The industrial democracies are determined to overcome high unemployment, continuing inflation and serious energy problems.
Declaration of the G-7 on economic cooperation, November 1975
Crisis? What Crisis?
Headline in the Sun newspaper, misquoting British Prime Minister James Callaghan, 11 January 1979
The oil crisis of 1973 was a turning point in Europe’s post-war history. It ushered in a series of changes that left a profound mark on political, economic and social structures. By the mid-1980s these changes – amounting to no less than a paradigm shift from the boom of the early post-war decades – were transforming the continent. There were clear signs already in the years preceding the oil crisis that the long-lasting boom was coming to an end. Change was on the way. But the oil crisis was a massive accelerant. As a direct consequence of the cuts in supplies imposed by Arab oil producers the cost of a barrel of oil jumped within a year from $2.70 to $9.76. By 1980, after a second oil crisis in 1979, the price had soared to almost $50 per barrel. Oil had provided 8.5 per cent of Western Europe’s energy supplies in 1950. Twenty years later the figure had risen to 60 per cent. For countries so heavily dependent on oil, the gravity of the crisis was obvious.
The crisis marked the end of the optimism that had characterized the previous two decades. The earlier beneficent impact of sustained growth was replaced by the negative primacy of economics. The presumption that living standards would continue to rise, a feature of the era of the ‘economic miracle’, was abruptly called into question. High rates of inflation combined in a new and dangerous linkage with rising unemployment, a phenomenon the immediate post-war decades had thought was conquered forever. The result was greater economic insecurity than most people had experienced since the war. It was not long before doubts were raised about maintaining the levels of spending on the welfare state itself, the very foundation of people’s sense of security as Europe had recovered from the Second World War. The economic model, drawing on the theories of John Maynard Keynes, that had dominated the formation of the political economy in Western Europe since the war was now fundamentally challenged and increasingly rejected. The changed economic climate increased political volatility, while sharpened conflict in Northern Ireland, Spain, West Germany and Italy brought frightening terrorist atrocities. How did political systems in both Eastern and Western Europe respond and adapt to the drastically changed circumstances? How, indeed, did they survive intact, when they had collapsed during times of economic crisis in the 1930s?
Not everything in the years following the oil crisis evoked gloom and pessimism. The crisis itself exposed the need for structural changes to the economy to turn away from older industries already in decline. Damaging levels of inflation were eventually (and with much pain along the way) brought under control. And individual choice in lifestyles and consumerism made greater inroads into social conformism. Dictatorship disappeared from the western half of the continent. Within months of each other the authoritarian regimes in Portugal, Greece and then Spain collapsed – and peacefully, without external military intervention. A new and worrying development, however, was the steep deterioration in international relations, which had seemed on a more positive trajectory. The détente of the first half of the 1970s, which had pointed towards a limitation on nuclear arsenals and international respect for human rights, did not last the decade. By 1980 Europe was entering what is frequently referred to as its ‘second Cold War’ – a new and dangerous phase of superpower confrontation.
How sharply the oil crisis of 1973 marked a caesura is plainly illustrated by the rates of economic growth in Europe. Between 1950 and 1973 average annual growth rates had been 4.7 per cent in both Western and Eastern Europe and as high as 6.3 per cent in the underdeveloped economies of Southern Europe, belatedly starting to catch up. In the twenty years that followed the oil crisis growth rates were more than halved, dropping to 3.1 per cent in Southern Europe, 2.2 per cent in Western Europe, and even becoming negative, at −0.4 per cent in Eastern Europe. In Western Europe, Norway, Ireland (another backward economy catching up), Italy, Austria and West Germany had the best growth rates, the Netherlands, the United Kingdom, Sweden and Switzerland the worst. Beyond the Iron Curtain, Hungary (where increased per-capita gross domestic product belied mounting problems of mounting financial dependency on the West) was least badly affected, Romania worst. Of the countries in the south of the continent, Turkey’s growth (at 2.6 per cent) was higher than anywhere else, though it was from a low base. Whatever the national variations, the general pattern in all regions was clear.
The dynamics that had produced two decades of prosperity were fading. Until 1971 the economies of the Western world had been underpinned by the fixed convertible rates of currency exchange with the dollar – itself tied to the price of gold (at a fixed value, unchanged since 1934) – agreed at the Bretton Woods conference in July 1944. The complexities of putting such a system into practice meant that the Bretton Woods system was fully implemented only from December 1958 onwards. And within a decade it was encountering difficulties. Bretton Woods had essentially been a deal worked out by the United States and the United Kingdom. It reflected the post-war dominance of the dollar as the international reserve currency in place of the earlier pre-eminence of sterling. Since then Western economies had both become far more interwoven and varied widely in strength. It had become increasingly difficult to reconcile the fluctuating economies with fixed exchange rates. Currency speculation – and the financial uncertainty that this caused – was inevitable. Increased tension in holding fixed, convertible exchange rates prompted the first moves, in the Werner Report of 1970 (named after the chairman of the committee that produced it, Pierre Werner, Prime Minister of Luxemburg), towards monetary union in Europe. (In fact, the French had made the first overtures to West Germany about currency union as early as 1964 – a move intended to enhance France’s international standing and weaken German dependency on the USA. The suggestion had been quietly ignored in Bonn.) It was an idea whose time had not come. The proposals were blown away in the monetary storms that soon followed.
The continued dominance of the once-mighty dollar could no longer be taken for granted. The United States economy – the pivot of the entire Bretton Woods system – was itself running into difficulties. By the end of the 1960s the USA had a rising payments deficit and soaring trade deficit – a result of increased imports from Europe and Japan, the expansion of social spending under the administration of President Johnson, and not least profligate military expenditure on the escalating Vietnam War. Inflation was proving difficult to constrain. As the American balance of payments continued to deteriorate and both inflation and unemployment rose, it was evident that the dollar was overvalued. Speculation against the dollar in favour of the German mark and the Japanese yen was the inevitable consequence. In May 1971 the West German government – followed by Austria, Belgium, the Netherlands and Switzerland – decided that it would no longer maintain the existing parity with the dollar. This prompted a strong rise in the value of the mark and a flight from the dollar. The Bretton Woods system had been built around a fixed price of gold, 35 dollars per ounce. The weakness of the dollar fostered speculation that the price of gold would rise. It did. By the end of the 1960s gold was selling for more than double the official price. Bretton Woods was no longer sustainable. On 15 August 1971 President Richard Nixon suddenly announced a dramatic shift in American policy: amid a raft of anti-inflationary measures, he suspended the gold convertibility of the dollar.
With that move, the Bretton Woods system – the basis of the post-war economy – was dead. Floating exchange rates were the future. But they entailed further uncertainties for the international economy. How to manage them was the new problem – and would rapidly create difficulties. No patent solution was found. All proposals foundered on the issue, faced by economies of quite varying strength and not least by the central US economy, of combating the worrying rise in inflation without resorting to classical deflationary measures of such severity that they would undermine growth, hugely increase unemployment (with all its attendant social and political consequences), and perhaps plunge the world into a new great depression.
In the meantime, from December 1971 the major European industrial countries moved to construct a narrow band within which their currencies could fluctuate against the dollar, now decoupled from gold. The ‘snake’, as the system became known, soon proved a failure. Given the different levels of development of the European economies and their varying national strategies for coping with inflation and controlling government expenditure, the failure was a near certainty from the outset. Countries were primarily concerned to look after their own interests and to wrestle with their domestic difficulties through national polices. The United Kingdom, Ireland and Denmark had already left the ‘snake’ by 1972 (though Denmark soon rejoined), as did Italy in 1973 and France in 1974. The ‘snake’ became in practice a smaller collection of north-west European economies dominated by the German mark. Only West Germany and the Benelux countries stayed the course. On the combined initiative of the German and French governments the unsatisfactory currency ‘snake’ was converted in 1979 into the European Monetary System. The deutschmark became even more plainly the peg on which to hang other European currencies.
The problems of the ‘snake’ prompted the move to more general floating currencies. At the same time they encouraged the notion, already contemplated in 1970, of the eventual attainment of European monetary union. This was for now no more than a pipe dream. West Germany’s economic dominance (and sizeable surplus) meant that it was far outstripping the weaker economies, making the coordination of diverging currencies extremely difficult. Floating currencies rather than fixed rates increasingly suited most countries that could make internal adjustments without having to contemplate politically damaging devaluations.
In essence, the currency travails reflected a deeper malaise in the Western economies even before the impact of the oil crisis. Industrial production increased, in fact, by some 10 per cent in 1972–3. But this created some industrial overcapacity at the same time that demand for imported primary products was intensifying. Economies were overheating. Cheap borrowing and growth in national money supplies in the wake of the weakening dollar led to sharp price rises. In the year before the oil crisis the price of raw materials was already soaring – a 63 per cent rise in a single year – while profitability in the industrial sector of the most wealthy countries was declining, putting obvious strains on mass production. And even before the oil crisis, inflation was reaching worrying levels – 7 per cent in West Germany, from ingrained memory stretching back to the hyperinflation of 1923, the society most paranoid about inflation.
The Keynesian approach of promoting growth by stimulating demand had been the basis of practically all post-war thinking on the economy. It had proved the tried and tested way out of economic trouble, stagnation and mass unemployment. But this remedy did not fit the conditions of the early 1970s. Two decades of high growth had produced full employment. The problem now was of rising inflation. Pumping money into the economy was guaranteed merely to add to inflationary pressures. Stimulating demand simply prompted claims for higher wages. Without increased productivity that just fed into further inflation. A large (and still rising) proportion of workers, especially in the expanded public sector, belonged to trade unions – in 1970 around two-thirds in Sweden, half in Britain, a third in West Germany (though little over a fifth in France). Unions were able to exploit virtually full employment and a labour shortage to win sometimes spectacular wage increases – 19 per cent in Italian industry in 1969 – without commensurate increases in productivity. Governments were finding it more and more difficult to cope with levels of public expenditure, especially on welfare. This accounted for 40 to 50 per cent of the expenditure of Western countries by the early 1970s, quadrupling in Western Europe on average since the end of the war and rising especially fast in Italy and France. In these circumstances, Keynesian theory offered no solutions.
In already worsening economic conditions, the shock to the Western economy from the oil crisis of 1973 was immense. Countries reacted in the main according to their national interests. France tried to make special deals with Iraq, Britain with Iran and Kuwait. Neither Britain nor France were badly affected by the embargo, in contrast to the Netherlands, the worst-affected country. In fact, the embargo was already lifted on Europe (though not on the USA) by November 1973 after the European Community had issued a statement interpreted as being relatively favourable towards the Arab position in the Middle Eastern conflict. But the difficulties of coordinating policy in the light of differing national interests persisted. When the United States and fifteen other countries established an International Energy Agency in November 1974, seen among other things as a forum for developing contingency plans on oil-sharing in the event of a new emergency, France would have nothing to do with it. The French adjudged that participation might harm its own relations with OPEC, while Britain and Norway, which had discovered their own offshore oilfields, reserved their right to take independent action.
The severe impact of the oil crisis was also felt in Eastern Europe, with long-term damaging effects. As a major oil producer itself, the Soviet Union was in fact a beneficiary of the global rise in the price of oil and greatly increased its revenues by exporting beyond Eastern Europe to developed market economies. Increased output from western Siberian oilfields paid for imports from the West. The unexpected bonanza concealed for a time the underlying weaknesses of the Soviet economy. The other socialist economies beyond the Iron Curtain, apart from Romania lacking their own oil supplies, were in a far less fortunate position. (Romania’s own oil supplies cushioned the country from the impact of the 1973 crisis, but were insufficient to cover its threefold growth in demand for oil during the 1970s. Even here, therefore, oil had to be imported, greatly increasing Romania’s foreign debt by the end of the decade.) The Soviet Union increased the prices (though at less than world market value) to member states within its own economic bloc (COMECON), insisting on payment in hard currency or through delivery of finished industrial goods. Supplies from the Soviet Union were certainly vital for the satellite countries. Without them their political problems might have become difficult to contain. A crucial consequence of the oil crisis, nevertheless, was that the socialist countries were compelled to look for extended loans to the capitalist West. Their state debts to Western countries began to mount alarmingly in a spiral from which there was no escape. Hungary’s debts in dollars rose eighteen-fold during the 1970s and 1980s, Poland’s twenty-fold, the German Democratic Republic’s more than forty-fold. By the end of the 1970s growth had slowed drastically or turned negative across the region.
