Letter: Let's be honest about the economics of trade

Sir: Alan Walters has always been right about the EMS. It was, and is, too weak. With a free market in goods, services and, finally, capital, each country defending its exchange rate out of its own currency reserves, the countries in deficit were vulnerable to the loss of half their reserves before breakfast at the touch of a thousand electronic buttons.

There are only two answers: Sir Alan's is to float the currency; the European Union's is to form a currency union that is too strong for the speculators. But we, of all people, should know the cost of floating. We have lost nine-tenths of the value of our currency since the pound floated, and until we fixed the pound in the ERM, inadequate as it was, the assumption in wage bargaining was that we were a chronically inflationary economy.

Since we fixed, we have had the lowest rate of inflation for decades, despite our exit from the ERM and a devaluation, which has raised the costs of imports. But the potential for inflation has not gone away.

What is Sir Alan's message to the Ford Motor Company, now faced once more with a double-digit claim? And why should the Chancellor not try to keep the exchange rate stable and inflationary expectations low? Nationalism has a high economic price.

Yours sincerely,

Fred Catherwood

Balsham, Cambridgeshire

30 October