She had made the other appointment that really mattered in May when Sir Alan Walters had resumed his duties as her economic adviser (a role he had previously filled between 1981 and 1983, before
taking up positions in American academia and the World Bank). Lean and fit, despite his greying demeanour (he was going on sixty-three), he cut a very different figure from the commodious frame of
the Chancellor. His background was different, too, for Walters’s path to professorial distinction was an unusual one, being the son of a grocer’s clerk who had grown up in a slum in
Leicester in the thirties and had left school at fifteen to become an errand boy. This made him no less sure of his abilities: his work table resembled a monument to disorganization with papers
piled high and haphazardly, but there was room on it for his coffee mug, emblazoned with the boast ‘Quiet – Genius at Work’.
47
No victim of low self-esteem himself, it was perfectly understandable that Lawson did not want Walters marking his homework. What was more, their personal rivalry was made far worse by their
disagreement on fundamental issues. Walters opposed not just ERM entry but also the clandestine methods by which Lawson had been endeavouring to replicate the mechanism’s stabilizing effects
through a policy of shadowing the Deutschmark – initially without Thatcher’s knowledge and thereafter without her support.
Since 1986, the Chancellor’s efforts had been directed towards fine-tuning sterling’s exchange rate value at between DM2.80 and DM3.00, raising interest rates when the pound slipped
below that band and lowering them when it rose above. During 1987, this meant cutting interest rates, a policy accentuated by a further rate cut following the ‘Black Monday’ stock
market crash in October. This was a credit stimulus in the midst of an economic boom and it created an inflationary bubble. The most unambiguous success of the government’s record, bringing
inflation under control, was now imperilled. Inflation doubled during 1988 from 3.3 per cent to 6.8 per cent, forcing Lawson to reverse his interest rate policy. By the autumn of 1989, the British
economy stood on the brink of a downturn, the housing market already falling, yet still Lawson found himself hiking up interest rates, his determination to keep sterling at
around DM3.00 leading him to respond to a rate rise by the Bundesbank in Frankfurt by following suit, taking interest rates to 15 per cent. It was a policy that highlighted the limitations of
politicians prioritizing a preconceived notion of an appropriate exchange rate at a value the markets thought wrong. To Lawson and his supporters, however, it did not prove that Thatcher was right
that it was ultimately impossible to ‘buck the market’. Rather, they calculated that market pressure would surely ease – allowing interest rates to fall – if sterling was
formally locked into the ERM.
On 18 October 1989, the
Financial Times
drew attention to an article Walters had written in June the previous year (before he was reinstalled as the prime minister’s adviser) for
the
American Economist
, describing the ERM as ‘half-baked’ and Lawson’s policy of shadowing the Deutschmark as a ‘tragedy’. Sensing opportunity, the shadow
Chancellor, John Smith, baited Lawson in the Commons on 24 October, choosing the moment to complete the Labour Party’s transformation from wanting to leave the European Community to now being
desperate to join the ERM. While Lawson endured the pantomime, Thatcher was away at a meeting of Commonwealth leaders in Malaysia, and when she returned Lawson demanded to see her. The meeting was
a difficult one, with Lawson making it abundantly clear that he was not going to have his authority undermined by Walters and presenting the prime minister with a choice: either sack her adviser or
lose her Chancellor. Thatcher seemed genuinely surprised by this ultimatum and begged him not to resign, though her refusal to do as he commanded gave him no option. Thus, on 26 October, Lawson
followed through with his threat.
When Thatcher asked John Major to come and see her at Downing Street, he found her still having trouble coming to terms with Lawson’s dramatic gesture, claiming: ‘It’s
unnecessary. He’s being silly.’ ‘I thought she was close to tears at one moment,’ Major later wrote, ‘and briefly took her hand.’
48
He may also have been thinking that his own future would be unenviable if Walters were to continue at the prime minister’s side – though fortunately Walters
recognized that this would undermine Lawson’s successor and almost immediately announced that he, too, was resigning, despite Thatcher’s entreaties to him to stay. Thus, after only
three months at the Foreign Office, the 46-year-old Major moved to the Treasury. In appointing him, Thatcher did not ask what he thought of the ERM.
