When bankers and traders arrive for work in the City of London on Monday, they will be greeted by Eurosceptic campaigners wearing straitjackets to celebrate the 10th anniversary of Britain's "escape" from the European exchange rate mechanism (ERM).
Whether people call 16 September 1992 "Black Wednesday" or "White Wednesday", depending on their views on Europe, there is no denying that the turbulent events of that day have cast a long, dark shadow over the Tory party.
Five months after winning a general election that some Tories wish they had lost, John Major's government suffered a nervous breakdown when the pound was ejected from Europe's system of fixed exchange rates. Even raising interest rates to 15 per cent and using up £17bn of currency reserves failed to protect the pound.
The Tories' long-standing reputation as the party of economic competence was blown apart. For millions of ordinary people, Black Wednesday replaced Labour's failure to stop the Winter of Discontent in 1978-79 as the most symbolic political event that had influenced their lives.
Since the ERM exit, Labour has won two landslide general election victories and, apart from a "blip" during the fuel crisis, has been ahead in the polls. Crucially, it has supplanted the Tories as the party most trusted to run the economy. "We are still paying the price," one senior Tory admitted yesterday. "The worry is that we will never recover until Labour makes a catastrophic cock-up with the economy." Some commentators even say that Black Wednesday marked the start of the slow death of the Conservative Party.
The 16 September humiliation was not all that damaged the Tories. The turmoil gave Tory Eurosceptics the muscle to open up a civil war, which destabilised a hapless Major government and rumbles beneath the surface of the party led by Iain Duncan Smith.
Yesterday, he marked his first year as Tory leader with a speech trying to move on to Labour's territory as the party of the welfare state. But, according to some Tories, the party will never mount a sustained fightback until it wins back its economic credibility.
Hywel Williams, a special adviser in the Major administration, said the ERM affair transformed the Tories from a party of government into one of introspection. Commenting on the leader's speech, he said: "I saw the odd sign of a little twitch in the furthest outreaches of what none the less remains a corpse. Corpses can sometimes be induced into a form of resurrection but this is really delusion, I think."
The ERM debacle has created some headaches for Labour too. Sceptics who do not share Tony Blair's desire for a single currency referendum next year are quietly using the anniversary to say Labour must learn from the Tories' mistakes. One ally of the Chancellor, Gordon Brown, who is believed to be less keen on an early referendum, said: "If we rush into the euro, or go in at the wrong rate, we will suffer the same fate as the Tories."
Jim Reynolds, who is organising Monday's celebration in the City for the anti-EU Campaign for an Independent Britain, said: "It is vitally important that people remember what it was like when we were locked into the straitjacket of the ERM, when interest rates went up to 15 per cent, more than a million lost their jobs and thousands lost their homes."
Norman Lamont, who paid the price for the ERM disaster when he was sacked as Chancellor eight months later, was unrepentant yesterday. Now Lord Lamont of Lerwick, he denied Black Wednesday was a national humiliation, pointing out that eight other countries were also forced out of an unsustainable single monetary policy. "Perhaps the most important point about 16 September is that it helped to keep Britain out of the euro," he said.
Britain in Europe, the embryo "yes" campaign for a euro referendum, dismissed as nonsense the Eurosceptics' claim that the single currency would be an "ERM mark two". The group said: "The ERM was a system of managed exchange rates not a currency and inherently vulnerable to attack by speculators. The euro offers protection from currency markets."
WHAT WAS THE ERM?
By Philip Thornton
The ERM (exchange rate mechanism) was – and in theory still is – a means of minimising sharp movements in exchange rates. Created in 1979, it aimed to impose long-term stability that would cut inflation and boost growth. When the pound joined in 1990, it signed up to a tough regime and was unable to fluctuate by more than 6 per cent either side of any one currency. This meant shadowing the dominant German mark.
But 10 years ago, Britain was in the grip of recession. The financial markets quickly spotted that the UK would struggle to maintain an exchange rate so far out of line with its anaemic economy. The Government waded into the foreign exchange markets, using a vast quantity of reserves to buy billions of pounds worth of its own currency. But all was in vain. The Government pulled out of the ERM, floated the pound, slashed rates and watched the currency's value tumble. According to the European Commission, any country wishing to join the euro must join ERM 2 – with currency bands of 15 per cent – for two years.
The Treasury insists the UK will not join the ERM.