So why, only six months after winning a difficult election, has this Government slumped so much in public esteem? The chief cause will be seen with hindsight to have been its preoccupation with demonstrating its European credentials, even when this overrode domestic economic necessities. This is the fault of the Government and no one else. There is broad support for the European Community and the single market, seen as the glue that binds all together to maintain peace and democratic freedom. But when Mr Major proclaimed as his motto that Britain is, or wants, to be 'at the heart of Europe', this seemed to convey a loss of self-confidence. Its reiteration was perceived by the public as a commitment, unknown in extent and unnecessary, and it aroused suspicions about the aims of the Maastricht treaty.
The opt-out clauses may well be a diplomatic success. But to the less sophisticated, it looked as though Britain was committed 'to achieve and to establish' the treaty's principal objectives - European monetary union and a European central bank - while reserving the right not to participate. This may have been clever, but it may also have been too clever. For it prompted the questions: what is the Government up to? Can we trust it? Are transient political priorities being allowed to override vital economic policy decisions?
The exchange rate mechanism became a totem, a symbol and a battleground. In 1987/8 the Lawson Treasury shadowed the Deutschmark as proxy to ERM membership. It can be argued that this led to the neglect of monetary control and failure to take timely monetary action to counter rising inflation. The reduction of interest rates in March to May 1988, when they should have been raised in the face of mounting inflation, was a further instance where the sterling-Deutschmark proxy ERM position took precedence over domestic economic necessity. The consequences were much higher inflation (10.9 per cent) and higher interest rates (15 per cent) with deeper and longer recession than necessary.
The second part of the ERM drama was the maintenance of the pound at higher interest rates than were needed for effective monetary policy. Over five years, the domestic value of sterling was eroded by excessive inflation. Our inflation increased by more than 40 per cent against Germany's 15 per cent and France's 18 per cent. This should have required a downward adjustment of the pound by agreed realignment or free floating, meaning exit from the ERM.
It can hardly be doubted that the Major government prolonged the recession and maintained hardships beyond what was needed to demonstrate that it was 'at the heart of Europe'. If the economic course that it had set had continued, we would have been in full-scale depression/slump by the first quarter of 1993 or at best shortly thereafter. The decision to withdraw from the ERM on 16 September - seen at the time as ultimate proof of the Government's incompetence - was in reality the first competent step taken by the Major government and it saved the country from catastrophe.
Was the Prime Minister really prepared to subordinate living standards, employment and recovery to political requirements centred on Europe to gain approval from his European colleagues? There is no precedent for a British government deliberately exposing the whole economy to depression and taking such a disproportionate gamble when alternatives were available and even urged. This was not firmness of purpose but indecisiveness born of elastic pragmatism in pursuit of political illusions.
Withdrawal from the ERM, and a good slice of luck, have combined to give Mr Major and his government an excellent opportunity to stimulate recovery. The floating of the pound provides competitiveness, though it may be seen by Mr Major as a disaster for his European policy. It also brought low interest rates and the freedom to make further reductions, and the possibility of increasing public expenditure with the scope to stimulate investment.
A new competence was forced upon this government on 16 September. But to call that day 'Black Wednesday' suggests that the errors of the past have not been shed, that continuing incompetence threatens. To show competence, convince the markets, engender indispensable confidence and derive benefit from the new favourable constellation, the Government needs to show that it recognises pre-September misjudgements and welcomes, rather than tolerates, the new opportunities. If, in these favourable circumstances, competence is not fully restored, then in Disraeli's words, 'in the midnight of intoxication . . . there will be an awakening of bitterness'.
Edmund Goldberger is a former industrialist and merchant bank director and is now an economic and business consultant.
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