Leading Article: Come clean on the ERM

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THERE continues to be a large hole in the heart of the Government's European policy. It concerns not so much the Maastricht treaty as the return of the pound to the exchange rate mechanism. Where the treaty is concerned, John Major seems to be sincere in his commitment to proceed with Parliament's ratification, though with several provisos. The Danes must show how they can be brought back on board; and there is likely to be a demand from the British as well as the Danes for the principle of subsidiarity to be fleshed out.

On sterling's re-entry to the ERM there has been no sign of similar determination, and no clear lead from the Prime Minister. The most enduring impression has been left by Norman Lamont, the Chancellor of the Exchequer. It is that Britain can now once again have an economic policy with Union Jacks stamped all over it; and that sterling will not re-enter the ERM until a series of more or less unrealistic conditions have been met. Mr Major has constantly referred to the need for 'fault lines' in the ERM to be repaired. There was nothing in his speech to the Commons last Thursday to suggest that he had a coherent policy for re-entry. From the Continent the response has been that the fault lines lie in Britain's handling of the sterling crisis, not in the ERM; and that existing members, not the British, will set the conditions for sterling's return.

To talk of ratifying Maastricht without a convincing commitment to rejoin the ERM suggests bad faith. The ERM is the essential precursor of economic and monetary union, and the treaty is above all a commitment to EMU - though Britain has made its decision on the final phase, involving a single currency, dependent on Parliament's approval. Even if it is not legally necessary for the pound to be in the ERM when ratifying Maastricht, to move to Stage II of monetary union in 1994, as the treaty anticipates, without that discipline would be very difficult. The Government must resolve its internal contradictions and agree a clear line before Mr Major presides over the special EC summit meeting in Birmingham on 16 October.

From that he must emerge with fully agreed conditions for re-entry, duly approved and supported by the Bundesbank: one of the mistakes made when Britain first joined the ERM two years ago was simply to announce the level of the pound against the mark, without it being approved by those who might have to support it.

In the interim Mr Major should tell Conservative MPs some unpleasant truths about today's constraints on British economic and monetary sovereignty. To undeceive Europhobes, who live in a world of their own imagination, will not be easy. They seem to think Britain is a large enough economic entity to behave like the United States or Japan. They should know better.

Where does that leave Mr Lamont? His commitment to the ERM was never as personal as Mr Major's: he seems to be a genuine sceptic. Hence his ability to move from the pain and disappointments of Black Wednesday and its aftermath to apparent chirpiness. Yet however much he may sing in his bath, his credibility with the public, never high, has been seriously damaged. He has now embarked with evident relish on the task of recreating traditional policies (that is, ones likely to fail) with scarcely a backward glance.

Mr Lamont is thereby sending out a message that the Government has significantly changed its economic strategy. If it has, Mr Major should say so. If it has not, Mr Lamont must be obliged to change his tune. Such a move would not be popular with those within the party who remain viscerally hostile to EMU in any shape or form, and who seem now to regard Mr Lamont as a torch-bearer. But without it, neither Mr Major's economic nor his European policy will make any sense.