After the summit
It would be churlish to deny Mr Heath the honour already accorded to him generally for his efforts at the Paris summit. But the incredible euphoria that characterised reactions after the summit communiqué was issued did no service to the Prime Minister himself; and obscured seriously both the extent to Which the communiqué was a tabulation of problems rather than a programme of solutions; and the degree to which some very serious problems were swept under the carpet of old doctrines. In his own statements after the meetings were over Mr Heath laid particular stress on the fact that target dates had been set up Ito the end of the decade for the achievement of most of the major objectives laid down in the communiqué. In so far as some of these objectives, and notably the bringing into being of an effective regional development policy, are particularly close to the British heart, the Prime Minister must realise that success in reaching them depends Ito a large extent on the overall economic and industrial impact whiCh Britain makes inside the EEC. The size and scope of the regional aid to which Britain's new partners will be willing to commit themselves by the target date of December. 31, 1973, as well as the size and character of the aid funds supposed to be available by April 1, 1973 from the European Monetary Co-operation Fund Will both depend on the size of the demands Britain makes.
The evidence regarding Britain's likely performance is not propitious. To some extent that performance will depend on the Government's success or failure in coping with domestic inflation and with industrial relations. It will also depend, however, on two other major factors — whether the Chancellor achieves the 5 per cent growth rate on which both prolsperity and the incomes policy will depend; and whether British investment is sufficiently lavish in comparison to that of other EEC members. (We have recently argued that no incomes policy based on restraint is likely to work in the long term; but it Might work for long enough to see us through the establishment of a European .regional policy and the settingup of the Monetary Co-operation Fund: in which case the crash would come later.) Growth will ultimately depend on the. efficiency of investment; and it is disturbing in the extreme to remember that, on all available projections, there will be less British capital investment in 1973 than in 1971. Nor is there any serious indication that the increase in market size of Which there has been so much talk recently really does offer BnitiSh industry opportunities of the kind the Prime Minister is so fond of emphasising. For one thing, our current European market is not as small as proponents of the EEC policy like to make out. Taking into account the EFTA countries, it is twice as big as our domestic market 100, million as opposed to fifty million. Nor can we simply addlO our fifty million the 190 million population of the old' EEC to get the size of the new Market less the other new members: we are already selling nearly a quarter of our exports to the Six, and any improvement must take place on top of that. Further, it will be another five years before the tariffs against Which wecurrently compete will have been removed. Finally, we must remember that EEC entry is a two-way process, and any marginal gain we make from entering will be more than counterbalanced by greater EEC access to the British home market. All of this suggests that, even if there is to be a substantial improvement in our European market prospects, it will not take place for some time; and that our hopes might be arrested or even eliminated if the structure of domestic industry and economic relationships is not drastically reformed. Here, it is necessary to emphatsise that the prospect of such reforms it not brightened either by the Government's unselective Industry Bill or by its recent attempts at devising a 'consen'sua'l incomes policy.
What, more than anything, Mr Heath seemed to be trying to achieve at Paris was to give such momentum to the common institutions of the Market as would overcome the ill-effects of entry on this country which will accrue over the next few years. It may well be true that, if by the end of next year he has been able effectively to place Britain in a dominating position within the Structure of the Community, he will have achieved that end. To do this new institutions Will have to be created, and old ones reformed, so that their operation favoured Britain in the same way and to the same extent as, for example, the Common Agricultural Policy favours France.
The new Community Regional Policy it, in this respect, Britain's pet project. In considering its prospects it will be senSible to lay aside for the moment the serious objections in practice and principle Which can be made to any such unselective programme of aid. More important for our immediate purposes are two other facts: since the regional policy, if it ever gets off the ground, will be financed from Cornntunity resources it will either have to operate at the expense of the Common Agricultural Polity — the main current charge on such resources — or the resources of the Community will have to be increased The first possibility can be ruled out instantly, for the French will never agree to it. The second is more prdblematic, but it can be said with some ccmfldence than an increase in Community resources its likely to delay if not altogether to frustrate the ambitions expressed at the end of the Paris communiqué for freer trade with the rest of the world, and lower tariffs. Such a development will in turn further reduce British coMpebitivIeness in the world Outside Europe, Where we still have much of our trade, and 'where we Will be already hit, after January 1, by losses of preferences and privileges.