Yugoslavia, outside the Soviet bloc, experienced similar problems. State indebtedness rose from $4.6 to $21 billion between 1973 and 1981. There was at first no obvious sign of trouble to ordinary citizens. Growth continued. The state continued to spend heavily on new hotels, sports halls and roads. Living standards were maintained. But, like other socialist countries, necessary economic transformation and increased competitiveness were as good as impossible within the system. Falling growth, increased national debt, unemployment and inflation all gathered pace. By 1984 living standards had fallen by 30 per cent. The economic disparities between the Yugoslavian republics widened – by the end of the 1970s, for example, Slovenia was nine times wealthier than Kosovo – intensifying the potential for ethnic conflict. It was perhaps no surprise that Tito’s death in May 1980 was soon followed by an outburst of ethnic violence in Kosovo between Albanians and Serbs – a harbinger of worse to follow.
In Western Europe there was no escaping the immediate consequences of the oil crisis. Governments took emergency measures to deal with the oil shortage, often resorting to rationing of petrol and heating oil, restricting non-essential use of vehicles (especially on Sundays) and imposing speed limits to lessen consumption. (People started to buy smaller, more fuel-efficient cars in order to spend less on petrol.) The British population was exhorted by the government to heat only one room in the house even during the cold winter months. Dutch citizens were threatened with prison sentences for exceeding their ration of electricity usage. The panic soon abated, once the embargo was lifted.
But the quadrupling of the price of oil was much more harmful. By the second half of 1974 it led to a serious recession, reduced industrial production, and brought a fall in gross national product. Balance of payments problems were hugely exacerbated by the dramatic rise in the price of oil imports. Commodity prices rose across Europe by over 13 per cent in 1974, driving up the already rising inflation. Compared with the years 1950–73, consumer prices were on average more than twice as high in the decade 1973–83, more than four times higher in the Mediterranean countries. As always, those on fixed incomes were especially badly hit by inflation. The price increases were invariably passed on to the consumer, resulting inevitably in wage demands to meet the higher cost of living, further intensifying inflation where they were met – as they usually were, given the strength of trade unions. But the rising costs of employment led to redundancies. More than 7 million people in Western Europe were soon out of work. Unemployment leapt from an average of 2 to 4 per cent between 1950 and 1973, to 12 per cent over the subsequent decade. Worst hit were the old, labour-intensive industries – mining, steel, shipbuilding, textiles – where there were huge drops in production (exacerbated by growing competition from rapidly expanding Japanese industrial output) and high levels of unemployment.
Rising unemployment alongside rising inflation was a phenomenon that confounded classical economic analysis. Early attempts to combat the economic downturn by reflationary measures to boost demand just made things worse. ‘Stagflation’, as it became known, varied in accordance with economic strength and industrial structures. The most buoyant economy, that of West Germany, was relatively successful in coping. Inflation was held under 5 per cent between 1973 and 1981, unemployment below 3 per cent. The disruption to the economy, still registering growth of around 2 per cent, was relatively minor. In the worst-affected countries, Britain and Italy, it was much more severe. Italy’s economy was still growing solidly, but inflation was running at 17.6 per cent. Britain had the worst growth rate of only 0.5 per cent between 1973 and 1981, while inflation averaged around 15 per cent.
By the early 1970s Britain, once the world’s industrial powerhouse, was in a sorry state. Long years of insufficient investment, archaic trade union structures, poor management, and political failings in economic planning and policy by successive governments had significantly weakened Britain, economically and politically. The Labour government’s attempt to reform the trade unions had been a dismal failure. The Conservatives, coming to power under Edward Heath in 1970, fared even worse, both in managing the economy and in handling industrial disputes. Prices and wages had continued to spiral upwards, merely fuelling inflation. In 1972 prices rose by 7 per cent, but industrial earnings by 16 per cent. Capitulating to a miners’ strike that year, the first national coal strike since 1926, the government had conceded a pay rise more than double the rate of inflation. A policy of stimulating growth through reductions in taxation had meanwhile been introduced. Although the rate of growth sharply (and temporarily) rose, the boom merely added fuel to the flames of inflation, which the government then vainly sought to control by imposing limits on wage rises. And all this was before the oil shock.
The gathering crisis in industrial relations, as the economy reeled from the impact of soaring energy prices, came to a head in 1974 after the National Union of Mineworkers – the most powerful trade union in the country – had demanded a big pay rise, well in excess of the wage restriction recently introduced by the Conservative government. This led to a state of emergency, the rationing of electricity usage, and a three-day week for industry. There was panic-buying. One London factory was producing a million candles a day as people feared power cuts. Astonishingly, manufacturing output hardly fell – an indictment of the lack of productivity on the normal five-day week. Eventually, it came to a show of strength between the government and the union at a general election in February 1974 specifically called by Edward Heath on the issue of ‘who governs Britain?’ The electorate gave its answer: it was not the government.
The new Labour administration under Harold Wilson acceded straightaway to the miners’ pay demands. Predictably this sparked a wages explosion. Earnings rose by 24 per cent in 1975. But inflation reached 27 per cent while unemployment rose to over a million (double the level of any year for over two decades). Government spending was out of control as public expenditure soared to 46 per cent of gross domestic product. The balance of payments deficit had more than trebled since the start of the oil crisis and stood at a record height. The Bank of England raised the lending rate but could not prevent continued speculation against sterling. In 1976 the British government suffered the humiliation of having to go with a begging bowl to the International Monetary Fund to obtain a loan of $3.9 billion, the highest in the Fund’s history. The inevitable spending cuts, now introduced by a Labour Chancellor of the Exchequer, Denis Healey, and falling heavily upon housing and education, brought a small reduction in the deficit and slowed inflation, while reducing state revenues from taxation. But holding down wages to 5 per cent, well below the cost of living, meant inroads into the standard of living that the trade unions, especially dominant in the public sector, were not prepared to accept. The number of days lost in industrial disputes rose alarmingly to a post-war peak by 1979, a level as bad as any in the century. The notorious ‘winter of discontent’ of 1978–9 saw bodies left unburied because gravediggers were on strike, rubbish piling up in streets because the refuse collectors were on strike, children locked out of schools because caretakers were on strike, and the sick not admitted to hospitals because their ancillary workers were on strike.
This was the background to the resounding victory of the Conservative Party, now led by Margaret Thatcher, in the general election of 3 May 1979. It was also a turn to neo-liberalism that signalled a radically different approach to the problems that had bedevilled British governments during the 1970s.
At least in Britain oil from the North Sea was starting to flow in 1975 and by 1980 was exceeding the output of Iran or Kuwait. Italy, however, had no oil, but oil supplied 75 per cent of the country’s energy needs. Along with Britain, Italy had an adversarial tradition of industrial relations, in contrast to the more corporate systems in Scandinavia, West Germany, Austria, Switzerland, the Netherlands and Belgium. Industrial conflict was endemic. And the severe economic problems of the early 1970s formed the backdrop to the rise in political violence carried out in the campaigns of the Red Brigades and other militant factions (see Chapter 6). Amid continued high inflation and a rapidly rising balance of payments deficit, Italy was compelled to take big loans from West Germany and from the International Monetary Fund, bringing severe deflationary measures and restrictions of the money supply in their wake. The resulting recession brought stagnation in production, rising unemployment, and an increase in public spending to 55 per cent of gross domestic product by 1982 – a higher proportion than in any other major Western European country. Only Italy’s sizeable ‘black economy’ prevented a worse decline. Between four and seven million Italians are reckoned to have profited from this ‘unofficial’ side of the nation’s economic life, which by 1979 accounted for up to 20 per cent of the economy.
Britain and Italy remained in the doldrums in the later 1970s. In general, though, there was a slow and fragile recovery from the worst of the crisis. This was spurred on by the strong European economies of West Germany and Switzerland and, outside Europe, of Japan. It was helped, too, by the ‘petro-dollars’ that flowed from the oil-rich countries of the Middle East into Western economies, often in orders for capital infrastructure or military weapons.
The tentative recovery in the later 1970s had no sooner begun than it shuddered to a halt in a second oil crisis in 1979. This followed the revolution in Iran in January that year when, following months of massive unrest that even the brutality of the secret police could not bring under control, the Shah of Iran had been deposed. Little more than the puppet of the United States, the Shah’s power had been shored up in 1953 following successful machinations by the CIA and the British MI6 to depose the democratically elected government. The regime was detested by most of the population. The exiled spiritual leader of the Shiite opposition to the Shah, Ayatollah Khomeini, was received by rapturous crowds in Teheran on 1 February on return from exile in France and proclaimed an Islamic republic. This inaugurated new and lasting great political turmoil, not just in the region but across the world.
A consequence of the upheavals was a sharp drop in Iranian oil production. Although Saudi Arabia increased production, memories of the previous crisis were enough to cause a new panic. The big drop in production from both Iran and Iraq, as these two major oil-producing countries began a war in 1980 that was fought with great ferocity and would last for eight years, did nothing to calm nerves. The price of oil tripled again between 1979 and 1981, now standing more than ten times higher than it had been in 1973. It was once more a global crisis, with the worst impact felt by the poor countries of the developing world. Western Europe was in a better position, as North Sea oil started to flow in significant quantities and the development of nuclear power gathered pace. But the European economies were less strong than they had been at the outset of the 1973 crisis. The recession after the second oil crisis was in some ways, therefore, more serious. Morale was already damaged. Anxieties had risen. Governments had proved unable to find solutions to the problem of ‘stagflation’. A new economic philosophy, discarding the Keynesian imperatives that had held the ring since the end of the Second World War, was coming to be seen as the only way to combat the malaise.
The theoretical work that was beginning to find new converts especially in the United States and in Great Britain was Capitalism and Freedom, published in 1962 by the eminent economist Milton Friedman, a leading figure in the Chicago School of Economics. It amounted to a frontal rejection of Keynesianism. State intervention in the economy to stimulate demand was ruled out in this thinking. So was state regulation of markets through fiscal policy. Friedman advocated instead an economy self-regulated by the forces of the free market. He argued that the supply of money determined the price level. If money supply were kept in close tandem with gross national product, inflation would cease to be a problem. As it was, money supply had greatly outstripped production. Tightening the money supply was, therefore, the necessary remedy to bring inflation under control, even at the cost of higher unemployment. This monetarist philosophy was the core of what was widely coming to be called ‘neo-liberalism’ (though ‘monetarism’ was a more accurate term for the theory, and preferred by its exponents).
‘Neo-liberalism’ had a lengthy intellectual pedigree. The Austrian economists Ludwig von Mises and Friedrich Hayek were among its early proponents. The influence of Hayek, especially, was considerable. Hayek had been born in Austria in 1899, but had emigrated to England in 1938 and eventually taken British citizenship. He belatedly acquired guru status, largely because of the book he had published in 1944, The Road to Serfdom. This linked socialism (which he saw as inseparable from coercive intervention aimed at creating equality) and state-planning with servitude. Only the competitiveness of the free market liberated from state controls, argued Hayek, was compatible with democratic freedom. Hayek wrote in forceful language, understandable not just by other economists. It turned economic theory into a fully fledged social and political ideology. This would pose a fundamental challenge to the entire precepts that had underpinned the post-war consensus on the welfare state, which had presumed high levels of taxation and centralized government control of an economy resting on partly nationalized industry and a large public sector.
In reality, governments would continue to mix parts of Keynesianism with monetarism. But the breakthrough of monetarism to official recognition as the new orthodoxy in two countries, Britain and the United States, was close. In January 1980 Ronald Reagan took up office as President of the United States, and his economic policy – what was soon dubbed ‘Reaganomics’ – incorporated an adaptation of monetarism (though neo-liberal dogma was ignored when it came to the stratospheric increase in military spending and a tripling of the national debt).
Only Britain, among Western European leading economies, was an early and avid convert to neo-liberalism. Practically all countries were gradually forced in the 1970s to introduce deflationary measures to stabilize their economies. Fear of inflation galloping out of control had become a dominant theme of politics. But while deflation was a strategy, neo-liberalism was an ideology. Deflation was, in fact, not the aim of neo-liberalism – though it usually formed part of the armoury deployed to reduce state expenditure and indebtedness. Rather, neo-liberalism sought to produce long-term growth through low taxation, deregulation, privatization of industry and public services, and reduction in the size of the public sector. The overall aim was to replace the state by the market as the driving and controlling force of the economy.
