Ten years on, Black Wednesday haunts euro campaigners

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.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: ICT Infrastructure Manager

£27000 - £30000 per annum: Recruitment Genius: This Edinburgh city centre scho...

Recruitment Genius: Massage Therapist / Sports Therapist / Physio / Osteopath

£12000 - £24000 per annum: Recruitment Genius: An opportunity has arisen for o...

Recruitment Genius: Account Manager / Sales Executive - Contract Hire

£35000 - £60000 per annum: Recruitment Genius: This industry leader provides c...

Recruitment Genius: Project Coordinator

£28000 - £30000 per annum: Recruitment Genius: A Project Coordinator is requir...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most