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14 This was also in part the result of the war with England.

15 Quoted in Hont, ‘Permanent Crisis of a Divided Mankind’, p. 222.

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36 For a discussion of the importance of this understanding to the initial European integration project see Milward, A., The European Rescue of the Nation State, London, Routledge, 1992 Google Scholar.

37 Moggridge (ed.), Collected Writings of Keynes Vol. XXV, pp. 178–179.

38 ibid., p. 149.

39 ibid., p. 11.

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40 Moggridge, (ed.) Collected Writings of Keynes Vol. XXV, p. 149. Keynes’s thinking on these lines began for different reasons in the early 1930s. Despairing of international solutions to that economic crisis, he urged Britain to remain as free as possible of interference from economic changes elsewhere, ‘in order to make our own favourite experiments towards the ideal social republic of the future’. Keynes, J., ‘National Self-Sufficiency’, Yale Review, Vol. 22, No. 4, 06 1933, p. 769 Google Scholar. For a discussion of Keynes’s intellectual analysis of capital controls see Crony, J., ‘On Keynes and Capital Flight’, Journal of Economic Literature, Vol. 21, 03 1983, pp. 59–65 Google Scholar.

41 For a discussion of the Bretton Woods negotiations see Gardner, R, Sterling-Dollar Diplomacy in Current Perspective: The Origins and Prospects of Our International Order, New York, Columbia University Press, 1980.Google Scholar

42 See Milward, A., The Reconstruction of Western Europe 1945–1952, London, Methuen, 1984 Google Scholar.

43 In 1950 the Organization for European Economic Cooperation established a European Payments Union to manage the problem of short-term current account imbalances so that, within certain limits, automatic lines of credit were granted by surplus to debtor states. For discussion see Kaplan, J. and Scheiminger, G., The European Payments Union: Financial Diplomacy in the 1950s, Oxford, Clarendon Press, 1989.Google Scholar

44 Britain was the one advanced industrial economy in which the problems of exchange rate management still exerted a considerable constraint on expansion. As successive British governments continued to allow the free flow of capital within the former sterling area and maintained an extensive array of overseas commitments, financed in dollars, they found it difficult to maintain the sterling parity without recourse to frequent, if moderate, deflation. Whilst the policies pursued did not compromise the ability of British politicians to deliver on the welfare state, the stop-go cycle which dominated British economic policy in the 1950s and the 1960s ensured that the British economy grew less rapidly than those of other West European states.

45 Milward, European Rescue of the Nation-State, p. 21.

46 For a discussion of post-war taxation in its historical context see Steinmo, S., Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern State, London, Yale University Press, 1993 Google Scholar.

47 For a discussion of the growth of the welfare state during this period see Pierson, C., Beyond the Welfare State?: The New Political Economy of Welfare Policy, Cambridge, Polity, 1991 Google Scholar, Ch. 4; Flora, P. and Heidenheimer, A. (eds), The Development of Welfare States in Europe and America, London, Transaction, 1981 Google Scholar.

48 C. Pierson, Beyond the Welfare State?, p. 131.

49 Different states used capital controls to different degrees and for different purposes. In Europe, West Germany, Switzerland and Austria deployed controls more infrequently than other states, and then usually just to control capital inflows. For further discussion see Helleiner, E., States and the Re-Emergence of Global Finance: From Bretton Woods to the 1990s, Ithaca, Cornell University Press, 1994 Google Scholar.

50 For a general discussion of the post-war nation-state in Europe in regard to economic performance see Milward, European Rescue of the Nation State, Ch. 2.

51 For a discussion of the end of Bretton Woods see Gowa, J., Closing the Gold Window: Domestic Politics and the End of Bretton Woods, Ithaca, Cornell University Press, 1983 Google Scholar.

52 See Helleiner, States and the Re-Emergence of Global Finance.

53 For discussion of the inability of Japan and West Germany to persuade the United States to cooperate in this regard see Helleiner, ibid.

54 For an extended argument of the thesis that capital liberalization was a process driven by particular states, not markets and technology, see Helleiner, ibid. For the counter view see Edwards, S. (ed.), Capital Controls, Exchange Rates and Monetary Policy in the World Economy, Cambridge, Cambridge University Press, 1995 CrossRefGoogle Scholar

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56 For a discussion of the dilemma see Helleiner, States and the Re-Emergence of Global Finance.