The severity of Britain’s economic problems in the early 1970s, the worsening industrial relations that brought the government in headlong conflict with large and powerful trade unions, the cultural affinities of Britain with the principles of American economic and social liberalism and, not least, the personal role of Margaret Thatcher in driving through a new economic agenda against much opposition, account for British exceptionality in embracing the monetarist framework of neo-liberalism. The United States and Britain spearheaded the ‘neo-liberal turn’ – which with a widening ripple effect would have a major impact on the lives of millions of ordinary people. Neo-liberalism was resisted across the rest of Western Europe, where there was a far greater attempt to retain the consensual basis of economics and politics that had yielded such rich post-war dividends and to protect important national industries from the most harmful effects of severe and rapid restructuring. But from the 1980s onwards privatization, deregulation, cutting the size of the public sector, and attempts (not always successful) to curb trade unions and workers’ rights became part of the agenda of most governments.
The drastically changed economic conditions framed by two deep recessions, following the two oil crises of 1973 and 1979, inevitably had an impact on the political systems of countries on both sides of the Iron Curtain. There was, however, a fundamental difference in their capacity to adapt. Management of the economy shifted throughout Western Europe by the mid-1980s away from Keynesianism towards neo-liberalism. This had painful consequences. Many people saw their livelihoods destroyed or badly damaged as unprofitable branches of industry were closed down. Tens of thousands were made unemployed. The potential for conflict was magnified. But liberal democratic systems, if put under greater pressure, were able to cope.
The countries of the socialist bloc of Eastern Europe faced more serious difficulties. Their state-run economies – inefficient, uncompetitive, technologically dated, too dependent on heavy industry – were inflexible. They could not be fundamentally changed without changing the political systems that controlled them and the unbending ideology that determined those political systems. They had scarcely any room for manoeuvre without undermining the very basis of Marxist-Leninist polity. With great difficulty the communist states surmounted the turbulence of the 1970s. There was no sense at the start of the following decade that it would be the last in the history of those states. Yet they emerged from the crisis years of the 1970s significantly weakened. And their weakness was the Achilles heel of the Soviet Union itself. Should one state within the bloc crumble, the danger of a domino effect was real. Poland had often appeared to be the weakest link in the chain. And it was indeed in Poland that the gravest threat to the stability of the entire Soviet bloc manifested itself.
Poland’s debts to Western countries were eight times higher in 1975 than they had been five years earlier. Food prices were kept low only through heavy state subsidies – even in a country where almost a third of the population still worked in agriculture. The government’s attempt in 1976 to combat the spiralling debt by a big increase in food prices – 50 per cent for butter, over 60 per cent for meat, a doubling for sugar – led to strikes by tens of thousands of workers and eventually a withdrawal of the price rises. Harsh repression against the protesters followed. But this led to the formation of protest groups among intellectuals, prominent among them Jacek Kuroń, co-founder with Antoni Macierewicz of a Workers’ Defence Committee (Komitet Obrony Robotników, KOR) aimed at providing legal representation for those arrested and circulating reports of their trials.
The Catholic Church, too, which called for the release of arrested workers, was becoming a more prominent voice of national opposition to the regime. This was hugely bolstered in October 1978 by the election of the Archbishop of Cracow, Cardinal Karol Wojtyła, as Pope John Paul II. The Polish leader, Edward Gierek, immediately foresaw trouble for the regime. He was right. A third of the Polish population – around 12 million people – turned out to welcome the Pope when he made an emotional return to his homeland in June 1979. It was a visit that Gierek thought he could not prevent, despite the Kremlin advising him to do just that. The exultant crowds were a clear sign that any ideological hold of communism over the Polish people was by now wafer thin. Kazimierz Brandys, a prominent Polish writer and one-time member of the Communist Party until he became estranged from the regime, witnessed the elation when the Pope went to Warsaw. ‘I think that in such moments,’ he wrote in his diary, ‘everyone must have seen in John Paul II the spiritual embodiment of the national history.’ The Pope’s visit to Poland was to prove the catalyst to the events that rocked the regime during subsequent months.
By the following year Poland’s economic crisis had deepened. Nearly all the earnings from exports were by now going simply to service ever-rising debt. Rationing, power cuts and, once again, increased food prices were the government’s response. And once again the Polish working class responded angrily, now with organized big strikes across the country. In August 1980, led by Lech Wałęsa, a thirty-seven-year-old electrician, the strike committee in the Gdańsk shipyards demanded free trade unions, the right to strike, and press freedom. It also sought representation of the ‘authentic’ interests of the working class by independent trade unions – a direct challenge to the assumption that the Communist Party was the sole representative of the working class. As the strikes spread the government felt compelled to negotiate – and on 31 August to concede practically all of the strikers’ demands. On 17 September an independent federation of free trade unions was formed, with Wałęsa as its chairman. It was given the name Solidarność (Solidarity) that had been adopted by striking workers the previous month. Within months it had 9.5 million members. The official communist unions had by then lost 8.6 million members. Solidarity sought reform within the existing system, not to overthrow it. What it had unwittingly done, however, was to introduce as a matter of principle the right to free association – something intrinsically incompatible with the communist state system.
Alarmed that this was the thin end of the wedge, some communist leaders – prominent among them Erich Honecker, head of the German Democratic Republic – urged the Soviet Union to intervene. Leonid Brezhnev held back. He had been warned by the new party leader in Poland, Stanisław Kania (Gierek had resigned in early September, allegedly on health grounds), that an invasion like that in Czechoslovakia twelve years earlier would prompt a national uprising. The Polish leadership was advised to put its house in order itself. A sign that it was preparing to do just that was in February 1981 the elevation of the Defence Minister, General Wojciech Jaruzelski, a somewhat sinister-looking figure behind his trademark dark glasses, to the post of Prime Minister. When new mass protests at food shortages, rationing and empty shops took place in the summer, Jaruzelski was put under great pressure from Moscow to act. The pressure intensified in September after Solidarity issued an appeal to the workers of other socialist countries to establish their own free trade unions. After some dithering Jaruzelski eventually, on 13 December 1981, declared martial law. Solidarity was banned, around 10,000 of its members were arrested (Wałęsa spent over a year in jail, though in privileged confinement), the freedoms that had been granted were retracted, and the initial spontaneous protests at the draconian measures violently repressed. The West – the United States in the lead – reacted with economic sanctions, though there was relief that the Soviet Union had not intervened militarily. Martial law was eventually lifted – followed by the ending of Western sanctions – on 21 July 1983 (a first stage had taken place in December 1982) after a second visit to Poland by Pope John Paul II, again evoking rapturous adulation from millions of Poles. Not all restrictions disappeared. Solidarity remained banned but, partly through secret assistance from the CIA, survived in illegality as potentially still a huge dissident movement. Its moment was still to come.
Nowhere else in the eastern bloc mirrored the events in Poland. Superficially, a veneer of stability was sustained. To the outside world the old order seemed as intact as ever, and likely to continue into the indefinite future. The courage of prominent dissidents attracted great admiration in the West. They included the writer Alexander Solzhenitsyn (stripped of his Soviet citizenship and expelled from the Soviet Union to West Germany in 1974); the nuclear physicist, Nobel Prize winner and human rights activist Andrei Sakharov (sent into internal exile within the Soviet Union, in Gorky, in 1980); the singer-songwriter Wolf Biermann (stripped of his East German citizenship and expelled from the GDR in 1976 while on a concert tour of West Germany); and in Czechoslovakia the playwright Václav Havel, the writer Milan Kundera (deprived of Czech citizenship in 1979), and the 243 signatories to the intellectuals’ protest movement, Charter 77. Their treatment by repressive communist regimes was loudly and repeatedly condemned. But nothing suggested that their opposition was much more than a pinprick to such regimes. The mounting economic problems behind the scenes were a far more serious challenge. Just how serious they were could, however, scarcely be grasped from the outside. The sense of monolithic solidity, backed by the power of the Red Army, made it almost impossible for most Western observers to see the growing problems of maintaining the system of rule in the eastern bloc. Through judicious use of sticks and carrots the regimes seemed capable of sustaining their power. For the present, it looked as if the danger to the system had been contained, even in Poland.
Fundamental change could only come about from the very top – from the leadership of the Soviet Union. At the end of the 1970s such a prospect seemed highly unlikely. The Soviet economy, its structures ossified, incapable of reform and renewal, was creaking, in the view of some observers facing chronic decline. But there seemed no obvious danger to the existence of the Soviet system of government. Could it not continue indefinitely? And where might change come from?
In Western Europe a general rule was that the stronger the economy before the crisis struck and the greater the level of political consensus, the better were governments able to handle the difficulties. Conversely, governments had a far harder task where the crisis struck more strained economies and less consensual politics. Initial attempts to use Keynesian techniques to boost the economies gradually gave way to retrenchment and deflationary methods, even under Social Democratic governments. There was increasing acceptance, even reaching into supporters of left-wing parties, of the need for a new economic course. Most significantly, democracy proved resilient during its worst crisis since the Second World War. Nowhere was it threatened as it had been so disastrously during the Great Depression of the 1930s.
This owed something to the international cooperation that had been so patently lacking during the Great Depression, when countries had been left to their own devices and economic nationalism had been part of the spiralling aggression that led to war. During the 1970s, in contrast, there were attempts to work together and to coordinate responses to crisis. The European Council established from 1975 onwards regular meetings of the heads of government of the European Community’s member states. The same year, on the joint initiative of the French and the West Germans, the heads of state and government of the leading six Western industrial countries (West Germany, France, Great Britain, Italy, the USA and Japan) met at the Château de Rambouillet in north-central France as the G6 – to become in 1976 with the addition of Canada the G7 – to seek common ways of working towards economic recovery and monetary stability. Summits were from now on a normal component of international economic management. And, though unpopular on account of the tough conditions attached, sizeable loans from the International Monetary Fund – an institution that, of course, had not existed during the Great Depression – bailed out the floundering economies of Italy, Britain and Portugal before the end of the 1970s.
International cooperation played its part in upholding stability. Even so, individual countries had largely to adjust to the crisis based on their national potential and their traditions. Social Democratic parties usually had trouble in retaining their support. Their ideological premises – commitment to the welfare state, state regulation of the economy, a belief in redistributive taxation to create equality – were all now questioned. Even in Scandinavia, where they had been dominant for so long, the Social Democrats were under pressure in the years following the oil crisis. In Sweden the Social Democrats found themselves in 1976 in opposition for the first time in forty years as a government centre-right coalition took office. The Norwegian Labour Party was dependent on the left-wing Socialist Party for support in a minority government after 1973. The Social Democrats had problems, too, in Denmark (where the Conservatives achieved their best result in 1984) and in Finland, though they held on as new protest parties emerged, making the formation of stable coalitions more difficult.
For the most part the trend in Western Europe was towards the conservative right. The fragmentation of ‘pillarization’ that down to the 1960s had been the hallmark of the Netherlands and Belgium continued. This produced a number of new political parties but it led by the 1980s to the election of centre-right coalition governments committed to tackling the economic problems through variants of deflationary politics. In Austria, Bruno Kreisky’s thirteen years as Chancellor came to an end when the Socialist Party lost its absolute majority at the 1983 general election. Corruption scandals had undermined the party, even though the economy was stable. It remained in office as a minority administration propped up by the still tiny Freedom Party (Freiheitliche Partei Ősterreichs, FPŐ), which would soon move sharply towards the far right of the political spectrum. The main gainer from the 1983 election was, however, the conservative Austrian People’s Party. In Switzerland, government continued throughout the crisis of the 1970s to be formed from coalitions between the four major parties (the Social Democrats, the Free Democrats, the Christian Democrats and the Swiss People’s Party). The rightward trend was less prominent here than elsewhere, given Switzerland’s sustained financial strength and stability, though in the federal elections of 1983 for the first time since 1925 the Social Democrats failed to emerge as the largest party. As the social basis of support for the political left (and trade unionism) weakened, the liberal and conservative centre-right gained ground and the influence of market forces strengthened.
