In 1988, Margaret Thatcher visited the West Flemish city of Bruges, home to the world’s first stock exchange, which emerged to facilitate trade between England and the European mainland. She was there to deliver a speech to the College of Europe, a university that had been training many of the European Union’s top officials.

In her speech, she warned: “We have not successfully rolled back the frontiers of the state in Britain only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels.”

She praised the treaty of Rome as “a charter for economic liberty”, but added: “that is not how it has always been read, still less applied.” After all, “the lesson of the economic history of Europe in the ’70s and ’80s is that central planning and detailed control do not work and that personal endeavour and initiative do.”

This British warning was ignored.

EU commission president Jacques Delors continued his efforts for the creation of a common European currency. This would be one of the first crucial steps in British disillusionment with the European project, so it deserves to be studied in more detail.

The euro’s creation was mainly the result of longstanding French frustration with the supremacy of Germany’s Bundesbank, which had been conducting hawkish monetary policies that originated in Germany’s hyperinflation trauma earlier that century.

During the 1980s, France, Belgium, and other European countries had no other option than to peg with Germany’s currency, so these states had to follow the Bundesbank’s decrees in terms of loosening or tightening monetary conditions.

The French establishment, which included Jean-Claude Trichet, a future president of the European Central Bank, was horrified that the presence of a hard currency in Europe limited the room for artificially boosting the French economy through devaluation of the national currency. Thanks to the Deutschmark, savers and investors had a stable alternative to the French franc in the event of the French establishment going too far.

French strategic thinking, then, was to create a common European currency as an effective counter to Germany’s monetary sovereignty. Today’s complaints in southern Europe about how the euro has supposedly benefited Germany simply don’t chime with history – because it hasn’t. It has, in fact, impoverished German savers at the expense of exporters who have lacked incentives to innovate. The German car industry is a useful example of this.

It’s true that the euro has strengthened Germany politically – the German economy is, after all, the bedrock on which the credibility of the common currency rests.

When bailouts are needed to kick the can down the road once again, the voice of the German Bundesbank is key. When expansionist monetary policies are needed for the same purpose, the tacit support of the German chancellor to debase German savings is needed.

So the French establishment was correct to assume that the creation of the euro would enable looser monetary policies which would help to avoid reforms to the welfare state, but wrong to assume that it would weaken Germany politically.

In the French quest for the euro, German unification provided a prime opportunity. A few years ago, Der Spiegel unearthed secret papers showing that Germany was strong-armed by France into swapping the Deutschmark for the euro as the price for reunification.

The French president Mitterand “did not want reunification without progress with European integration and the acceptance of the euro”, his former adviser and later minister for foreign affairs, Hubert Védrine, confirmed. Karl Otto Pöhl, who was the Bundesbank president at the time, has also verified the story’s accuracy.

Ironically, Margaret Thatcher herself was an opponent of German unification, which was a strategic error as it gave the French more leverage to force Germany into accepting the euro. A stronger Anglo-German bond could have been a force for good.

According to some, an important reason France was holding up the United Kingdom’s accession to the European Economic Community (EEC) in the 1960s was to extract more concessions from Germany on agriculture.

The French were apparently afraid that Germany would link up with the free market-loving British in obstructing what would end up as a catastrophe of central economic planning: the EU’s morally and financially corrupt common agricultural policy (CAP).

Despite the fact that Britain and other countries were forced to leave the euro’s predecessor, the European exchange rate mechanism (ERM), in the autumn of 1992, the common currency was created anyway.

The treaty of Maastricht, signed in February 1992, provided the legal basis for this. During the negotiations, the UK secured an opt-out. This was the first major British deviation from the European project.

The same year, the Danish population rejected the Maastricht treaty in a referendum, resulting in a Danish opt-out from the euro, and in France, only 51.1 per cent of the public voted in favour.

Many prominent economists had warned against creating the common currency, something that was documented by the EU commission itself just before the start of the euro crisis at the end of 2009 in a bid to mock them. In the early 1990s, Delors and his companions simply wouldn’t listen. The project had to be realised.

The decision to create the euro was ultimately taken at the Madrid summit on 16 December 1995, when Spanish prime minister Felipe Gonzalez managed to dismiss French president Jacques Chirac’s demand for national referendums on the euro. At this point, even doubts from the French president himself couldn’t stop it – the German chancellor, Helmut Kohl, was sold.

German officials warned him in 1997, 1998, and 1999 that Italy posed “a special risk” to the euro because of its refusal to reduce its huge debts and its accounting tricks.

Joachim Bitterlich, Kohl’s former foreign policy adviser, wrote in a memo in January 1998 that Italy’s deficit reduction was based mainly on a dubious “tax for Europe” and on unusually low market interest rates.

In 2012, Bitterlich revealed that everyone knew Italy would be included from the start for political reasons. He described the mood at the time: “Not without the Italians, please. That was the political motto.”

Kohl’s desire to continue alone wasn’t sufficient. After the fateful decision in December 1995 to actually introduce the euro, Italy saw its 10-year borrowing rates drop under 12 per cent again.

