Since Britain joined the ERM in October 1990, 1.1 million people have lost their jobs, at least 30,000 businesses have failed and some 140,000 homes have been repossessed. Not all these, or even most, can be attributed directly to ERM membership at too high an exchange rate. The main cause of the recession - and of the national pain - was another Tory error: the Lawson boom. But, if interest rates had been lowered more quickly, many business people and homeowners would not have been strangled by the costs of servicing their debts. They were told that the high interest rates were necessary to protect Britain's position within the ERM and that this, in turn, would provide the counter-inflationary discipline vital to our long-term future. 'That,' Norman Lamont said on 10 July this year, 'is the only secure route to healthy economic growth and permanently lower unemployment.' In other words, take the pills now, tolerate the side-effects and, eventually, you will be restored to rude health. The objection to this remedy was not so much Keynes's famous observation that in the long run we are all dead; rather, it was that, as month succeeded month in the longest post-War recession, many of us were dead in the short run. On Wednesday, when interest rates soared 5 per cent in two stages, the medicine threatened to kill off whole swathes of the British economy between breakfast and lunchtime. By afternoon tea, the London Evening Standard, acting as Tory mouthpiece, was preparing us for 'the new Battle for Britain'. Mr Major believed, it proclaimed in a leading article, that this was as important as 1940: 'The battle may be long and bloody, but it is a battle which really must be won.' By dinnertime, the Spitfires had been grounded. The homeless, the bankrupt and the jobless were told, in effect, that their sacrifices had been in vain. By suppertime, Tory functionaries - taking the electors, as always, for fools - were arguing that suspension of ERM membership was merely a technical hitch, as though Mr Major and Mr Lamont were jobbing carpenters who had put up a shelf slightly out of true.
So who was to blame? Governments in trouble invariably turn first to sinister external forces: the 'bankers' ramp' in 1931, the 'gnomes of Zurich' in 1967, devious and underhand Germans, talking down sterling, in 1992. But many in Britain may prefer to thank the Bundesbank for sabotaging an economic policy that had so devastated the country. In any case, it was the British Government that decided to hitch its fortunes to the German economy, holding up its leaders as models of prudence.
And this brings us to the heart of the thing. The man who took us into the ERM at what has proved too high an exchange rate (DM 2.95) was not the present Chancellor (at the time, Mr Lamont was more sceptical than most) but his predecessor, John Major. And, ever since, Mr Major has affirmed, in ringing tones, his commitment to that exchange rate. 'The soft option, the devaluer's option, the inflationary option, would be a betrayal of our future,' he said in Glasgow only 10 days ago. Sometimes it has been hard to define John Major's political philosophy. But one thing we knew: he believed passionately in the ERM and in sterling's position within it. If, as the Prime Minister said, it is a cold world outside the ERM, that is an uncomfortable place for a man stripped of his political clothing.
After the Suez fiasco, Anthony Eden limped on for a few more months, before, pleading ill-health, he brought his political career to a peaceful close. Unless he finds new clothes quickly - and admits, with as much honesty as a politician can muster, that his past policies were mistaken - a similar fate could befall John Major.Reuse content