The sharpest turn to the right was in Britain. Without Britain’s specific experience of the crisis there, it is unlikely that Margaret Thatcher, who had replaced Edward Heath as leader of the Conservative Party in February 1975, would have become Prime Minister. As one of her biographers, Hugo Young, put it: ‘It was her good fortune to be propelled into the leadership when the party was ready for a return to fundamentalist Conservatism of a kind she was most at ease with. The party wanted something they could believe in, and she was only too pleased to supply it.’ The first British female Prime Minister (though distinctly not a feminist) stamped her personal imprint on government as no other post-war Prime Minister had done. Mrs Thatcher was greatly aided by the weakness and divisions within the Labour Party, which in November 1980 turned sharply to the left under a new leader, Michael Foot, widely viewed as hopelessly ineffective. In 1981 a faction among those who felt the party was in danger of becoming a Marxist-led organization, which could only appeal to a minority of the population, broke away to form the Social Democratic Party (SDP). Facing a fatally divided opposition, Thatcher’s government had unusually wide scope to radicalize its economic policies.
Mrs Thatcher brought a striking simplicity to her judgements that resonated with some of the public, while repelling many others. She was admired and loathed in almost equal proportions. She found the libertarianism of ‘that third-rate decade, the 1960s’ repugnant, and sought a return to upstanding ‘Victorian values’. On economics her views were redolent of nineteenth-century liberalism rather than of the ‘one-nation’ conservatism of other post-war Conservative leaders. Free trade and the regulatory forces of the market, not government intervention and control, were for her the way to national prosperity and strength. Governments had to live within their means just as the housewife had to manage the family budget. The welfare state, in Mrs Thatcher’s view, diminished self-reliance and the initiative of the individual. There was no such thing as ‘society’, she averred, only individuals and families. She was an archetypal conviction politician, increasingly difficult to overcome in debate, largely closed to ideas that she did not instinctively favour at the outset, though highly responsive to those ideas that fitted her pre-existing leanings.
The first years of Thatcherite economics were hardly a resounding success. Inflation fell. So did the deficit. Unemployment, however, had risen to over three million by 1983, most of the job losses falling in manufacturing industry. Much of what had been the distinctive character of the British economy and its workforce vanished. Public expenditure actually rose. So did taxation, instead of being reduced as the Conservatives had hoped. Austerity was the backdrop to serious riots in twelve of Britain’s largest cities in 1981. Mrs Thatcher adamantly refused to alter course. The Guardian newspaper now predicted that the time had come to write the ‘obituary of Thatcherism’.
The Argentinian invasion in April 1982 of the disputed Falkland Islands far away in the south Atlantic (long claimed by Argentina, though with a population overwhelmingly wedded to Britain) came to her rescue. The invasion was an affront to British national pride. Mrs Thatcher spoke for much of the country in her refusal to submit to blatant aggression. By the middle of June 1982, in a last hurrah of colonial-style expeditions that baffled much of Europe, British forces had retaken the Falklands. For Thatcher, it proved that Britain was no longer a nation in decline. She herself gained new confidence from leadership in war. Politically, her own approval ratings, and those of her government, soared. The recession had meanwhile ended, growth had picked up, inflation had fallen, though unemployment remained stubbornly high. The corner seemed to have been turned. The general election of June 1983 produced a much-enlarged Conservative majority, while Labour slumped to the party’s worst result since 1931 with a mere 28 per cent of the national vote. Thatcherism was triumphant – and triumphalist.
Crucial to restoring British greatness, in Thatcher’s mind, was to break the power of the trade unions. She now prepared to take on the National Union of Mineworkers, the most powerful of the unions. Once again she was greatly aided by the inept leadership of her opponents. Under militant Marxist leaders, Arthur Scargill and Mick McGahey, the miners’ union was thirsting for a showdown with the government. In April 1984 Scargill called the miners out on strike to prevent further pit closures in an already declining industry. But he refused to ballot the miners on strike action. The union split as miners in some parts of the country voted to continue working. A second tactical error was to attempt a coal strike in the summer months, and after the government had built up coal stocks.
The strike was an extraordinarily bitter confrontation. The scale of violence between striking miners and police reached levels not previously seen in Britain in the twentieth century. At Orgreave, a coking plant in south Yorkshire, a pitched battle raged on 18 June 1984 as police – later acknowledging that excessive violence had been used – charged on horseback into thousands of strikers. Television news that day carried scenes of police officers beating miners with truncheons, though no policeman was called to account for the excessive violence used. Dozens of miners were arrested on charges of rioting, which were later dismissed on grounds of unreliable police evidence. The strike petered out in early 1985, ending in March as the miners, their families suffering from the months without pay, were driven back to work. Over 11,000 arrests had been made in all. The strike hampered economic recovery. But from the government’s point of view, it had been worth it. The National Union of Mineworkers lost half of its membership. The power of the unions was broken. Coal mining went into steep decline. In 1980 there had been 237,000 miners working in Britain. A decade later there were only 49,000.
After the Falklands War the miners’ strike was a second major milestone in the Thatcher era. There was no middle ground. Mrs Thatcher polarized the population as no other post-war Prime Minister had done. She mirrored as well as articulated Britain’s deep social divisions, anchored in traditions of class conflict. She gave voice to middle-class frustrations and resentment at the strongly felt national decline. But she engendered extraordinary alienation and hatred in much of the industrial working class that saw itself as the target of Conservative class-driven politics. The relatively well-off south of England provided her bedrock of support. The industrial regions of the north, Scotland and Wales were largely hostile territory. She never came close to winning the support of even half of the voting population in elections. And most people were repelled by her nineteenth-century values. The notion that the poor were a product of their own lack of effort was rejected by an overwhelming majority – in fact, by more people in the 1980s than during the previous decade.
What no one, friend or enemy, denied was that she was a politician of personal courage as well as remarkable determination. Both were prominently on display on 12 October 1984 when an IRA bomb exploded at the Grand Hotel in Brighton where ministers were staying during the Conservative Party Conference, coming close to killing her and much of the government, leaving five colleagues dead and others maimed for life. But Mrs Thatcher insisted that the Conference proceed as usual.
The IRA terrorist campaign was the most violent face of the complex problem of Northern Ireland – whether, as most of the majority Protestant population wanted, it should remain part of the United Kingdom, or whether, as the mainly Catholic minority of republican nationalists insisted, it should become part of a united Ireland. ‘The Troubles’, as they became known, had re-emerged in the late 1960s and descended the following decade into brutal ideological intransigence punctuated by horrific violence perpetrated by paramilitaries on both sides. By the time of the Brighton bomb, both Conservative and Labour governments had tried in vain to resolve, or at least contain, the problem. It continued to defy solution, also by the Thatcher government.
By the mid-1980s, at considerable cost to the social fabric and widening inequality, inflation had been controlled and the trade unions were weakened. What remained of the Thatcherite neo-liberal agenda was the crusade to shrink state expenditure, privatize nationalized industries, and cut welfare spending. Her large parliamentary majority provided the platform for Mrs Thatcher to tackle the underlying aim of her strategy: to rebalance Britain’s economy and restore its national prestige.
Outside Britain the political consequences of the economic downturn were most serious in Italy. The country was simultaneously beset by the dramatically worsened economic situation, chronic governmental instability, continuing industrial conflict, widespread disaffection, and the worrying outbreaks of terrorist violence of revolutionary movements (notably the Red Brigades). Fears of a shift back towards the fascist right were behind the move by the leader of the Communist Party, Enrico Berlinguer, to forge a ‘historic compromise’ between the Communists, the Socialists and the Christian Democrats. Such an anti-fascist grand alliance would, he imagined, overcome the country’s endemic difficulties and provide a new start for the country. Any such venture depended in part on the Communists themselves adapting to changed times. Berlinguer consequently led his party to turn its back on Moscow in favour of a new-style (if somewhat vague) ‘Eurocommunism’, which rejected both the Soviet model and the Social Democratic acceptance of the capitalist system. In practice, however, Eurocommunism tacitly acknowledged the need to work within capitalism to engineer a democratic road to a socialist society. It was an appealing message to many, especially in northern cities.
Seemingly en route to becoming Italy’s largest party, the Communists made big gains in 1976. And since there was no prospect of a government of the centre-right, the Christian Democrats were compelled to look to left-wing parties. Berlinguer himself dismissed notions of a left-wing coalition of the Communists with the smaller Socialist Party since this might prompt the very swing to the extreme right that he was anxious to avoid. He was also wary of incurring the hostility of the United States, anxious at the advances of communism in Italy. He preferred, therefore, to enter an informal political alliance with the Christian Democrats. This lasted, despite intrinsic tensions, until the murder by the Red Brigades in May 1978 of the former Christian Democratic leader and Prime Minister, Aldo Moro (who had favoured the alliance).
Under the alliance the economy started to show signs that it was over the worst (in part owing to a greater level of cooperation between employers and unions), some significant improvements were made in welfare provision, and the framework for a national health service (replacing the earlier fragmented and uncoordinated provision) was instituted in 1978, though it did not function at all smoothly in practice. Not least, and no mean achievement given the opposition of the Catholic Church, abortion was legalized.
But cooperation with the Christian Democrats did the Communist Party little good. When it lost votes heavily in the elections of 1979 for the first time since the Second World War, the Communists returned to opposition. The Christian Democrats relied instead on coalition with the small, left-leaning Republican Party and with the Socialists whose leader, Bettino Craxi, eventually became Prime Minister in August 1983. Governmental instability was to remain a hallmark of Italian politics. But Craxi’s strong personality and tactical adroitness enabled his administration to last for four years – longer than most.
And by the mid-1980s Italy’s ‘second economic miracle’ was under way. This had looked anything but likely at the start of the decade, with inflation still at 21 per cent and minimal economic growth. But the steep economic recovery in the United States, the drop in the oil price, the decline in terrorism, and Craxi’s firm government inaugurated a remarkable turnaround. This also owed more than a little to the increasing security felt in business circles after the powerful metalworkers union had been forced in 1980 to end its big strike and capitulate to aggressive tactics by their FIAT employers. Economic growth returned. Industrial losses turned to profits as exports benefited from the spreading international boom and domestic demand was fuelled by savings that people had made during the bad years from the ‘black economy’. Neo-liberal precepts were introduced, as elsewhere. Privatization of unprofitable parts of industry began. Industrial restructuring reduced labour costs through extensive redundancies, and a climate of business enterprise replaced earlier collectivist values. Italy’s national debt remained unhealthily high, however, while northern Italy benefited disproportionately from the growing economy, leaving the south, as ever, far behind.
The governments of Western Europe’s other two biggest industrial nations, West Germany and France, navigated the economic storm-waves with fewer traumas than did either Britain or Italy. They faced similar economic problems as energy prices soared. But they handled them better. They benefited from strong economies that could cushion the worst of the oil shock. Their governments were also under highly competent new management. Helmut Schmidt succeeded Willy Brandt as Chancellor of West Germany on 16 May 1974 following the revelation that one of Brandt’s closest aides, Günter Guillaume, had been spying for the East German intelligence services. Only three days later, Valéry Giscard d’Estaing, head of the centre-right Independent Republicans, narrowly defeated François Mitterrand in the French presidential election. Both men had solid experience and expertise in economic affairs, Schmidt as Brandt’s Minister of Finance between 1972 and 1974, Giscard as Finance Minister to de Gaulle between 1962 and 1965. Schmidt – good-looking, relaxed, chain-smoking, confident bordering on arrogant – exuded an air of cool competence. Giscard – aristocratic in demeanour, telegenic, the very image of the modern technocrat in complete command of his brief – seemed the face of the future after the long paternalistic reign of Charles de Gaulle and his successor, Georges Pompidou.
West Germany’s economy had continued to grow impressively, by almost 4 per cent a year on average between 1976 and 1979. Structural problems, many of them shared with other European countries, were, however, becoming more evident. Old industries such as coal mining and steel, employing huge numbers of workers, were becoming less competitive in world markets. Large-scale redundancies occurred as pits and steel-mills closed their gates. There were protests and strikes in industrial regions, though the traditions of corporate industrial relations, the willingness of trade unions to work constructively with government, and generous government subsidies to mitigate the social consequences in the worst afflicted areas, avoided the damaging conflicts that occurred in Britain and Italy.
