Postwar: A History of Europe Since 1945 (91 page)

But if the Sixties seemed at last to pass un-mourned and with few enduring monuments, this was perhaps because the changes that they did bring about were
so
all-embracing as to seem natural and, by the early Seventies, wholly normal. At the start of the decade Europe was run by and—as it seemed—for old men. Authority, whether in the bedroom, the home, the streets, educational establishments, workplaces, the media or politics, passed unquestioned. Yet within ten years the old men (Churchill, Adenauer, De Gaulle) were dead. Authority had either been withdrawn from most spheres of social life, or else was acknowledged only in the breach. In some places—France, Italy—the transition had been quite dramatic. Elsewhere—Britain, perhaps—the transition was spread over a period of years and its dimensions could only be fully appreciated in retrospect.
¹⁹¹

It was one of the self-delusions of the age that the Sixties were an era of heightened political consciousness. ‘Everyone’ (or at least everyone under twenty-five attending an educational establishment and drawn to radical ideas) was in the streets and mobilized for a cause. The deflation of the causes—and the demobilization of the coming decades—thus confers in retrospect an air of failure upon a decade of frenetic political activity. But in certain important respects the Sixties were actually a vital decade for the opposite reason: they were the moment when Europeans in both halves of the continent began their definitive turn
away
from ideological politics.

Thus the slogans and projects of the Sixties’ generation, far from re-awakening a revolutionary tradition whose language and symbols they so energetically sought to reinvigorate, can be seen in hindsight to have served as its swansong. In Eastern Europe, the ‘revisionist’ interlude and its tragic dénouement saw off the last illusions of Marxism as a practice. In the West, Marxist and para-Marxist theories soared clear of any relationship to local reality, disqualifying themselves from any future role in serious public debate. In 1945 the radical Right had discredited itself as a legitimate vehicle for political expression. By 1970, the radical Left was set fair to emulate it. A 180-year cycle of ideological politics in Europe was drawing to a close.

PART THREE

Recessional: 1971-1989

XIV

Diminished Expectations

‘The dollar is our currency but your problem’.
John Connally, US Treasury Secretary, 1971

‘It might or might not be right to kill, but sometimes it is necessary’.
Gerry Adams

‘The death of a worker weighs heavily like a mountain, while that of a
bourgeois weighs as lightly as a feather’.
Mao Zedong

‘This is the Hour of Lead-
Remembered, if outlived’.
Emily Dickinson

‘Punk might have been invented for the cultural theorists—and the partial
truth is that it was’.
Robert Hewison

Even before the effervescence of the Sixties had subsided, the unique circumstances that made it possible had passed forever. Within three years of the end of the most prosperous decade in recorded history, the post-war economic boom was over. Western Europe’s ‘thirty glorious years’ gave way to an age of monetary inflation and declining growth rates, accompanied by widespread unemployment and social discontent. Most of the radicals of the Sixties, like their followers, abandoned ‘the Revolution’ and worried instead about their job prospects. A few opted for violent confrontation; the damage they wrought—and the response their actions elicited from the authorities—led to much nervous talk of the ‘ungovernable’ condition of Western societies. Such anxieties proved overwrought: under stress, the institutions of Western Europe showed more resilience than many observers had feared. But there was to be no return to the optimism—or the illusions—of the first post-war decades.

The impact of economic slowdown was only just beginning to be felt when two external shocks brought the Western European economy to a shuddering halt. On August 15th 1971, US President Richard Nixon unilaterally announced that his country was abandoning the system of fixed exchange rates. The US dollar, the anchor of the international monetary system since Bretton Woods, would henceforth float against other currencies. The background to this decision was the huge military burden of the Vietnam War and a growing US Federal budget deficit. The dollar was tied to a gold standard, and there was a growing fear in Washington that foreign holders of US currency (including Europe’s central banks) would seek to exchange their dollars for gold, draining American reserves.
¹⁹²

The decision to float the dollar was not economically irrational. Having opted to fight an expensive war of attrition on the other side of the world—and pay for it with borrowed money—the US could not expect to maintain the dollar indefinitely at its fixed and increasingly over-valued rate. But the American move nonetheless came as a shock. If the dollar was to float, then so must the European currencies, and in that case all of the carefully constructed certainties of the postwar monetary and trading systems were called into question. The fixed rate system, established before the end of the Second World War in anticipation of a controlled network of national economies, was over. But what would replace it?