49
Scrapping the Iron Lady
Lawson was not the first member of the Thatcher Cabinet to conclude he could no longer work with her. She had survived what could have been a
serious
challenge to her Downing Street tenure in January 1986 when the defence secretary, Michael Heseltine, walked out of her Cabinet. The issue was the future ownership of the troubled Somerset-based
helicopter manufacturer Westland, where the board and shareholders were seeking salvation from the American firm Sikorsky, but Heseltine was determined to prevent its sale other than to a European
consortium. On the face of it, it was hardly an obvious cause for someone of Heseltine’s evident personal ambition to sacrifice his Cabinet career over, and Westland’s subsequent return
to financial health with Sikorsky suggested that its management had a shrewder notion of what was good for their company than the defence secretary. Heseltine, however, made Thatcher’s
autocratic handling of the matter the reason for his departure. This sparring between strong personalities turned into a political crisis when the trade and industry secretary, Leon Brittan, took
the blame for a civil servant in his department who had leaked a letter from the solicitor general disputing Heseltine’s case. Those who believed the prime minister was directly, or
implicitly, engaged in the leak hoped the questioning of her personal probity would bring about her downfall. But proof was never found and the storm soon blew over. Nevertheless, even from the
back benches the imposing and charismatic Heseltine remained a potent threat to his leader. This was not just because his public profile continued to be higher than that of many Cabinet ministers
but because he offered an alternative agenda – a more interventionist state which promoted strategically important businesses and drove forward urban renewal (much was made of his work to
this effect in Liverpool).
EN53
Journalists were naturally attracted to this clash of Thatcher and Heseltine, the Tories’ two bouffant blond(e)s.
While courting his media contacts – Alastair Campbell at the
Mirror
was particularly helpful – Heseltine enjoyed the freedom from ministerial responsibility in other ways too,
finding time to travel around the country speaking to the constituency associations of fellow Conservative MPs, who, it might be imagined, would return the favour by voting for him in a future
leadership election. That he would be a candidate in such a contest was assumed, his oft-repeated formulation that he ‘could not foresee the circumstances’ in which he would challenge
Thatcher leaving plenty of scope for the unforeseen. As early as January 1987, the Tory MP Michael Spicer was reflecting in his diary about a ‘very agreeable’ dinner with Heseltine at
the Stafford Hotel. ‘Clearly,’ concluded Spicer, he ‘thinks about nothing else but Thatcher’s departure and how he is to replace her.’
50
That moment, Heseltine calculated, was still not to hand when Nigel Lawson resigned. A month after the Chancellor’s departure, a ‘wet’ MP, Sir Anthony Meyer, decided to
challenge Thatcher for the party leadership
(under the party’s rules, the leader faced reselection every year, though for Thatcher this had previously always been a
formality). One of only two Tory MPs actively to oppose the Falklands War, Sir Anthony’s dislike of the prime minister was well established: he had called for her resignation over Westland.
Aged sixty-nine, a baronet and an Old Etonian, whose inheritance was sufficient to ensure he did not need to work for a living, he mixed a surprisingly complicated private life with a tendency to
sneer snobbishly at the sort of people Thatcher admired. His belief in European integration was so fervent that he dismissively likened Britain’s position as a sovereign nation to that of
Albania.
51
It was not that he imagined he was prime ministerial material. His intention was rather to act as a ‘stalking horse’ who,
having triggered a leadership contest, would then withdraw as soon as a credible alternative entered the race. It would have been astute of him to plot such an outcome before announcing his
candidature. Instead, neither Heseltine nor anyone else rose to the bait, leaving Sir Anthony to rue that ‘the wets were wet indeed’.
52
But having declared his candidature, he could hardly back down and, in the event, got thirty-three votes. Thatcher, who purposefully did not campaign, received 314. There
were also twenty-four spoilt ballots and three abstentions which, combined, revealed that one sixth of the parliamentary party could not bring themselves to vote for their leader of fourteen years
– a community that Kenneth Baker summarized as the ‘dismissed, disappointed or disenchanted by Thatcher’.
