Roy Jenkins: How a rash strategy to reinvigorate Europe was born

Today the euro becomes the official currency of 12 countries of the 15 that are members of the European Union. Only Britain, flanked by the traditionally detached northern fringe of Denmark and Sweden, for the moment stands aside. For this development, not merely in the European core of the original Six, but in another six later joiners – Spain, Portugal, Ireland, Austria, Greece and Finland – I gladly claim a degree of responsibility.

In the summer of 1977 Europe was in the doldrums. The Franco-German partnership, under Helmut Schmidt and Valéry Giscard d'Estaing, was firmly in control of Europe, but for the moment they had no direction in which they wished to take it. Nor was the European Community doing well economically. In the 1960s, with fixed exchange rates, the Europe of the Six had performed brilliantly, at least as well as America or Japan. In the mid-1970s, with the violent currency fluctuations that had set in after the collapse of the Bretton Woods system in 1971, it had performed dismally.

Nor was this surprising. For the other two main world economies the fluctuations had been external, affecting only relationships across oceans. For the European Community they had been viscerally internal, with the franc and the mark diverging from each other as much as either had done from the dollar or the yen.

In that summer I had been President of the European Commission for the previous six months and was as deep in the doldrums as were the European economies. They needed a stimulus. I needed a message. One of the several things about Europe that most British politicians have never understood is that it is part of the traditional duties of the president of the commission not just to be the head of an administration, a sort of international secretary to the cabinet, but also to be a trumpet for the advance of the European idea.

And all of those who have left a major imprint – Jean Monnet, the president at the creation of the Coal and Steel Community, Walter Hallstein, the first president of the economic community, and Jacques Delors, in office in the 1980s – have paid full attention to the second aspect.

There is a third and less easily definable aspect of the president's needs, which is to have such a relationship with at any rate some of the heads of government that he can nudge them along into turning some of his messages into reality. It is not much good proclaiming the most exciting ideas from the housetops if the leading national figures, with whom, in spite of British phantasmagoria about rampant federalism, full power still rests, just shrug their shoulders, and nothing happens.

This is probably the greatest weakness of the present president, Romano Prodi. Delors not only enjoyed the traditional French support for one of their own, but he also had the sense to forge a firm offensive/defensive alliance with Helmut Kohl, in several senses the weightiest figure in the European Council. Prodi, in spite of his considerable record as Italian Prime Minister, has no comparable props.

Following these precepts, I decided in July 1977 that the best way to rescue both a stagnant Europe and my stagnant presidency (the first six months had not been a success) was to re-proclaim the goal of monetary union and hope to get Helmut Schmidt, the Chancellor of West Germany and, hence, the keeper of the strongest currency in Europe – and probably the strongest in the world at the time – and, in my view, then and now, the most constructive statesman of his epoch, as an essential ally.

In one sense this was not breaking new European ground. At least since the 1970 Werner report (by the then prime minister of Luxembourg) "economic and monetary union'' had been a proclaimed objective of the community. But in the preceding seven years no visible progress had been made towards it, and in a curious way the Janus-like title made rapid advance less likely. If economic convergence and monetary integration were never to move more than a short step ahead of each other, there was no place for three-league boots. I decided there was a better chance of advance by qualitative leap than cautious shuffle.

It was a rash strategy, but probably more by luck than judgement it worked. The Economist, the most widely read journal among the European nomenclatura, with traditional misplaced British scepticism about anything effective coming out of Brussels, dismissed it as "a bridge too far'.'

And that scepticism was, indeed, mirrored for a few months by the main countries of the community. The British government was, needless to say, detached. However, the French and the Germans were not very enthusiastic, either. Giscard said he was in favour in theory, but was not sure that it was practical. Schmidt said that it might be all right, provided that it did not mean German inflation going to 8 per cent, which was roughly the rate in Britain and Italy.

Then, suddenly, a few months later, it all turned round. Schmidt became a total convert to the idea of a monetary advance. The weakness of the dollar had a traumatic effect upon him. This weakness was serious, but not catastrophic. Between the autumn of 1977 and the autumn of 1978 the dollar fell by about a quarter against the mark. But it had a more than proportional effect upon Schmidt. He had long believed in American captaincy of the West. But when the Atlantic ship of state began to founder, he thought that it was was time to take to the European lifeboats.

Giscard, as was so often the way, or vice versa, followed Schmidt, the little five countries of Europe plus Italy were always in favour of integration, and just about a year after that we had got the European monetary system (EMS) in operation. It really was a remarkably fast timetable by the slow-moving standards of the European Community in the 1970s.

Throughout the 1980s the EMS worked well. Only the British remained outside, believing that they could thereby better protect their own economic destiny. I shall never forget the ironical semi-symmetry of conversations with two successive prime ministers in 1979. James Callaghan told me he would like to participate, but he was nervous of being locked in at too high a rate, which might prevent his dealing with unemployment. Then, a few months later, Margaret Thatcher told me she was in principle in favour of membership, but was frightened of being locked in at too low a rate, which would prevent her dealing with inflation.

In fact, under both of them, Britain experienced for several years a higher rate of unemployment and inflation than any participating country. These two exchanges from across the political divide will illustrate our national ingenuity in finding reasons for not being as other Europeans are.

Sterling outside the EMS behaved like a rowing boat caught in the cross currents between two ocean liners. Those who believe in the rationality of freely floating exchange rates should remember that, in the early 1980s, the pound-dollar rate oscillated violently between $1.10 and $2.60, and all without any great change in economic realities, either relative inflation, productivity rates or balance-of-payment deficits. In this period, the countries within the EMS floated on relatively calmly. It was only after Britain joined in 1990 – at the wrong rate and at the wrong time – that temporary upheaval struck the European system. The whole story is a classic example of the disadvantages of the traditional British policy of wait and see.

The EMS was not, of course, full monetary union. But it was a step of about 40 per cent in that direction, and it was an essential paving exercise towards today's great changeover. Firm partisan of the euro although I am, I expected the changeover to be accompanied by more squeals of pigs being led to the market than now seems likely. It is significant that German opposition seems to have largely died down. If a country has reason to be proud of its currency in the second half of the 20th century it was Germany. The mark replaced the Wehrmacht as the symbol of German strength – and very beneficial the change was for the peace of the world.

The recent history of the pound can hardly give a similar satisfaction to British nationalists. A similar period has seen its value decline from 12 marks to little over three. And this is not just an abstract question. Everyone recognises the bad value of British prices -- from durable consumer goods to taxis to food to hotels. If and when the referendum comes – and I believe it will probably do so in 2003 – the slogan I would recommend to the "Yes'' campaign is: "Why do you want to stay with rip-off sterling?''

The author was chancellor of the exchequer, 1967-70, and president of the European Commission, 1977-81