Following some months of confusion, two successive devaluations of the dollar, and the ‘floating’ of the British pound in 1972 (belatedly bringing to an inglorious end sterling’s ancient and burdensome role as an international ‘reserve’ currency), a conference in Paris, in March 1973, formally buried the financial arrangements so laboriously erected at Bretton Woods and agreed to establish in its place a new floating-rate system. The cost of this liberalization, predictably enough, was inflation. In the aftermath of the American move of August 1971 (and the subsequent fall in the value of the dollar) European governments, hoping to head off the anticipated economic downturn, adopted deliberately reflationary policies: allowing credit to ease, domestic prices to rise, and their own currencies to fall.

Under normal circumstances this controlled ‘Keynesian’ inflation might have succeeded: only in West Germany was there a deep-seated historical aversion to the very idea of price inflation. But the uncertainty produced by America’s retreat from a dollar-denominated system encouraged growing currency speculation, which international accords on floating-rate regimes were powerless to restrain. This in turn undermined the efforts of individual governments to manipulate local interest rates and maintain the value of their national currency. Currencies fell. And as they fell, so the cost of imports rose: between 1971 and 1973, the world price of non-fuel commodities increased by 70 percent, of food by 100 percent. And it was in this already unstable situation that the international economy was hit by the first of the two oil shocks of the 1970s.

On October 6th 1973, Yom Kippur (The Day of Atonement) in the Jewish calendar,Egypt and Syria attacked Israel. Within twenty-four hours major Arab oil-exporting states had announced plans to reduce oil production; ten days later they announced an oil embargo against the US in retaliation for its support for Israel and increased the price of petroleum by 70 percent. The Yom Kippur War itself ended with an Egyptian-Israeli cease-fire on October 25th, but Arab frustration at Western support for Israel did not abate. On December 23rd the oil-producing nations agreed to a further increase in the price of oil. Its cost had now more than doubled since the start of 1973.

To appreciate the significance of these developments for Western Europe especially, it is important to recall that the price of oil, unlike almost every other primary commodity on which the modern industrial economy rests, had remained virtually unchanged over the decades of economic growth. One barrel of Saudi light crude—a benchmark measure—cost $1.93 in 1955; in January 1971 it went for just $2.18. Given the modest price inflation of those years, this meant that in real terms oil had actually got cheaper. OPEC, formed in 1960, had been largely inert and showed no inclination to constrain its major producers to use their oil reserves as a political weapon. The West had grown accustomed to readily available and remarkably cheap fuel—a vital component in the long years of prosperity.

Just how vital can be seen from the steadily growing place of oil in the European economy. In 1950, solid fuel (overwhelmingly coal and coke) had accounted for 83 percent of Western Europe’s energy consumption; oil for just 8.5 percent. By 1970 the figures were 29 percent and 60 percent respectively. Seventy-five percent of Italy’s energy requirements in 1973 were met by importing oil; for Portugal the figure was 80 percent.
¹⁹³
The UK, which would for a while become self-sufficient thanks to newly discovered reserves of oil in the North Sea, had only begun production in 1971. The consumer boom of the late fifties and sixties had greatly increased European dependence on cheap oil: the tens of millions of new cars on the roads of Western Europe could not run on coal, nor on the electricity now being generated—in France especially—by nuclear power.

Hitherto, imported fuel had been priced in fixed dollars. Floating exchange rates and oil price increases thus introduced an unprecedented element of uncertainty. Whereas prices and wages had risen steadily, if moderately, over the course of the previous two decades—an acceptable price for social harmony in an age of rapid growth—monetary inflation now took off. According to the OECD, the inflation rate in non-Communist Europe for the years 1961-1969 was steady at 3.1 percent; from 1969-1973 it was 6.4 percent; from 1973-1979 it averaged 11.9 percent. Within this overall figure there was considerable national variation: whereas West Germany’s rate of inflation from 1973-1979 was held to a manageable 4.7 percent, Swedenexperienced a level twice as high. French prices inflated at an average of 10.7 percent per annum in those years. In Italy the inflation rate averaged 16.1 percent; in Spain over 18 percent. The UK average was 15.6 percent, but in its worst year (1975) the British inflation rate exceeded 24 percent per annum.

