Letter: Even worse is to come until Britain learns to copy Europe's formula for success

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The Independent Online
Sir: The Bundesbank is less to blame for last week's virtual collapse of the ERM than is the German government, in pursuing a policy of unification it could not afford. The fault lines condemned by John Major reflect above all the inflationary pressures arising from capital inflows for a move which the people of Germany have appeared disinclined to finance alone.

But this dangerous clash of priorities bears no comparison to the shambles of British monetary and foreign policy. How could Norman Lamont suppose that a Bundesbank constitutionally independent of its own government would succumb to the entreaties for lower interest rates from a foreign chancellor, who had declined its sound advice of devaluation - soon to be forced upon him anyway - after a loss to the Exchequer of at least pounds 1bn.

For attempting to sustain the value of sterling by squandering its currency reserves, and for altering the base rate four times in less than 24 hours, the Governor of the Bank of England should resign without delay. The only measure in Tuesday's and Wednesday's frenzied descent towards devaluation that could have staunched the flood was a colossal hike in overnight and short-term rates to penal levels which would wipe out the expected gain.

Over the medium term, if central banks are to survive at all against determined foreign exchange dealers, such speculative waves must be brought under control. Nothing makes the need for an eventual single European currency, and the case against British isolationism, more stark.

Mr Lamont should not resign just yet, as in the public interest he ought to absorb the contempt that will otherwise descend on Mr Major and the whole Conservative government for their collective

ineptitude. Since his fainthearted entry into the Common Market, and with the disgrace of its policy towards Bosnia now compounded by the ignominy of retreat from the ERM, the irresolute standing of Britain in Europe and the world has never been lower.

Yours faithfully,

ROBERT WOKLER

Cambridge

21 September

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