This article argues that we cannot explain the UK’s changing stance on European integration without reference to the international monetary strategies pursued by successive British governments. The UK’s European policy after the Second World War can be divided into three distinct phases. Immediately after the War, the UK stood aside when the ECSC and EEC were established in 1952 and in 1958 respectively, since maintenance of both the British Empire and the ‘special relationship’ with the US was regarded as the priority. In the second phase, by making a formal application to the EEC in 1961, the UK turned away from the Empire and drew closer to Europe; by the 1970s, the special relationship appeared to have disappeared. The UK’s entry into the EEC in 1973, however, did not lead to her policy being aligned with that of the other member-states. To this day, the UK remains an awkward partner in the integration project, a fact most clearly evidenced by her opt-out from the single currency, the euro. Moreover, the special relationship with the US appeared to revive once Margaret Thatcher took office in 1979; and all recent British governments, regardless of their political composition, have claimed to serve as a bridge between the US and Europe.
These twists and turns in the UK’s European policy can be at least partly explained by her changing strategy in international monetary affairs. After the War, the British government set out initially to restore the international status of the pound sterling worldwide, a policy that precluded participation in a scheme like the EEC, whose main purpose was trade liberalisation within Europe. Once this strategy ended in failure with the devaluation of the pound in 1967, the British government was faced with a choice. It could, within the framework of European monetary integration, end the reserve currency status of the pound, which was hampering the UK’s economic growth and leaving her financially dependent on the US. If successful, this strategy would have obviated both the legacy of Empire and financial dependence on the US at one go, and made the UK very much a ‘part of Europe’. The alternative was to sustain the international status of the US dollar and American hegemony in international finance by encouraging the development of the so-called Euro-dollar market in London. Both the Heath and Callaghan governments pursued the first strategy in the 1970s, but to no avail, due to a lack of domestic support. The Thatcher government subsequently chose the second route and restored a close partnership with the US; this strategy, however, precluded the UK’s participation in the process of European monetary integration.