Export-oriented industries suffered from the strength of the German mark. A way of adapting was to turn from mass production to specialized production. But modern technologies placed a high premium on expertise, based on skills and training. Unskilled workers accordingly found themselves disproportionately disadvantaged in the labour market. The trend in employment, as elsewhere in Western Europe, towards white-collar work in the service sector could not make up for the scale of the losses in industry or accommodate most of the unskilled employees who had lost their jobs. Nor did newer, upcoming, and rapidly growing branches of the economy in the service industries need large labour forces. Increasing unemployment was the inevitable result – a worry, especially for older Germans who still had vivid memories of the 1930s. Germans had an even greater fear of inflation. So the tripling of inflation rates to over 6 per cent per annum by the mid-1970s, if low by the standards of neighbouring countries, was a cause of anxiety. In West Germany, as elsewhere, there was no agreed recipe for dealing with ‘stagflation’. But if no new economic model was plainly in view, it was clear that the old Keynesian solutions were out of date.
The second oil shock of 1979 was more damaging to the West German economy than the first, of 1973, had been. Economic growth slumped to only 1.9 per cent in 1980, minus 0.2 per cent in 1981 and minus 1.1 per cent in 1982. Unemployment reached post-war record levels – two million by 1983 (nearly a tenth of the workforce). Inflation at 6.1 per cent in 1981 remained stubbornly high. Wages, for those still in work, fell in terms of what they would buy. With rising state expenditure – partly because of the costs of high unemployment – and falling taxation revenues, state indebtedness increased; by 1982 it had more than quadrupled since 1970. Helmut Schmidt was by this time under pressure from the left of his party. The sharp economic downturn and growth in unemployment formed only part of the reason. Even more important were the mounting fears about nuclear power, which had been extensively developed in the 1970s to replace the dependency on oil, more voluble protest at the environmental damage caused by industrialization, and above all the resurgence of great anxiety about the likelihood of nuclear war as renewed tensions between the superpowers marked the end of détente and the inauguration of the ‘second Cold War’.
In this climate the voices were becoming louder in the SPD’s coalition partners, the Free Democratic Party (which spoke for many industrial leaders) for a change of economic direction – and a change of government. The breaking point of the coalition came when the Free Democrats published an analysis that proposed what amounted in effect to a turn towards neo-liberalism. This included cuts to unemployment pay and pensions, tax reductions, greater deregulation, higher investment, and more reliance on market forces than state intervention. It invited a collision with the trade union wing of the SPD, which remained set upon state intervention and close government steerage of the economy. The coalition had evidently reached the end of its life. Leaders of the FDP arranged to change coalition partners. On 1 October 1982, in a contrived move, Schmidt was replaced as Federal Chancellor by the Christian Democratic leader for a decade, Helmut Kohl. The FDP, the eternal survivor despite its small minority of voter support, remained in government.
West Germany – and Europe – had been fortunate to have Helmut Schmidt, ‘the crisis Chancellor’ (as the historian Heinrich August Winkler called him in one of the many glowing tributes that followed his death in November 2015) at the helm during the deeply troubled years of the 1970s. In temperament the cool, pragmatic Schmidt had been the opposite of his charismatic, visionary predecessor as Chancellor, Willy Brandt. But in dealing with the impact of both oil shocks and with the growing international tension at the end of the 1970s, Schmidt’s expertise and judgement had been invaluable – and not just to his own country.
The political system had remained, in fact, extraordinarily stable during the economic turbulence of the 1970s. Both the major affiliations, the Social Democratic Party and the Christian Union (representing the twin parties of the Christian Democratic Union and the smaller Bavarian wing, the Christian Social Union), saw their membership swell in the 1970s. But by 1980 disenchanted Union voters, who found the right-wing candidate for Chancellor, Franz-Josef Strauss – highly popular in Bavarian bastions of Catholic conservatism, but distinctly less so elsewhere – an unappealing choice, had swung to the Free Democrats. They were the chief beneficiaries of the election that year, increasing their voter support to 10.6 per cent from 7.9 per cent in 1976. The Union was the loser, dropping to 44.5 per cent of the vote, while the SPD remained stable at 42.9 per cent. With the defeat of Strauss, the more moderate Kohl remained unchallenged as leader of the opposition. The result provided the framework for his stepping into government two years later.
Helmut Kohl’s government followed the general course of Western European governments under the impact of the second oil crisis in steps to curtail government expenditure (and especially limit the growth of social spending), while increasing economic competitiveness through deregulation, a more flexible labour market, tax incentives and privatization. Although this naturally alienated the left and brought about political protests, the government, keen to avoid an abrupt alteration of course, steered clear of any incisively radical change of direction. There was no attempt to turn back the clock on the social improvements made during the era of Brandt and Schmidt, or to interfere with the rights of trade unions. State subsidies for old and struggling industries (most notably coal mining and steel) actually rose, despite the government’s proclaimed intention gradually to remove them, in order to cushion the social hardship in traditional big industrial regions like the Ruhr or the Saarland. Continuity, certainly with the later phase of the Schmidt government, was more marked than any sharp break. West Germany avoided the intensely heated social conflict that the Thatcherite government had provoked in Britain. And the economy started to improve – helped greatly by the worldwide improvement as oil prices fell and the American economy grew sharply.
The combination of strong environmental concerns and acute nuclear fears – a sharper blend of protest than elsewhere in Europe – led by the early 1980s to the emergence of the first major new political movement in West Germany since the immediate post-war period, the creation of the Green Party. Already in the 1983 general election the Greens made their mark, coming from nowhere to win 5.6 per cent of the vote and gain twenty-eight seats in the Bundestag (the Federal parliament). Four parties, not the earlier three, from now on became players in the contest for political power. More important was that West German democracy, which many people still felt was insecure, had come through the first big economic downturn – one that had seen a rise in both unemployment and inflation – completely unshaken. It had been a remarkable post-war success story.
The equivalent post-war French success story of the ‘thirty glorious years’ seemed in grave danger of hitting the buffers when the first oil crisis struck. The long years of continuing boom had come to be seen as normal and permanent. After 1974 the pattern familiar from elsewhere set in. Inflation rose to over 15 per cent, while unemployment doubled to a million and growth plummeted to minus 0.3 per cent. President Giscard d’Estaing combined initial social reforms (for instance, liberalizing abortion and divorce laws) with a turn by 1976 to economic austerity. He replaced his main rival and increasingly disgruntled Prime Minister, the Gaullist leader Jacques Chirac (elected Mayor of Paris the following year), with Raymond Barre, a highly experienced economist, though a technocrat rather than a skilled politician. Barre’s brief was to balance the budget and modernize the economy. He acted to stabilize the franc, cut government expenditure, reduce labour costs and increase taxation.
The austerity measures naturally raised hackles on the Socialist and Communist left, still just about united around their ‘common programme’ of 1972. But Giscard also faced opposition from the right by the Gaullists, reshaped by Chirac in 1976 as the Rally for the Republic (Rassemblement pour la République, RPR). There were conservative objections to Giscard’s social reforms. Personal rivalries and political bitterness were, however, more important than ideological divisions in separating the Gaullists and Giscard’s restyled centre-right grouping, the Union of French Democracy (Union pour la Démocratie Française, UDF). Together, the Gaullists and the UDF won the 1978 parliamentary elections by a surprisingly large margin. They had been greatly helped by new divisions on the left. Municipal elections had pointed towards a victory for the left, as Barre’s austerity measures began to bite. But the Communists, under Georges Marchais, retreated to more hard-line Marxism, fearing they were about to be overtaken in popularity by Mitterrand’s Socialist Party, which had moved further towards reformism rather than outright rejection of a capitalist market economy. The Socialists won only slightly more of the vote (23 per cent) than the Communists (20 per cent) in 1978, but the wind was in their sails, all the more so since the Communist Party subsequently descended into bitter infighting.
Barre’s reforms had meanwhile had some effect in stabilizing the economy. But the electoral success emboldened Giscard and Barre to move further towards economic liberalism. Competition, deregulation of prices and exposure to the free market were encouraged. There were, however, no great steps as yet towards the privatization of major industries. State direction of the economy, a long-standing tradition in France, was maintained. Heavy state subsidies continued to be central to planning in aviation, the telephone network, railways, the car industry and, not least, the building of nuclear power stations. As was the case in other Western European countries, the French steel industry was struggling to stay competitive in the face of imports from Asia and parts of Eastern Europe, where production costs were much lower. The state intervened to take over some of its debts and fund retraining schemes, though closing the most unprofitable steel-mills, with huge job losses amid heated protests in the stricken communities in the north and in Lorraine.
Business profitability returned, helped by reductions in corporate taxation and lower wage bills. But Barre had overestimated the speed and strength of recovery. And the strong franc was an obstacle to exports. The second oil crisis of 1979 then blew the deflationary programme completely off course. Inflation rose again, to 14 per cent. Unemployment, too, increased, reaching 1.5 million in 1980 and moving upwards. There was much public sympathy for the distress in the industrial regions worst affected. Barre became more unpopular than ever. The Socialists and Communists, for all their divisions, gained ground with their promises of job creation and state intervention to stimulate the economy. More, not less, state socialism was seen as the route to economic recovery.
Such promises of national renewal after years of an increasingly unpopular and fractured governing coalition took François Mitterrand to victory in the April–May 1981 presidential election with 51 per cent of the vote. After twenty-three years of continuous power, the Gaullist stranglehold on French government was over. The joy on the left was undiluted. It was further amplified when the Socialists took command of the National Assembly only a month after Mitterrand’s triumph. The new government took immediate steps to reverse the deflationary policy. Keynesianism was restored to favour. Wages, pensions and child benefit were increased. The retirement age was lowered. The working week was reduced. Funds were provided for building new homes and the creation of 150,000 jobs. A youth employment scheme was introduced. Taxation of the most wealthy was increased. Extensive nationalization was planned. Export industries were encouraged by devaluation of the franc.
The policies were an unmitigated failure. Growth was far lower than anticipated. The balance of payments worsened as foreign imports grew. Inflation remained high (in stark contrast to neighbouring West Germany, where it fell). And unemployment continued to rise. Mitterrand was forced within less than two years into a complete reversal of his promised economic policy. A price and wage freeze had already been introduced in June 1982. The following March the franc was devalued for the third time within eighteen months. Public expenditure cuts – notably on social security – followed, taxes were increased for much of the population, but reduced for business, and the first moves towards privatization of nationalized industries were taken. The results of the 180-degree shift were modest. Within two years inflation had fallen, as had the balance of payments. Unemployment, on the other hand, still stood at over 10 per cent of the working population, while growth was only 1.9 per cent in 1985. When the Gaullists returned to government in March 1986 they found that their socialist predecessors had paved the way for the further moves towards neo-liberalism.
An ever-repeated mantra of Thatcherism across Western Europe was that, as far as the economy was concerned, ‘there is no alternative’. Was this true? Deflation had been a painful but necessary remedy everywhere, given the double recession after the two oil crises. The turn to forms of neo-liberal economics was general by the mid-1980s, whatever the colour of the government. Mitterrand’s experiment in France was the clearest demonstration that the old Keynesian recipes no longer worked in the face of a global economic downturn that had produced stagflation. His volte-face demonstrated to an entire generation of politicians that international conditions had severely narrowed the economic options of national governments. Yet West Germany, France, and also the more unstable Italy had shown that even within deflationary economics and the politics of recession there had been alternatives to the ideologically driven and conflict-ridden extreme neo-liberalism adopted only by the Thatcher government.
While Western European democracies struggled to adjust to the effects of the oil crisis there was good news to the south. The authoritarian regimes of Greece, Portugal and Spain collapsed within months of each other in 1974–5. Was this simply coincidence? Or were there deeper causes of the transformation?
Before the Second World War pluralist parliamentary democracy had, apart from a cluster of countries in north-western Europe, been a contested system of government, rejected both by powerful elites (especially in the military) and by wide swathes of the population. By the early 1980s it was welcomed everywhere in Western Europe – with the partial exception of Turkey, the most peripheral country in the western bloc, where the military remained the determining force in politics. It amounted to a remarkable and lasting transformation, a triumph for democracy.
Political change in Greece, as in much of the rest of Western Europe, had appeared in the early 1960s to be moving towards the left. The conservative right wing which, backed by the military, had run Greece since the end of the civil war of 1946–9 in what was little more than a facade democracy, had become increasingly unpopular and was ousted in elections in 1963. But the military viewed the new government’s proposed liberal reforms as a Trojan Horse for the return of communism. When King Constantine II forced the government out of office in 1965 it prompted a constitutional crisis and rising popular unrest. To forestall new elections in May 1967 right-wing army officers headed by Colonel George Papadopoulos, fearing steps in a left-leaning government to bring the army under civilian control, purge the leadership, reduce military expenditure and terminate the American presence in Greece, staged a coup on 21 April.
