A decade on, Black Wednesday still casts its malign shadow over us

Monday 30 December 2013 04:19
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The pro-Europeans in this country got it wrong when Margaret Thatcher was finally forced, the month before she was toppled, to join the European exchange rate mechanism. It was the wrong time to join and the pound joined at the wrong rate. But when it all went belly-up, 10 years ago on Monday, it had unexpected but long-lasting effects on British politics.

That moment, when Chancellor Norman Lamont emerged from the Treasury to announce that the Government had withdrawn from the ERM, seriously damaged the pro-European faction within the party and tipped the party's centre of gravity decisively towards Euroscepticism.

More importantly, it destroyed the Conservative reputation for competent economic management. The party has still not recovered. The paradox was that this helped ensure the election of a pro-European Labour Party five years ago.

Yet the shadow of Black Wednesday – quickly renamed White Wednesday by the prematurely-celebrating sceptics – still casts its malign restraining influence over this Government. Surely it is time for Tony Blair to cast off this unnecessary encumbrance, based as it is on a misreading of history.

Yes, the pro-Europeans got it wrong about the ERM. But the ERM was not simply about support for the emerging programme of monetary union. One of the main reasons for joining was the worry about inflation – an immediate danger after Nigel Lawson's "blip" and the bubble in the housing market.

Mr Lawson was the main driving force behind joining the ERM, although it happened only after he had resigned over the issue. Yet he was always an opponent of monetary union. He wanted a semi-fixed exchange rate because he thought it was the only protection against the endless loop of inflation and devaluation.

That turned out to be misguided, because it took too little account of the different cycles of the British and Continental economies – and the opportunity this would provide for aggressive currency speculation. But the part of the pro-European argument that should have been untouched was the case for monetary union. Inevitably, it, too, was contaminated by the fallout from 16 September 1992, but the perspective of a decade ought now to allow a reappraisal.

The reasons why Britain should adopt the euro are less to do with the control of inflation – independence for the Bank of England has already provided much of the credibility required to reassure the markets about the long term. The reasons are to do with exploiting to the full the stability and efficiency of a single European market – and with the politics and the culture of Britain's leading place in the European Union.

Yet the opponents of Britain adopting the euro continue to rehearse the arguments that are essentially those against the ERM. Mr Lamont this week repeated the tired old complaint about a "one size fits all" interest-rate policy. That is, as he discovered, a fatal problem in a semi-fixed exchange rate system when economies are out of synch. But it is not so serious in a currency union. Britain already has differing economic conditions in the north and south, while in the eurozone Ireland has enjoyed the benefits of low interest rates with few ill effects.

Some degree of economic convergence is obviously desirable, but one of the best ways of ensuring that is for Britain to join – as soon as possible. A decade later, it is time to move out of the shadow of the ERM disaster.

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