European growth, however, can still be aChieved, and would increase the common resources. Whether it is achieved or not is going, to some extent, to depend on the achievement of monetary and economic union, and the reorganisation of the Whole economic system of the enlarged Community. Such developments, if they are to take place, will effectively secure the complete destruction of national sovereignties within the ComMunity. Again, Mr Heath's dedication to a more complete union by 1980 shows his realisation of the exact nature of the complex calculations involved in all these projections, and his further awareness of the fact that the collapse of the Whole existing system may be staved off only by plunging further into the development of a total European system. He is racing, not only against Mine, but against practicality and desirabilitY as well.
All recent British economic crises have manifested themselves, in the international context, as sterling crises. The floating pound has been our sole protection against a recurrence of such crises this year. But the Paris communiqué re-affirmed the intention of all the new Market countries in declaring "that fixed but adjustable parities between their currencies constituted an essential basis for the achievement of the union . " The word ' adjustable ' in this context means a resolution in favour of some policy intermediate between rigidly fixed and floating parities, the object being to ensure that adjustment can take place without the excessive disruption of devaluation. The idea is, in principle, quite sensible, but the cOmmitment to it is so vague as to be meaningless. We know that the French will try to insist on an exchange rate for the pound of $2.44 at least; and we know that the real, that is the market, rate is $2.40. Will the other European countries accept a genuine rate for the pound even though it gives Britain an extra competitive edge in their own markets? And will Mr Heath yield to them or defy them?
About Mr Heath it is difficult to be sure. The Prime Minister is known to take a highly antediluvian view of exchange rates, favouring those which are solidly fixed over these Which reflect the truth of the market. Nonetheless, in the sterling crisis which occurred earlier this year he showed a coMmendable willingness to abandon his own shibboleths and adopt the plan for a float. Now, at Paris, he has agreed, not merely to a fixed but adjustable rate likely, if we ever see it, to be more fixed than adjustable, but also to a European Monetary CO-operation Fund "which will be administered by the committee of governors of central banks within the context of general directives laid down by the Council of Ministers." There will be "concerted action anon the central banks for the purpose of narrowing the margins of fluctuation between their currencies" and " administration of shdrt term support an-tong the central banks." The only conceivable circumstances in which a structure Such as this Would have any meaning would be in the context of a rigidly fixed exchange system in which — as at Basle in 1968 — central banks combined to pay money to any country Which ran into a currency crisis in order to bail it out of immediate trouble Without encouraging it to tackle at their root such real problems as it suffered from. The whole idea of such a support fund is highly retrograde, and makes the most blatant nonsense of another extremely vague and generalised undertaking in the communique to encourage useful reforms in the international monetary system.
Few of the signs, then, are encouraging for Britain. Nor, it may be added, are they encouraging for the other European countries either. The Paris summit envisaged a full economic and monetary union (under which system there would be a single European currency, industry and economy, which would imply a single European government) being achieved by the end of 1980. Even if the view be taken that such European union is a desirable goal, the imprecise and retrograde economic measures planned for the interhn will create sufficient difficulties Within individual countries to prevent that goal being happily and successfully reached. The great danger in Mr Heath's visionary steps to accelerate this country out of its economic difficulty by pell-mell Community development, without pausing to take account either of the precise and real position of the British economy, or of the past failure of international economic structures which is recognised and reinforced by the intentions stated in the Paris communiqué, is that all nine countries will fall between two stools: they Will neither get the best from the Community for themselves, nor will such sacrifices as they are bullied or cajoled into making assist towards a successful and happy unification of that Coinmunity. For these reasons Paris saw no more than a general welcome for Britain, and an agreeable acceptance that hers would or could be a distinct and individual contribution. The summit portended little good that was substantive, and supplied no ground at all for confidence in the European venture.
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