The king failed in a badly executed attempt to wrest control back in a counter-coup and fled into exile in what turned out to be a permanent end to the Greek monarchy. The ‘rule of the colonels’, as it became known, was quickly consolidated. A junta of twelve colonels, the ‘Revolutionary Council’, was established. Papadopoulos was from the start, however, the dominant figure, eventually combining the positions of Prime Minister and other key ministries – notably foreign affairs and defence – with the regency that was set up after the king’s attempted counter-coup. Political parties were dissolved, thousands of left-wing sympathizers were arrested (and many tortured in prison), civil rights were suspended, and rigorous censorship of the media was imposed, while numerous opponents fled abroad. The regime worked closely with industrial leaders, supported agriculture, backed tourism, and started a number of big construction projects. Economic growth was at first strong, though it started to sag badly in the early 1970s. Greece’s image abroad suffered as criticism of the regime’s assault on human rights mounted. But the regime was propped up by support from the United States, concerned more about its vehement anti-communism than its appalling human rights record. Nor was there any united opposition to the regime by the Western European democracies. While the Netherlands and the Scandinavian countries were forthright in their hostility, Britain and West Germany voiced criticism of the regime’s brutal practices but tacitly backed a country seen as vital to NATO interests.
More significant in the growing crisis of the colonels’ rule was internal opposition which, despite the repression, could not be silenced. The problems became apparent of trying to install a neo-fascist regime in a Western European network of countries wedded to the principles of liberal democracy and human rights. When Papadopoulos sought in lukewarm fashion to hedge off trouble by introducing minor liberalizing measures (including the partial lifting of censorship and release of some political prisoners), all that he succeeded in doing was to embolden opposition while antagonizing a hard-line faction within the regime. The army was sent in to suppress a big student demonstration against the regime in Athens Polytechnic in mid-November 1973, resulting in a number of deaths and many injuries, but the unrest prompted Brigadier Dimitrios Ioannidis, head of the dreaded Military Police, to overthrow Papadopoulos days later and restore order by the reimposition of martial law.
The rule of Ioannidis was only of short duration. His own downfall came after his regime had sponsored a bungled attempt by the Cypriot national guard to overthrow the president, Archbishop Makarios, with a view to incorporating Cyprus into Greece – a long-standing desire of the Greek right. Makarios managed to escape and eventually make his way to Britain. But the failed coup prompted a Turkish invasion and occupation of northern Cyprus in July 1974, forcing around 200,000 Greek Cypriots to flee south. The Greek Junta tried to mobilize armed retaliation, though in vain, since it had lost the backing of the army. The colonels’ regime no longer had its crucial prop.
The military that had overthrown democracy in Greece in 1967 now took steps to reinstate it. A faction of officers withdrew support for Ioannidis. The former conservative Prime Minister, Konstantinos Karamanlis, was summoned back from his exile in Paris and promptly began the return to civilian democratic government. His coalition government restored the constitution of 1952 and freed political prisoners. Elections in November 1974, the first for ten years, gave New Democracy, the conservative party led by Karamanlis, an absolute majority. One measure introduced by the colonels’ regime survived its demise, for in 1973 the Junta had abolished the monarchy. In December 1974 a referendum rejected its restoration. Greece was from now on a republic, with a new constitution (introduced in 1975) and a democratic system of government. Confirming the break with the past, the leaders of the Junta were later tried and sentenced to lengthy terms of imprisonment.
Greece remained, however, desperately poor, its economy grossly inefficient, and its clientelist political system riddled with corruption. Despite such evident weaknesses, Western Europe’s democratic leaders were anxious to prevent any possible reversion at some point to authoritarianism. They swiftly moved to accept Greece back into the Council of Europe, which it had left during the colonels’ rule. Before the colonels took power, Greece had enjoyed associate membership of the European Economic Community – suspended during the years of the Junta – and had been promised sizeable financial aid to modernize its economy. After his return to office Karamanlis began a new drive for Greece’s membership. He saw this as essential for the country’s prosperity, which in turn would go far towards consolidating its democracy. European Community leaders saw the weight of the argument. Entry negotiations began already in 1976. Within five years, earlier indeed than anticipated, on 1 January 1981 Greece became the tenth member. It was, however, much weaker economically than the other nine. Political not economic priorities had been behind its admission.
A lingering oddity and, as would prove, insoluble legacy of the colonels’ rule was the division of Cyprus. The situation rapidly became stalemate. Greece withdrew from NATO (eventually returning in 1980) in protest at its failure to condemn Turkey’s invasion. Turkey refused the demands of the United Nations to withdraw its troops. Makarios returned as President to the Greek part of the island, though of course without Turkish recognition. The smaller Turkish part of the island was in contrast recognized solely by Turkey. With a ‘green line’ down the middle of the island, presided over by a United Nations peacekeeping force, the division of Cyprus was set to remain for the rest of the twentieth century – and beyond.
On the Iberian peninsula the long-standing dictatorships of Portugal (since 1926) and Spain (since 1939) still stood semi-detached from the rest of Western Europe. But their rulers were old and infirm. Portugal’s political system had been almost preserved in aspic under its longest-serving Prime Minister, António de Oliveira Salazar. Its economy, too, was unmodernized. As part of EFTA since 1968, Portugal had started to benefit modestly from improved trade relations but was still economically backward. Tourism, unlike in Spain, was still not a major entity. Many thousands of Portuguese had to leave home each year to work abroad (sending home important subsidies, which supported the domestic economy). But the big drain on the economy was the colonial empire – an increasingly expensive anachronism that required nearly half of government expenditure going on the military, and compelling unpopular conscription to the army for young Portuguese needed to repel the guerrilla warfare of anti-colonial movements in Angola, Mozambique and Guinea-Bissau. Opposition to the colonial wars grew. It was even voiced by sectors of the Catholic Church, which had traditionally been such a staunch ally of the authoritarian state but now reflected the more liberal stance that had developed since the Second Vatican Council (1962–5).
When Salazar, who had ruled since 1932, suffered a bad stroke in 1968 and died two years later, it marked the beginning of the end. The creaking system continued, only marginally liberalized, under his successor, Marcello Caetano, though it was living on borrowed time. A brief consumer boom funded largely by borrowing abroad soon petered out. Economic unrest was widespread, not just among poorly paid workers. Inflation in the wake of the oil crisis was as high as 30 per cent by 1974. The most dangerous development for the regime was the disaffection of young officers, who were angered not only by their low pay but also at fighting bitter and dangerous colonial wars in an evidently lost cause. The military had brought the regime into existence in 1926 and long been its essential prop. Once a section of the officer corps turned against it, as they did in a putsch during the night of 24–25 April 1974, it was doomed.
What would follow the successful coup d’état was unclear. It was far from evident that democracy would emerge triumphant. At first a military council, the National Salvation Junta, took control under the putschist leader General António Spínola – former deputy head of the army’s general staff. But it was unable to bring stability. Spínola was eventually ousted and fled to Spain. The uprising spread, both within the military and in the civilian population. There was enormous euphoria at what was dubbed ‘the carnation revolution’ (after the flowers on the uniforms and in the rifle muzzles of the insurgents). ‘The red carnations decorate tee-shirts and glasses,’ noted the British politician Judith Hart, during a visit to Portugal in the summer of 1975. ‘The posters proclaiming freedom and democracy and the power of the people are everywhere.’ Turbulence continued for two years. Six provisional governments came and went; and two coups were attempted, one from the right, the other from the left. The country remained mired in unrest. Strikes, factory occupations, land seizures and flights of capital were manifestations of bitter political and ideological divisions. The Communists appeared to be the strongest political force. However, elections to the Constituent Assembly in April 1975 showed that popular backing for communism was in fact weak. The Socialist Party, under Mário Soares, gained most support, with 38 per cent of the vote. The Liberals won just over 26 per cent. The Communists trailed with only 12.5 per cent of the vote.
As their hopes of power diminished, left-wing radicals in the military – riven by numerous factions – attempted another coup, in November 1975. It proved their swan song. The rising was put down by the state-supportive forces under General Ramalho Eanes. Army reforms were swiftly put in place and the power of the military was curbed. The radical left lost influence in the military. Communism was meanwhile forced to the political fringes. A new constitution in April 1976 established the framework for civilian government and, following new elections later in the month (in which the Socialist Party again emerged victorious), a measure of calm descended upon the disturbed political scene. General Eanes, popular after repelling the putsch attempt the previous November, was elected as President with the backing of all parties except the Communists, who from now on were excluded from power. Eanes provided the necessary symbol of national unity. Soares, supported financially by the West German Social Democratic Party, was the key political player in the early stage of Portugal’s transition to parliamentary democracy. But it was still a rocky road.
Portugal’s colonial empire had been wound up during the year after the ‘carnation revolution’. With that, the last of the major European colonial empires was gone and the era of colonial imperialism was finally over. But it was a bloody ending. The Portuguese left their former possessions in a terrible state. There was no smooth process of decolonization. East Timor was seized by Indonesia. Angola was wracked by civil war. Mozambique also soon descended into civil war, while revolutionary forces turned Guinea-Bissau into a one-party state that took violent revenge against former supporters of the colonial regime. Across Africa hundreds of thousands of Portuguese colonial settlers fled, leaving behind all that they had owned, returning home to add to the burdens of Portugal’s struggling economy.
Land reforms, already set in place, started to reverse the expropriations that had taken place after the revolution and bring an end to the inefficient collective farms. But in 1977–8, amid continuing unrest, high unemployment and heavy state indebtedness, with average per-capita income little over half of the average in the European Community countries, Portugal was forced to seek financial aid from the International Monetary Fund. It came, though with strings attached. Austerity measures were introduced, gradually reducing the high debts of the state through reductions in expenditure and more balanced budgets, but at the cost of prolonging the high unemployment and continued economic backwardness of the country. Governmental instability continued, with nine governments in seven years between 1976 and 1983. Soares was ousted in 1978. The executive powers of President Eanes, elected to office but still commander-in-chief of the armed forces, to intervene in national politics (which he frequently did), were curtailed only by constitutional changes in 1982. A genuinely civilian presidency with limited powers was only instigated with the narrow victory, by direct suffrage, of Mário Soares in a two-stage election in 1985–6. Only by that stage could the democratic system in Portugal be regarded as solidly based.
Soares himself had in 1977 instigated the approach to the European Community that would develop into formal negotiations on Portugal’s entry the following year. The country’s economic problems meant that membership could not be achieved overnight and complex negotiations dragged on until 1984. In 1986 the step was finally taken: Portugal had come in from the periphery to become a member of the European Community. It was by this time a settled Western European democracy, its long years of dictatorship a fading memory.
The progress of the ‘carnation revolution’ was closely followed across the border by Portugal’s near neighbour as the long rule of General Franco drew to a close. There was apprehension among would-be reformers at the turbulence in Portugal and, especially, the advances on the communist left.
Much-needed reforms, introduced in 1959, had opened Spain’s backward economy to international markets, bringing growth at over 7 per cent per year during the 1960s. Rural Spain, the regime’s backbone, started to empty as labour drained to the cities or to the rapidly growing tourist resorts. In the wake of growth, too, came demands for higher wages and better working conditions in expanding industries. Working-class unrest, especially in the industrial regions of Catalonia and the Basque Country, intensified. Trade unions were still banned and strikes were illegal, but workers nonetheless formed collective bodies that organized protests, strikes and demonstrations. And the number was rising. There were 1,595 strikes in 1970, 2,290 in 1974 and 3,156 in 1975 (resulting that year in the loss of 14.5 million working hours). In the Basque Country the unrest fed into separatist politics that in turn in 1968 had spawned an armed nationalist movement, ETA (Euzkadi Ta Askatasuna, Basque Homeland and Freedom), which began a prolonged and bitter terrorist campaign against the regime and its successor.