Markets had rationally concluded that despite Italy’s massive debt burden, the country would be more sustainable as a member of the eurozone, despite the so-called “no bailout” pledge.

This was the first European bailout of Italy, which was going straight to default levels at the time. From 1996, as a result of the political decision to create the common currency, BelgiumPortugal, and Spain also experienced a similarly rapid decline in their borrowing costs from 1996 to 1999, when the euro was formally introduced. 

As such, Britain’s first schism from the European project was a result of the German concession to France to give up the Deutschmark, combined with the incentive for European governments to create a common currency. A common currency that would help to finance their welfare states, but allowed a much greater capacity for unsustainable debt creation.

A final attempt to lodge Britain into the euro was prevented, partly thanks to the efforts of Business for Sterling, an influential group of British business people led by Rodney Leach, the late chairman of Open Europe.

As a businessman, he was one of the most influential figures from the City of London. With his exceptional experience in finance, he understood the profound implications of Britain giving up its own currency.

The group managed to convince the Confederation of British Industry (CBI) to abandon their support for the euro, and instead take a neutral stance. It was a great victory in preventing British accession to the euro, which would have made Brexit much more complicated and enormously more painful.

It would have entailed the break-up of a monetary union, something that is immensely difficult to do in an orderly fashion. British discontent with EU membership would have been much harder to channel. Few in the European Union realise the service done to the EU in Britain’s decision not to join the euro.

Nevertheless, it didn’t stop there.

Consecutive treaties signed in Amsterdam, Nice, and Lisbon involved ever-greater transfers of power and money to the EU level.

This was either in the form of scrapping vetoes or the development of new supranational bureaucracies, such as the EU foreign ministry or council presidency.

Referendums were held on the Nice treaty, rejected by the Irish in 2001, the European constitution, rejected by the French and the Dutch in 2005, and its reworked version, the Lisbon treaty, rejected again by the Irish in 2008, who were asked to vote a second time on both.

It must be said that all of these treaties had been agreed by consecutive British Labour governments as well. Tony Blair had first promised a referendum on the European constitution.

When this project had been killed by French and Dutch voters, his successor Gordon Brown didn’t submit the Lisbon treaty to a popular vote, even if he made up an excuse to miss the signing ceremony in December 2007.

The British leader of the opposition at the time, David Cameron, told Czech president Klaus, the last leader needed to sign the Lisbon treaty in 2009, to hold out and not sign, but by the time Cameron entered office as prime minister in May 2010, Klaus had folded under pressure.

The financial crisis, the euro crisis, and the chaos of the migration crisis would further embolden Eurosceptic sentiment, not only in the UK but across Europe.

Referendums decidedly rejected the EU’s preferred outcome in Denmark, Greece, the Netherlands, and Hungary. And Britain’s Eurosceptics had been craving a referendum on the EU for decades. So in order to stem the rise of Ukip, Cameron offered a public vote on EU membership in January 2013. The rest is history.

People who criticise Cameron for submitting such an important decision to a referendum should understand the following: it’s fair to be opposed to direct democracy, as Thatcher was, but without a referendum, Brexit may well have emerged as official Conservative party policy in a subsequent election manifesto.

Many in British society had simply had enough of the ever-greater concentration of power and money in Brussels, and Cameron was simply listening to voters, as any democrat should do.

In a similar way, Cameron managed to become Conservative leader by promising to pull the Conservatives out of the European People’s party, where the likes of Angela Merkel was firmly sold on EU federalism.

Cameron should have been more ambitious in his attempts to reform the EU, however. As former Open Europe director Mats Persson wrote about his experience as an adviser to Cameron during the failed renegotiation of EU membership ahead of the 2016 referendum: “We under-bid. Cameron’s brilliant 2013 Bloomberg speech envisioning sweeping EU reform was incrementally distilled down to a less ambitious opening bid in the renegotiation. Even some European leaders suggested more ambition. As one diplomat put it, ‘In Europe, we ask for 10 things in order to get 6, you ask for 4 things to get 4. Why?'”

European leaders also deserve blame. Early on, German chancellor Angela Merkel ruled out treaty change after Cameron announced his intent to renegotiate Britain’s relationship. This made wide-ranging reforms impossible. She also largely left the initiative to the European commission.

The countries which have a great interest in trade with Britain, like Belgium and the Netherlands, did not go out of their way to help the prime minister either. The greatest effort was made by central and eastern European countries, which conceded to modest restrictions on EU migrants’ access to welfare.

We also shouldn’t forget that in June 2014, the UK was outvoted together with Hungary on the decision to appoint Jean-Claude Juncker as EU commission president.

Juncker, an avid federalist then pledged his commission would be political, thereby going directly against the UK’s preference of the commission as an administrative body responsible to open up trade. Juncker did start a “better regulation” initative, but it didn’t deliver much.

Crocodile tears were shed after the British people voted to leave, but many in Brussels should realise they too carry responsibility for the ongoing divorce.

This article was originally published on The Conservative.

Written by Pieter Cleppe

Pieter Cleppe represents the independent think tank Open Europe in Brussels.