53
Ominously, the
abstentions included Heseltine, who ostentatiously hovered outside the door of the Commons committee room where the ballot was taking place without joining the queue. His time to strike was coming,
but not in the company of the eccentric baronet.
During 1990, the Conservatives’ popularity continued to slide. Losing by-elections was not necessarily a predictor of subsequent general election performance, but the size of the anti-Tory
reaction suggested the party’s difficulties were greater than could be waved off with the usual talk of ‘mid-term blues’. In March, the previously safe Conservative seat of
Mid-Staffordshire was lost on a swing of 22 per cent. On 30 July, Thatcher’s former parliamentary private secretary, Ian Gow, was murdered by the IRA when they detonated a bomb under his car.
His Eastbourne constituents might have been expected to respond to this outrage with a message of defiance to the terrorists, instead of which they chose the by-election as an opportunity to send a
message to Downing Street, transforming Gow’s 17,000 majority into one of 4,500 for the Liberal Democrats. By mid-October, MORI was suggesting that the Tories were trailing Labour nationally
by 16 per cent.
54
The next general election was still potentially twenty months away, yet the proportion of Conservative MPs with grounds for
feeling alarmed at their prospects was now extended significantly beyond those in marginal seats.
Simply ditching Thatcher was not necessarily the answer, since opinion
polling suggested the party’s support would drop further if she were replaced by such possible contenders as Kenneth Baker, Norman Tebbit or Sir Geoffrey Howe. By contrast, replacing her with
Heseltine seemed to be the only option that would restore the party’s fortunes, at least in the short term, with a December 1989 poll suggesting the prospect of a Heseltine premiership would
stimulate a notional 13 per cent surge in Tory support.
55
During 1990, he continued to appear the only electorally viable alternative.
Whatever the apprehension on the back benches about the unpopularity of the poll tax, there was no sign of a decisive Cabinet rebellion on the matter. Rather, it was Thatcher’s
Euroscepticism that courted danger from her senior colleagues. At stake was not just her determination to keep Britain out of any rush towards economic and monetary union. Taken aback by the speed
with which Eastern Europe’s communist regimes had collapsed, she allowed her ingrained suspicion of latent German power to cloud her judgement about the threat a reunited Germany might
present. At Brussels, on 3 December 1989, the West German Chancellor, Helmut Kohl, warned President Reagan’s successor, George H. W. Bush, that Thatcher’s ‘ideas are
pre-Churchillian. She thinks the post-war era isn’t over yet.’
56
If anything, this was generous; some who heard her off-the-record
comments during this period had grounds for wondering if she even thought the war era was over.
57
Particular embarrassment was caused when the
Independent on Sunday
published details of a colloquium of favoured historians she had convened on 24 March 1990 at Chequers to discuss the implications of a reunited Germany. Charles
Powell’s briefing paper summarizing German national characteristics as ‘angst, aggressiveness, assertiveness, bullying, egotism, inferiority complex [and] sentimentality’ was
heavily criticized by the academics present,
58
but it was Powell’s provocations rather than the scholarly modifications that made the
headlines. There were plausible geopolitical reasons for Thatcher to be nervous about an over-hasty reunification of Germany, not least the potential destabilization of Gorbachev and the consequent
possibility of his overthrow in Moscow by communist hardliners. She was also keen to clarify what pressures reunification would bring to the European Community, particularly with regard to who
would pay for it and how it might stretch the Common Agricultural Policy.
59
The tone in which she articulated foreign policy, however, merely gave
the impression that she was unable to adjust to changed circumstances and found herself on the wrong side of a great and historic upheaval. That her most supportive Cabinet colleague, the trade and
industry secretary, Nicholas Ridley, was forced to resign in July 1990, after injudiciously drawing cheap parallels between European monetary union and the Third Reich in an interview for the
Spectator
, only strengthened the assumption that Euroscepticism – like
Germanophobia – was driven more by prejudice than reason. The reality was that
Mitterrand also feared a reunified Germany but was able, by advocating a single European currency, to drive forward a policy he believed would keep Germans bound down within the European construct.
Thatcher could articulate no alternative plan beyond unqualified opposition to a process over which she now exercised little control.