Price and wage inflation at these levels was not historically unprecedented. But after the stable rates of the fifties and sixties it was a new experience for most people—and for their governments. Worse still, the European inflation of the seventies—compounded by a second oil price rise in 1979, when the overthrow of the Shah of Iran produced panic in the oil markets and a 150 percent price increase between December 1979 and May 1980—did not conform to previous experience. In the past, inflation was associated with growth, often over-rapid growth. The great economic depressions of the late nineteenth century and the 1930s had been accompanied by
de
flation: precipitate falls in prices and wages caused, as it seemed to observers, by over-rigid currencies and chronic under-spending by governments and citizens alike. But in 1970s Europe the conventional pattern seemed no longer to apply.

Instead, western Europe began to experience what was inelegantly dubbed ‘stagflation’: wage/price inflation and economic slowdown at the same time. In retrospect this outcome is less surprising than it seemed to contemporaries. By 1970 the great European migration of surplus agricultural labor into productive urban industry was over; there was no more ‘slack’ to be taken up and rates of productivity increase began inexorably to decline. Full employment in Europe’s major industrial and service economies was still the norm—as late as 1971 unemployment in the UK was 3.6 percent, in France just 2.6 percent: but this meant that organized workers who had grown accustomed to bargaining from a position of strength were now facing employers whose generous profit margins were starting to shrink.

Pointing in justification to the increased rate of inflation from 1971, workers’ representatives were pressing their case for higher wages and other compensation upon economies that were already showing signs of exhaustion even before the crisis of 1973. Real wages had begun to outstrip productivity growth; profits were declining; new investment fell away. The excess capacity born of enthusiastic post-war investment strategies could only be absorbed by inflation or unemployment. Thanks to the Middle East crisis, Europeans got both.

The depression of the 1970s seemed worse than it was because of the contrast with what had gone before. By historical standards the average rates of Gross Domestic Product (GDP) growth in western Europe through the 1970s were not especially low. They ranged from 1.5 percent in the UK to 4.9 percent in Norway and were thus actually a distinct improvement over the 1.3 percent average growth rates achieved by France, Germany and the UK over the years 1913-1950. But they contrasted sharply with the figures of the immediate past: from 1950-1973 French growth per annum had averaged 5 percent, West Germany had grown at nearly 6 percent and even Britain had maintained an average rate above 3 percent. It was not the 1970s that were unusual so much as the ’50s and ’60s.
¹⁹⁴

Nevertheless, the pain was real, made worse by growing export competition from new industrial countries in Asia and ever more costly import bills as commodities (and not just oil) increased in price. Unemployment rates started to rise, steadily but inexorably. By the end of the decade the numbers out of work in France exceeded 7 percent of the workforce; in Italy 8 percent; in the UK 9 percent. In some countries—Belgium, Denmark—unemployment levels in the seventies and early eighties were comparable to those experienced in the 1930s; in France and Italy they were actually worse.

One immediate result of the economic down-turn was a hardening of attitudes towards ‘foreign’ workers of all sorts. If published unemployment rates in West Germany (close to zero in 1970) did not climb above 8 percent of the labor force despite a slump in demand for manufactured goods, it was because most of the unemployed workers in Germany were not German—and thus not officially recorded. When Audi and BMW, for example, laid off large numbers of their workforce in 1974 and 1975, it was the ‘guest workers’ who went first; four out of five BMW employees who lost their jobs were not German citizens. In 1975 the Federal Republic permanently closed its recruiting offices in North Africa, Portugal, Spain and Yugoslavia. As the 1977 Report of a Federal Commission expressed the point in its ‘Basic Principle #1’: ‘Germany is not an immigrant country. Germany is a place of residence for foreigners who will eventually return home voluntarily.’ Six years later the Federal Parliament would pass an Act to ‘Promote the Preparedness of Foreign Workers to Return’.