As the Francoist regime visibly faced growing and insurmountable challenges, the iron fist was almost its only response. As late as 1974 some 6,000 Spaniards languished in jail awaiting trial on political charges. Torture was commonly used in the jails. Prisoners were deprived of legal support. There was also a return to the use of the death penalty as part of a military crackdown. No executions had taken place between 1963 and 1974 as Spain had tried to show its best face to the world. But there were five executions only a month before Franco’s death in November 1975.
Meanwhile, the beaches of the Costa Brava guaranteed sunshine, and cheap package holidays had already by the 1960s started to attract millions of tourists each year. They exposed Spaniards to external cultural influences that inevitably clashed with the traditional values of Catholic Spain. These values were in any case being eroded in the aftermath of the Second Vatican Council. In fact, even the Catholic Church, since the civil war the ideological bulwark of Francoism, was turning away from the regime. By 1970 far more priests sympathized with socialism than with the state’s official falangist ideology, while the Church hierarchy defended human rights and spoke out in favour of political neutrality.
Young people, especially, found the regime’s moral rigidities stifling. A slight relaxation of censorship in 1966 did not go nearly far enough. In 1968 a minority of young, well-educated people courageously showed that they were not prepared to accept authoritarian rule. Student demonstrators in Madrid and other Spanish university cities, inspired by what was happening in other parts of Western Europe, motivated by their strong opposition to the Vietnam War and to American bases in Spain, and hostile to a dictatorship resting on political repression, faced the wrath of Franco’s regime. Some were sentenced to long imprisonment for their defiance. The gulf between the repressive state and the demands of a society looking for liberalization and democratization was immense.
Some in the state bureaucracy recognized, in fact, that liberalization was necessary, and that this would open the door to closer relations with the European Economic Community, which in turn would offer greater prospects of prosperity and modernization for backward Spain. The unbending Francoist dictatorship, dependent in its workings upon the military, the security services, and entrenched oligarchies in the bureaucracy and business, stood in the way of any such moves. But the regime faced the obvious question of who or what would follow Franco. His close entourage had in December 1968 regarded it as a sign of the dictator’s impending mortality when he interrupted a cabinet meeting to go to the toilet – something, impervious to the discomfort of his ministers with less iron bladder control during interminably long meetings, he had never done before. It had been the ‘triumph of the continent over the incontinent’, one of them had later quipped. Franco held on, in fact, for a further seven years, though his long life – he celebrated his eightieth birthday in December 1972 and was in poor health – was obviously drawing to a close.
He had addressed the problem of the succession in 1969 by turning back to the vacant monarchy and anointing Prince Juan Carlos as his heir – thus retaining power while preparing his successor to take over the authoritarian regime. A staging post was evidently foreseen in the appointment as Prime Minister in June 1973 of Admiral Luis Carrero Blanco, among Franco’s most long-standing and diehard supporters, who held many of the levers of power in his hands. Carrero Blanco, it was imagined, would secure the continuity of the authoritarian regime.
Such plans literally went up in smoke when Carrero Blanco was killed by a bomb planted by ETA terrorists on 20 December 1973. Even had he lived and succeeded Franco as head of state, it is questionable whether the creaking authoritarian regime could have survived much longer. As it was, both Franco and the regime he ruled entered their death-throes. The predictable reversion to overt repression after Carrero Blanco’s assassination only served to increase Spain’s international isolation as a pariah nation. And the country’s economic woes had meanwhile been intensified by the price rises in the wake of the oil crisis. Only Franco’s mortality, it seemed, blocked the route to inevitable change.
Richard Nixon’s Secretary of State, Henry Kissinger, had commented during a visit to Madrid in 1970 that Spain was ‘waiting for a life to end so that it could rejoin European history’. Five years later the wait for the life to end was over. Franco’s health had deteriorated sharply during 1975 and on 20 November the last of the pre-war European dictators died, by then a physical wreck. The only head of state present at the funeral was the Chilean dictator, General Augusto Pinochet (whose repressive regime, following the overthrow of Chile’s elected government of President Salvador Allende in 1973, would have met with Franco’s approval). Foreign dignitaries demonstrably turned up, however, four days later for the coronation of King Juan Carlos. Pinochet was this time not invited.
The king’s coronation symbolized the beginning of a new era. But no one knew how that would turn out. Would the king preside over some continuing form of authoritarianism? Would there be another bloodbath? Or would there be moves to introduce democracy? Not least: how would the army, the mainstay of the regime’s power and suspicious of the king, react to the demise of the dictator? There was widespread rejoicing at the end of Francoism. But there were also fears for the future. It was an uncertain one for a country that had torn itself apart so recently and was still living with the consequences. Crucially, though not plainly to be foreseen, the king, if at first cautiously, placed the weight of his popular legitimacy as the monarch on the side of the forces pressing for democratization. He was no instinctive democrat. But he recognized the way the wind was blowing. The huge demonstrations and mass strikes that had taken place in the immediate aftermath of Franco’s death had convinced him that this was the only way forward. As in Portugal, parties, factions and movements, though still officially proscribed, started to take shape. But decisive change came from within the structures of the old regime. In effect, the Francoist state gradually dismantled its own power structures.
Beyond his support for democratic forces, a vital step was the king’s replacement of the hard-line and unpopular Arias Navarro as Prime Minister by Adolfo Suárez in January 1976. It was no abrupt change to a democratic champion. But it proved a crucial choice. Suárez, a Falangist who had held a number of positions in Franco’s government, had earlier been seen as a reactionary. His contacts with reformist groups within the Franco regime had convinced him, however, that Spain’s future lay with democracy, and that the popular legitimacy of the monarchy, and Juan Carlos’s own commitment, offered the surest route to that goal. A revolutionary break with the regime could risk renewed civil war. A transition had to be negotiated with the left.
Speed was of the essence, before the Francoist establishment could react. Suárez offered a referendum on political reform and elections by June 1977. He skilfully courted the Socialists – themselves recognizing that constitutional government, not violent revolution, was the best way to remove the remnants of the regime – while using his support from the king to placate army leaders, neutralize the moderates on the right, and isolate hard-line Francoists. Remarkably, through financial inducements and promises of future advancement, Suárez persuaded the deputies of the National Movement, the single party in the Cortes (the Spanish Parliament), to vote in favour of the reforms as the only way to prevent serious conflict. In a rare case of turkeys voting for Christmas, the members of the Cortes accordingly voted themselves out of existence.
In the referendum on 15 December 1976 an overwhelming 94 per cent of voters backed the changes. On 15 June 1977, for the first time in over forty years, pluralist elections were held in Spain. The old parties of the left, including the Communists, had meanwhile been legalized – earning Suárez the enmity of the Francoist diehards. Suárez’s Union of the Democratic Centre (Unión de Centro Democrático) – a coalition of centrists and the reformist right, patched together by much backstairs wheeler-dealing – proved victorious, with 34 per cent of the votes, but the Socialists gained 29 per cent. The vote overall gave a strong imprimatur to constitutional parliamentary democracy. Radical parties, left and right, did badly. The Communists, with only 9 per cent, gained far fewer votes than had been expected, while the various factions of the neo-fascist radical right could only between them manage under 2 per cent of the vote. A little over a year later, on 31 October 1978, a new, democratic constitution was approved in parliament and ratified by the population in a referendum on 6 December.
But the problems were soon mounting for Suárez. By 1977 he had to contend with rampant inflation, sharply rising unemployment, and shrill demands for autonomy in Catalonia and the Basque Country (echoed, if less vigorously, in other regions). The grant of limited devolved powers by no means quelled the demands. The Basques, especially, pressed for independence from Madrid. Acts of terrorist violence carried out by ETA would continue for years to cause fear and revulsion within the Spanish population.
Under increased pressure, his popularity plummeting, Suárez resigned as Prime Minister on 25 January 1981. A month later, the fledgling Spanish democracy had to withstand a last attempt to derail it by hard-line Francoists. On 23 February Lieutenant-Colonel Antonio Tejero of the Civil Guard and around 200 of his men stormed into the Cortes and proceeded at gunpoint to hold the members of parliament hostage. The attempted coup collapsed only after King Juan Carlos had addressed the people on television, declared his support for the constitution, and ordered the troops back to their barracks. Three days after the coup’s failure – Tejero later served fifteen years in a military prison for his part in the debacle – three million people demonstrated in Spanish cities in favour of democracy, one and a half million in Madrid alone. Democracy was safe.
After the elections of 1982 the Socialist Party, which had turned its back on its earlier Marxist programme, returned to political power in Spain for the first time since 1936. It was to remain in office for the next fourteen years. Felipe Gonzáles, the new socialist Prime Minister, pushed ahead with the process of reforming internal structures of the civil service and military. He also used his popular backing and parliamentary majority to implement an economic austerity programme using monetary and fiscal measures to reduce high inflation and a heavy deficit in government spending. Wages were pegged below inflation levels. Greater flexibility in the labour market was promoted. Spending on social security was lowered. Some moves towards privatization of state-owned industries were initiated, but there was no consistent privatization policy and the public sector remained large (though possessing many businesses that the private sector did not want). Elements of neo-liberalism were thus incorporated in the programme of a socialist government. It was a further sign of the economic trend across Western Europe.
The government reversed the earlier opposition by the Socialist Party to Spain’s membership of NATO (which it joined in May 1982), though it also insisted on reducing the number of American bases in Spain, a policy supported by a popular majority in a referendum in March 1986. Just before then, on 1 January, Spain had been admitted, alongside Portugal, to the European Community, ending a process that had begun in 1977. With that move, Spain had finally rejoined European history.
The emerging new democracies in Greece, Portugal and Spain completed the post-war triumph of democratic pluralist systems of government throughout Western Europe. There were obviously significant differences between the preceding three dictatorships, and the way in which they collapsed. And there were indeed undoubted elements of coincidence. Greece’s rule of the colonels was a recent and brief (if for its victims seemingly endless) interruption of pluralist government, however imperfect Greek democracy had been. Its collapse had been triggered by the external events of the Turkish invasion of Cyprus. The authoritarian systems in Portugal and Spain, in contrast, had been built over decades and had established far deeper roots than had the Greek dictatorship. The fates of both systems were closely entwined with the personalities and ideologies of their long-standing rulers, Salazar in Portugal, Franco in Spain. Unsurprisingly, therefore, the physical decline then death of these dictators ushered in the disintegration of the regimes. The regime in Portugal was the only one whose problems were closely linked to the liberation struggles in a colonial empire. Its collapse led to more prolonged turbulence than in the other two countries. And of the three regimes, only Spain restored the monarchy, which itself – somewhat unpredictably – became the most vital stabilizing factor in the consolidation of democracy.
Beyond the coincidental and contingent, however, there were more deep-lying reasons for the termination of the three quite different dictatorships. Crucially, the authoritarian regimes were all deeply out of tune with an increasingly internationalist, libertarian and strongly anti-militaristic culture that had spread rapidly since the mid-1960s, especially among younger people. Youth protest was a significant feature of the gathering opposition to authoritarianism in each of the three countries. The rigidly repressive attempt to uphold nationalistic cultural values that seemed to belong to the unattractive face of bygone times could not hold back the liberating tide that was with extraordinary speed crossing national frontiers despite the desires of the rulers.
Nor could economies any longer be run as closed systems based on ideas of national autarchy. Greece, Portugal and Spain could not escape the vagaries of global capitalism any more than the Western democracies could, and their economies were less well equipped to cope with the oil crisis. The three countries were in fact already experiencing fundamental social and economic transition. All had been partially transformed by the industrialization that had gathered pace in the two decades or so before their collapse – Spain by mass tourism as well. This had greatly reduced the size of the rural population and served to undermine traditional structures of the family and Church. The countryside had earlier provided much of the base of support for authoritarianism. The modernizing changes in the economy greatly weakened this support, while strengthening the industrial working classes, with their predominant ideological base in socialism and communism, still capable of mobilizing mass backing despite long years of repression. Not least, in the European Community, Western European democracies offered a stark, and successful, alternative to the backward dictatorships – one rooted in international cooperation and liberal democracy. It had brought prosperity to other parts of Europe that Greeks, Portuguese and Spaniards could only dream of as long as their authoritarian regimes remained in place. Almost the first thing that the leaders of the democratic forces did, once authoritarianism had been ousted, was to make overtures to the European Community with regard to their entry. Greece joined in 1981, Portugal and Spain five years later. It was the ticket, as their new governments had foreseen, to previously unimaginable prosperity and liberalization.