57 For further discussion see: Helleiner, ibid.; Goodman, J., ‘The Obsolescence of Capital Controls?: Economic Management in an Age of Global Markets,’World Politics, Vol. 46, 10 1993, pp. 50–82 CrossRefGoogle Scholar; and Schmiegelow, M. (ed.), Japan’s Response to Crisis and Change in the World Economy, Armank, NY, M. E. Sharpe, 1986 Google Scholar.

58 Blöndal, G., Fiscal Policy in the Smaller Industrial Countries 1972–1982, Washington, DC, IMF, 1986, pp. 14, 36Google Scholar. For a general discussion of the impact of the 1970s crisis on Scandinavian welfare states see Marklund, S., Paradise Lost?: The Nordic Welfare States and the Recession 1975–1985, Lund, Arkiv Forlag, 1988 Google Scholar.

59 For a discussion of the development of American international economic policy from Kennedy to early Reagan see Calleo, D., The Imperious Economy, Cambridge, Mass., Harvard University Press, 1982 Google Scholar.

60 For a discussion of the French socialist experiment see Ross, G., Hoffman, S. and Malzacher, S., The Mitterrand Experiment: Continuity and Change in Modern France, Cambridge, Polity, 1987 Google Scholar; P. Hall, Governing the Economy: The Politics of State Intervention in Britain and France, Cambridge, Polity, 1986.

61 See Thompson, H., The British Conservative Government and the European Exchange Rate Mechanism 1979–1994, London, Pinter, 1996 Google Scholar.

62 The Italian government, however, found life outside the ERM a rather more costly affair. See Gilibert, P., ‘Living Dangerously: The Lira and the Pound in a Floating World’ in Steinherr, A. (ed.), Thirty Years of European Monetary Integration: From the Werner Plan to EMU, Harlow, Longman, 1994 Google Scholar.

63 This is not to suggest that long-term credibility does not matter in itself. For example, the foreign exchange markets did not turn against the German Social Democratic governments in the 1970s. But I do want to argue that in states which have since the early 1970s lacked long-term credibility, social democratic governments are significantly more vulnerable to capital flight than centre-right and rightist governments.

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66 For discussion of the politics of Plaza and Louvre see Funabashi, Y., Managing the Dollar: From the Plaza to the Louvre, 2nd ed., Washington, DC, Institute for International Economics, 1989 Google Scholar.

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68 See Funabashi, Managing the Dollar.

69 There can be very little doubt that during the 1980s the ERM states benefited in monetary terms from fixing their currencies. For most of the decade Britain ended up paying an interest rate premium over most of the ERM states both in nominal and real terms because the Thatcher governments more often than not lacked counterinf lationary credibility in the foreign exchange markets. Despite its relatively poor inflation performance since the 1970s, Italy, for instance, from 1985 enjoyed lower interest rates for a given rate of inflation than did Britain. See Thompson, British Conservative Government and the European Exchange Rate Mechanism.

70 The French government turned to the single currency project after it had been thwarted first in its efforts to reform the ERM to make the burden of adjustment more equitable – the Basle-Nybourg Reforms – and then to use the Franco-German Economic Council, created in 1987, to reduce the power of the Bundesbank. Defeated in finding a bilateral solution, the French turned to the Community. See Dyson, K., Elusive Union: The Process of Economic and Monetary Union in Europe, Harlow, Longman, 1994 Google Scholar; Kennedy, E., The Bundesbank: Germany’s Central Bank in the International Monetary System, London, Pinter, 1994 Google Scholar.

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72 In the French case some reform of the welfare state was inevitable, given that otherwise the social security system would ultimately go bankrupt. But the absolute urgency with which Chirac and Juppé grasped the nettle must be explained by the Maastricht convergence criteria.

73 Financial Times, 10 May 1996.

74 Financial Times, 12 September 1995; Financial Times, 11 November 1995.

75 The Economist, 9 December 1995, p. 21.

76 Financial Times, 11 September 1996.

77 For a discussion of citizens’ enduring expectations of the welfare state see Clarke, H. et al., ‘The Political Economy of Attitudes Towards Polity and Society in Western European Democracies’, journal of Politics, Vol. 55, No. 4, 11 1993, pp. 98–109 Google Scholar.

78 How far this is a viable practical option is a matter of some dispute. For a defence of the view from within the international financial circle itself that it is both possible and desirable see Soros, G., The Alchemy of Finance: Reading the Mind of the Market, New York, John Wiley & Sons, 1994 Google Scholar; Soros, G. with Wien, B. and Koenen, K., Soros on Soros: Staying Ahead of the Curve, New York, John Wiley & Sons, 1995 Google Scholar.