Security Council.  If anything, UK liberal internationalists are more ardently in favour of a European super-state than the continental federalists, many of whose motives are mixed by the complexities of the region.

Germany is a central example. Since 1949, the politics of the Federal Republic has been resolutely in favour of binding Germany into the Atlantic alliance and the European institutions. But die Deutsche Wirtschaft has been frankly nationalist and liberal in the sense of free markets.

This tension at the heart of German European policy-both federal in discourse and with regard to the politics of the EU, but nationalist in economic policies and institutions-worried the French in particular, and also the UK liberal internationalists. As the signs multiplied throughout the 1980s that Germany’s division was crumbling, French policy came to focus relentlessly on using the institutions of the EU to corrale Germany westwards into something much closer to being a federal Europe, than to being a Europe of the states. The French found soul mates in the UK across all political parties in Whitehall, and in the media.

And that is where I think that the prime failing of Mrs Thatcher resides. She had a unique opportunity to support German unification as a vital passageway to  creating a Europe of states co-operating together in an open market regime, sustained by institutions in “Brussels” that would mediate conflicts and co-operation, inevitable in such a complex region.

Margaret Thatcher’s major foreign policy failing was not to back German unification from the start. The start may be dated from mid-1987, and the Gorbachev-Reagan deal on short range missiles, which prompted Franz Josef Strauss to write an article in Die Zeit that Germany was now defenseless. Strauss four years previously had extended a 1 billion DM loan to the GDR, a clear sign that it was bankrupt.

Germany unification was in the air, and I gave countless talks to business people across Europe as of the summer of 1987 that it was coming, and the timing would be late 1989. Olaf Henkel wrote to our dean at INSEAD, great course, he said, but please sack that crazy Englishman. Claude Rameau did not follow the advice, and pointed out that INSEAD is an academic institution.

I expected from Thatcher’s Bruges speech in August 1988 that she had realized that a unifying Germany wanted a Europe, an EU of the states, and that she would be in a perfect position to both back the inevitable reunification, and the move to a Europe of the states. For whatever reason, and the possible explanations are multiple, she never exploited the formidable cards which she had been dealt: the UK backs German unification, Germany backs an EU of the states, and both agree to achieve the internal market. She fluffed it, and Mitterrand, with Delors, sprung monetary union on Europe.

The move to monetary union has proven to be a disaster of the first order. It seeks to harmonize a diverse mosaic of interdependent states into a harmonized whole. The one statesperson in Europe who spoke out clearly against monetary union was Thatcher. The tragedy was that with a clear sighted vision, she could have avoided what has turned out to be a disaster for Europe, and a major problem for the UK.

And this is where I come to my prime criticism of Ms Slaughter’s article. She writes that “her instincts were completely out of touch with modern Europe”. It is the converse: her European view was of an EU open to business, and not bound by centralizing policies aiming to make an EU one-size-fits-all. This position can only be represented by someone fundamentally ignorant of Europe, and who gleans information from the bubble in Brussels. Ms Slaughter represents the State Department: it is clearly the State Department and the Brussels bubble which are “out of touch with modern Europe”.

Given the magnitude of the crisis in Euroland, it is very clear where the path of redemption leads: it leads to an unravelling of the Euro, and a reinforcement of the open market policies, combined with deep reforms in the region’s so-called welfare states. It is equally clear that the barriers to achieving this are huge. But those of us who support the idea of a Europe of democratic states under the rule of law, and represented in a modest institutional framework, should not despair.

The liberal internationalists are as confused as the federalists. Both now advocate making a Big Leap into union, knowing that the true destination is unknown. Both wish to extirpate nationalism, but their methods stimulate it. They call for “ever closer union” but are not concerned about the primordial political building bloc of modern societies, which is consent.

The European project as it has developed lacks deep consent among the peoples of Europe, notably now in Germany, and definitely in the UK. Thatcher knew that. She missed a once in a lifetime chance to embrace Germany in an open Europe of democratic states whose national parliaments are the ultimate arbiters of national policy. It was her greatest and gravest political error. We are fortunate that the chance has come round again in our lifetime, as I argue in this blog on the Cameron-Merkel meeting in Berlin.

About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) ( His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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