At the same time, the increasingly fevered speculation by the markets against the Spanish peseta forced Felipe Gonzalez into his third devaluation since Black Wednesday - a humiliation that may finally cost him re-election.
Spain joins Italy, Britain, Portugal and the others in the second rank. Whatever the outcome of Tuesday's second Danish vote on Maastricht, we now have a two-speed Europe. If the Danes vote yes, they can rejoin the core. If they vote no, they will spin into the penumbra.
You have to admire the sheer persistence of the French, whose franc fort strategy is now coming to fruition. Through long years of pain, they have steadily driven their inflation rate below that of Germany. This was gradually rewarded by a steady erosion of the gap between French and German interest rates until last autumn. The markets came to recognise that the franc would not be devalued, and so did not insist on a risk premium to hold francs compared with marks.
Then the shock of German reunification and high interest rates, and the first Danish referendum, undermined the credibility of the exchange rate mechanism, culminating in Black Wednesday. Still the French persisted even at the cost of interest rates at 15 per cent. Last week, they were rewarded again with the markets' confidence that there would be no franc devaluation. There is now scarcely a sliver between German and French interest rates.
The French have paid dearly for this obsession with monetary astringency. France's unemployment rate is high, reflecting the years of squeeze on the economy. It is not obvious that it would be worth setting out on such a strategy knowing the full consequences. But it would equally be madness now for the French to abandon the franc fort.
As my fraternal columnist Gavyn Davies argued in the Independent on Monday, France's low inflation rate compared with Germany's means that it is steadily gaining in price competitiveness. It has achieved a real devaluation against Germany of about 6 per cent since 1987 without any nominal devaluation. Too often, British devaluationists fail to make this crucial distinction. We need a 'more competitive pound' and low inflation if the gain in competitiveness is to stick.
The main motive for the franc fort has been political. It is another staging post in the trek to monetary union with Germany, the culmination of the process which began in 1954 with the European Coal and Steel Community. France is binding the leviathan of Germany so close that it will never again have an independent capacity for war. If that seems far-fetched, just listen to some of the unfriendly things that France's pro-Europeans said about Germany before their Maastricht referendum.
For the French, the next game is whether franc interest rates can go below German ones. That is one of the reasons behind last week's plans to accelerate the independence of the Banque de France, which would provide a useful model for a similar reform of the Bank of England. Despite the welter of back-tracking about central bank independence since Black Wednesday on this side of the Channel, there are clear advantages to the policy. It is likely to lock in France's low inflation, and may also help to stabilise French output and employment.
My third chart shows the relationship between central bank independence and low inflation. Politicians have many objectives, not least of them re-election. Central bankers aiming at price stability are much less likely to succumb to temptation. If the public then believes that inflation will stay down, it becomes easier for policy-makers to use fiscal policy to stabilise output and jobs. Central bank independence should deliver both low inflation and a better functioning real economy.
Even Treasury officials do not contest that countries with independent central banks tend to have low inflation. They merely seek to argue that the causality is the other way round: countries that care about low inflation achieve it, and also make their central banks independent. What is important, on this argument, is changing the culture.
This is surely flawed. A Bank of England with exactly the same legal status as the Bundesbank would no doubt deliver a higher inflation rate than its German colleagues. We are, after all, British. But this is a false point, because the alternative to the Bank of England is not the German Bundesbank but a British politician. An independent Bank of England would deliver a lower inflation rate than any series of Chancellors of the Exchequer. Institutions matter. They can give backbone to what are otherwise merely vague wishes.
Nor do I have to sign up fully to the fraying Eighties' consensus that there is no long-term trade-off between output or jobs and inflation to back an independent central bank. There are clear costs to disinflation which can be long term: look at the consequences of the disastrous overvaluation of sterling between 1979 and 1981 for our balance of payments, investment and long-term unemployment.
But these arguments surely mean that it is all the more desirable, since inflation has once again been conquered at considerable sacrifice, to drive a stake through its heart.
If there were some inflationary shock to the world economy, an independent Bank of England should be gradualist in reducing price rises again. But it is likely we would survive such a shock more successfully with an independent central bank that had built up a credible anti-inflationary track record. Germany, after all, suffered far more modest output and job losses than Britain in both the 1973 and 1979 oil shocks.
The option of merely accepting a higher (and perhaps stable) rate of inflation falls at two hurdles. The first is that inflation has real costs, despite the failure of the econometricians to find them. When even a financially sophisticated company such as Hanson applies a 20 per cent target rate of return regardless of whether the inflation rate is 3 per cent or 20 per cent, it ill behoves economists to overestimate the capacity of business to handle inflation's ramifications.
The second point is that a high and apparently stable rate of inflation has an agonising habit of turning into an accelerating one. Little shocks to import prices or wage demands can mount up. All the great recessions have been a response to inflations, and our present one is no exception. If Nigel Lawson had not been so cocky about maintaining 5 per cent inflation, we might never have had the boom or the bust.
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