Cultural and economic transformation meant that dictatorship, resting heavily upon the backing of the military, was an outdated and dysfunctional, as well as grossly inhumane, form of government. As stable democracies had been consolidated in most of Western Europe and the prospect of conventional war in the region had all but disappeared, societies had increasingly come to be dominated by civilian, not militaristic, values. The military, between the two world wars such a baleful force in politics for the most part, and invariably supportive of authoritarianism, by now played no central role in domestic politics. Only in Greece and on the Iberian peninsula (apart from Turkey, on Europe’s fringes) had the military still remained the dominant political force. But its power was now largely directed at internal repression to bolster authoritarian regimes. Spain’s military had no role outside the country, Portugal’s only an increasingly reluctant one in fighting attritional colonial wars, while Greece’s had shown itself incapable of preventing the Turkish occupation of northern Cyprus. In each case, the military had lost much of whatever prestige it had once had. It was justifiably viewed by much of the population as no more than a repressive, reactionary force that stood in the way of freedom and progress. And the best guarantee of attaining these, as most people recognized, was by pluralist parliamentary democracy. The era of the one-party state, which had claimed to be the only means of national defence against threats from the enemy within as well as external enemies, had had its day in a peaceful, prosperous and liberal Western Europe.
In none of the three cases did dictatorship, for all its travails, simply implode or evaporate. Nor was it just swept away by economic problems, severe though these were. Powerful forces had upheld authoritarian rule. Their dominance could only be ended when the social and cultural pressures that had built up coincided with the evident weakness of the regimes, and found agencies within the ruling echelons that were prepared to support reform, change and progress towards democracy. Precisely this constellation emerged in Greece, Portugal and Spain by the mid-1970s. The dramatic changes altered the prospects permanently for the people of those countries as they were brought into the European fold. By then, within only a few years, democracy in all three countries had been consolidated, and had gained the backing of the overwhelming majority of the population.
While Europe, east and west, had been submerged in economic crisis during the 1970s, the international scene had paradoxically brightened considerably. With the United States bogged down in a costly war in Vietnam – it would end with the withdrawal of American troops and the entry of the North Vietnamese army into Saigon in April 1975 – and the Soviet Union keen to avoid a deepening rapprochement between America and China, the prospects arose of a reduction in international tension through putting the brakes on the dangerous escalation in nuclear weaponry. The American–Soviet agreements reached in 1972–3 were a beginning. So was the attempt to provide a firmer base for international relations in the Conference on Security and Cooperation in Europe (CSCE) held in Helsinki during July and 1 August 1975. Thirty-five states were represented, including the superpowers, Canada, and all European states other than Albania (which refused to take part). The Soviet Union had initiated the Conference in the hope of gaining ratification of the post-war territorial settlement in Eastern Europe. The Helsinki Final Act (Helsinki Accords) of 1975 did not fully meet these hopes since it accepted the inviolability of frontiers and banned annexation of territory under international law. It did, however, allow for peaceful change of borders – widely viewed as a diplomatic victory for the Soviet Union.
What amounted to something of an own goal for the Soviet Union, however, was the commitment, enshrined in the agreement, to respect ‘human rights and fundamental freedoms’. Soviet leaders viewed the commitment cynically. They could decide what this amounted to within the Soviet Union. ‘We are masters in our own house,’ Andrei Gromyko, the Soviet Foreign Minister, reminded his colleagues. This was to underrate the loss of moral ground internationally when the Soviet Union and its satellites continued to lock up thousands of dissidents while paying lip service to human rights. Nevertheless, Soviet political and military strength could withstand moral condemnation. And the defusing of international tension, to which the Helsinki Accords had contributed, bolstered rather than undermined that strength.
Détente, however, was never more than partial. It provided in fact a fig leaf for the military of each of the superpowers behind which they could continue their nuclear weapons programmes, striving for superiority. President Jimmy Carter had indeed pledged during his election campaign in 1976 to seek cuts in the nuclear arsenal. But his emphasis on human rights – including welcoming Soviet dissidents to the White House – unsurprisingly encouraged Brezhnev to drag his feet on the planned follow-up to the original SALT I agreement of 1972 to limit nuclear arsenals. Eventually, SALT II was signed by Carter and Brezhnev in Vienna, amid much pomp and ceremony, in June 1979, with the aim of reducing and limiting nuclear weaponry. Carter declared it ‘a historic contribution to world peace’. But it was a dead letter from the start. The US Congress was unhappy about parts of the treaty. Then the Soviet invasion of Afghanistan in December destroyed any hope of ratification. ‘There goes SALT II,’ Carter remarked as news of the invasion came through. By the end of the year détente had collapsed.
In 1977 the USSR had begun stationing new intermediate-range SS-20 nuclear missiles in East Germany as well as in the Soviet Union. With a range of 5,000 kilometres they did not fall within the criteria of the SALT agreement. But they posed an obvious and direct threat to Western Europe. The West German Chancellor, Helmut Schmidt, devised a bold response. President Carter (whom Schmidt held in barely concealed contempt) had initially opposed the move before finally yielding to German pressure. In January 1979 Western leaders agreed to Schmidt’s proposal to counter the threat by stationing American intermediate-range missiles in Western Europe, mainly in West Germany. In December NATO reached a ‘twin-track resolution’: to deploy, mainly in West Germany and Britain, hundreds of cruise and Pershing II missiles (capable of reaching Moscow within ten minutes), while at the same time continuing to work with the Soviet Union towards nuclear arms control.
The clouds were already darkening by this time. The Islamic revolution swiftly swept over Iran after the deposition of the Shah and return of Ayatollah Khomeini in 1979. Its consequences would be felt, in Europe and the world beyond, for the rest of the century and beyond.
So would what happened in Afghanistan, washed over by outlying waves from the Iranian revolution. An Afghan communist leader, Mohammed Taraki, had seized power in Kabul in April 1978 and set up a communist government. Taraki was himself murdered by a rival, Hafizulla Amin, in September 1979. But support for the communist regime was shallow – more or less limited to the small, educated sector of a largely illiterate population. Amin’s control rapidly disintegrated. Events in Iran fired up Afghan opposition to the planned reforms – which included secular education and women’s rights. In backward rural areas, tribally run and impenetrable to modernizing forces, religious leaders helped to stir resistance to the ‘infidel’. In near civil-war conditions, and given it had helped to establish a communist regime, the Soviet Union’s leaders considered intervention to restore order. The move was necessary, it was thought, to protect the southern borders of the USSR and to head off any possible internal destabilization as a result of Islamic influence on its own large Muslim population in the Central Asian republics.
In December 1979 the fateful decision was taken to send in troops. Soviet leaders thought the intervention would last a month or so. A cursory reading of history would have told them how easily invaders invariably became trapped in the intractable terrain of Afghanistan, and how they had been repelled for centuries. According to remarks much later by Zbigniew Brzezinski, formerly the hawkish National Security Adviser of President Jimmy Carter, the CIA had been secretly fomenting the opposition since July 1979 in the very hope of inducing the Soviets to get sucked into their own ‘Vietnam’. Precisely that happened. The Soviets found themselves for the next nine years sucked ever deeper into an imbroglio – costly in manpower and resources, increasingly unpopular at home, and unwinnable. At the same time the seeds of later horrors were sown as opposition to Soviet occupation drew in jihadists from Algeria to Pakistan, fighting alongside Afghans as the Mujahideen, largely financed by Saudi Arabia, backed too by economic and military assistance from the CIA.
The United States responded by reheating the Cold War. President Carter ratcheted up the anti-Soviet rhetoric, calling Afghanistan, with notable hyperbole, the greatest threat to peace since the Second World War. A partial embargo was placed on exports to the USSR, including high technology. The SALT II treaty was not ratified. And America boycotted the 1980 Moscow Olympic Games – a largely pointless exercise, except in preventing athletes who had been training for years from experiencing what for many would have been the climax of their careers. Most Western European countries, in fact, ignored the boycott. Nor was the trade embargo an unqualified success. France and West Germany did not impose their own sanctions and indeed benefited from the trade gap left by the Americans. It was nonetheless plain: there was nothing left of détente. The ‘Second Cold War’ had begun.
For the next five years superpower relations worsened. The new American President, Ronald Reagan, a former B-movie actor whose folksy manner combined with firm conservative principles proved a winning formula in the election of 1980 after the widely viewed failure of the Carter presidency, set the tone. He was avidly backed by his most assertive ally, Margaret Thatcher. Part of restoring prestige after the Vietnam debacle was to demonstrate American strength through a readiness to confront the Soviet Union, which by 1983 Reagan was describing as ‘an evil empire’. The nuclear arms race escalated that year. The first Pershing missiles were stationed in Western Europe in November. The Soviets responded by breaking off new negotiations on long-range missiles. Strategic Arms Reduction Talks – START for short – were stopped before any start had taken place. Earlier in the year Reagan had announced a new nuclear programme, the Strategic Defence Initiative (SDI), dubbed ‘Star Wars’ since it aimed at a comprehensive anti-missile defence system located in space. It threatened to tip the nuclear balance decisively in America’s favour. The Soviets did not have the resources to match it. But when they tried to ensure that restrictions on it be included in talks on nuclear arms limitation, the Americans refused. Mutually Assured Destruction (MAD) remained much as it had been. It provided its own perverse brand of security of a sort.
Not that this was how ordinary people saw it. Fear returned. The new Cold War brought new anxieties about a nuclear holocaust. These were not at the same pitch as they had been during the Cuban Missile Crisis of October 1962. They were real and acute nonetheless. Peace movements, particularly in Britain and West Germany, gathered even greater strength than they had possessed in the 1950s. In Britain the Campaign for Nuclear Disarmament (CND), which in 1979 had a membership of only 5,000, grew to twenty times that number by 1985. Women set up a ‘peace camp’ outside the American base at Greenham Common, which became internationally as well as within Britain a symbol of the new movement of protest at the stationing of Pershing and cruise missiles and the intensified threat of a nuclear war in Europe. West Germany, where most of the missiles would be based, was the epicentre of the protest. Two and a half million people signed a petition drawn up in November 1980, the ‘Krefeld Appeal’, that demanded an end to nuclear weapons in Europe. Around 1.3 million took part in October 1983 in demonstrations in German cities against the stationing of the missiles. This went ahead nonetheless with the support of the governments of Helmut Kohl in West Germany and Margaret Thatcher in Britain.
The escalation in the nuclear arms race came at an unimaginable financial cost. The United States, its national debt soaring into the stratosphere, could cope. For the Soviet Union, it was a far more difficult burden to shoulder. It has been estimated that from a Soviet gross domestic product around a sixth as large as that of the United States, some 15–17 per cent was spent on defence, about three times as high as the American proportion. This level of military expenditure could not be sustained indefinitely. The Soviet Union was not on the verge of internal collapse. It could have limped on for years to come, despite an underperforming economy, a geriatric leadership, and serious problems in the satellite countries. But it urgently needed internal reform and restructuring. And it needed visionary leadership to bring that about. It was not easy to see where it would come from.
The Soviet Union went through three seriously infirm leaders within as many years. Leonid Brezhnev had for years been propped up by a diet of sleeping tablets (to which he was addicted), alcohol and cigarettes. After a number of strokes he was barely mobile and noticeably slurred his speech. On his death in November 1982 Yuri Andropov, the former KGB chief, became head of the party, introduced some needed changes, but was too much of a traditionalist to offer hope of fundamental reform. In any case, in poor health from kidney disease he lacked the necessary stamina. He lasted barely more than a year, dying in February 1984. He was replaced as General Secretary by someone older, less competent and even frailer, suffering badly from emphysema. Konstantin Chernenko was plainly a stop-gap, a non-entity backed as party chief by other members of the gerontocracy, keen to hold on to their posts and to head off planned inquiries into corruption. He died on 10 March 1985. There was general agreement in the upper ranks of the party that the much-needed inner renewal and exterior strength of the Soviet Union depended upon a leader who was relatively young, energetic, resourceful and dynamic.
Waiting in the wings was just that man. Mikhail Gorbachev, the unanimous choice of the Politburo as next General Secretary of the Communist Party, was only fifty-four years old – almost a juvenile when compared with the previous three leaders. He had been Andropov’s protégé, and had effectively run affairs while Chernenko had been nominally in charge. Gorbachev was about to step out of the wings and onto centre stage, not just in the Soviet Union but in world affairs.