If Europe had only listened to Thatcher’s warning

Euro-skepticism Thatcher’s most relevant legacy

By Amotz Asa-El

 “I am not prepared to accept the economics of a housewife,” said Jacques Chirac in 1987.

Margaret Thatcher, to whom the future French president was referring, was then at the height of her career, having already won her place in history as the restorer of Britain’s economic resilience, and the winner of the Falklands War.

Yes, her macroeconomic gospel was as controversial as it was resolute. However, her stance concerning European federalism in general, and the launch of the euro in particular — now seem prophetic, despite the misgivings of adversaries like Chirac.

Thatcher arrived in power 50 years after the Depression. Her faith in human enterprise and market efficiency had been doubted in Europe for two generations. When she sold British Aerospace and Cable & Wireless, the very term privatization was hardly known, and even for the economists who did know it, it was but the theoretical antithesis of nationalization, the reality that dominated Britain’s postwar economy.

By the time of Thatcher’s political departure in 1990, the whole world knew what privatization was, as Britain had sold even a universally familiar brand like British Airways, and also shed behemoths like British Steel and British Coal.

However, dramatic as these measures were, Thatcher’s imprint still seemed limited to British history, whether as seller of state assets, cutter of taxes and spending, deregulator of financial markets, or enemy of organized labor.

End of history

Ironically, Thatcher’s imprint globalized only after her resignation. Having left office shortly after the fall of the Berlin Wall, Thatcher then saw — from the House of Lords — dozens of newly unshackled economies, from Poland and Russia to India and Vietnam, privatize countless assets, having seen how Britain became both richer and more efficient in the wake of Thatcher’s selloffs.

Initially, this trend seemed so undisputed that Thatcherism came to be seen as part of a new macroeconomic consensus that, along with democracy, reflected what American scholar Francis Fukuyama called at the time “the end of history.”

That impression was of course as farfetched as it was euphoric. Political freedom remained elusive in much of the world, and economic freedom proved less than the panacea its enthusiasts had hailed.

Thatcherism came under fire soon after landing in East Europe, and for the same reasons that it was controversial the previous decade in Britain. The social costs of unleashing market forces on the financially defenseless working class were even higher in post-communist countries than they were in Britain.

And then came 2008, which unsettled not the working class, but the middle class, and not in Bucharest and Vilnius, but in Paris and Manhattan, thus altogether tarnishing unbridled economic freedom. Even so, for better or worse, Thatcher’s spirit lives in the former East Bloc’s each and every privatized company, bustling stock market, frugal Treasury, and crowded business school.

Now, just like her political departure coincided with her macroeconomic legacy’s exportation, Thatcher’s death coincides with her European vision’s vindication.

The monetarist orthodoxy that Thatcher espoused, and which partly drove her euro-skepticism, is now under fire. Its role as an idolatry that arguably inspired, among other iniquities, the Federal Reserve’s denial while the subprime crisis approached, will surely be debated for years.

Yet it was the same monetarist conviction that made a foresighted Thatcher reject European federalism, even when many on the Continent argued passionately that it was the call of the future.

Skepticism toward a tight union was not Thatcher’s invention.

Britain did not immediately join the Common Market, the European Union’s precursor, when it was established in 1957, and also after joining in 1972 London preferred a relatively loose and shallow framework. Still, by the twilight of her premiership Thatcher grudgingly surrendered to her colleagues’ pressure to join the exchange rate mechanism (ERM), which narrowed price-gaps between European currencies through government interventions.

Following this ideological compromise, Thatcher delivered a scathing speech against Europe’s integration, thus provoking her deputy Geoffrey Howe’s resignation, a move that soon afterward resulted in her own resignation and the end of her premiership. Tellingly, then, Europe was the final of her career’s many bones of contention.

The ERM stint ended badly. A run on the pound led Thatcher’s successors to lose in one day £3.4 billion while propping the pound, as the ERM’s stipulations demanded, in order to prevent the pound from becoming excessively weak. Britain now left the ERM, effectively saluting Thatcher for her insistence that governments cannot manage markets.

Thatcher’s euro-skepticism was not fanatic. The ERM misadventure began during her shift, and she also endorsed the Single European Act of 1987 that set the deadline for a single market, later saying she was misled about some of its details.

Even so, Thatcher’s basic take on a tight European federation was that it was unnecessary, unworkable, and dangerous. The nation state, she insisted, should remain at the heart of the international system, and a federated Europe would threaten its sway.

Moreover, Thatcher had misgivings about the Continent as a source of moral inspiration. “During my lifetime,” she reminisced, “most of the problems the world has faced have come, in one form or another, from mainland Europe, and the solutions — from outside it.”

That insight alone is priceless, but it still pales compared with what she wrote more than a decade ago, when the euro was still a toddler, and the economies of Greece, Spain and Cyprus seemed as distant from calamity as they now are from salvation. “The European single currency,” wrote Thatcher in 2002, “is bound to fail — economically, politically, and indeed socially.”

Thatcher’s reasoning for this was not ideological. It was monetarist. There can be no such thing as a united currency without a united budget, she argued, at a time when it was impolite to suggest that the euro’s newlyweds would soon accuse each other of theft, deceit, laziness, imperialism and oppression.

Yes, Jacques Chirac said Thatcher’s was a housewife’s economics, and his predecessor, Francois Mitterrand, thought she had “the eyes of Caligula.” Could be, but had Europe’s federalists seen the future through Thatcher’s eyes, they would never have arrived where they now are trapped.