John Major, Norman Lamont and myself were wrong about the ERMby Samuel Brittan / December 20, 1999 / Leave a comment
16th september 1992-the date Britain was ignominiously forced out of the European Exchange Rate Mechanism-is etched into the memory of the economic policy-making class. The government tried to pretend that nothing much had happened-except the exposure of mythical “structural faults” in the ERM. And few members of the public were turned on by the esoteric arguments about monetary regimes. Even among businessmen, the day was remembered mostly for the shock when interest rates were briefly raised to 15 per cent in an attempt to stop the rout. Nevertheless, the main pillar of economic policy had collapsed; and a sense of this did percolate through to the electorate. It could never be glad confident morning again for John Major’s government.
The ERM story is one of the main points of overlap between the John Major and Norman Lamont books, which are otherwise quite different. Lamont’s is an insider’s story of some crucial years in economic policy. Major’s is a much more extensive personal and political autobiography.
Lamont is convincing that he was the first to realise that Britain might have to leave the ERM. Major’s efforts were devoted to a series of sad notes to Helmut Kohl, pleading with him to lean on the Bundesbank to change policy to help Britain. Kohl was out of his depth and not even sympathetic.
The speeches of the prime minister and his chancellor before 16th September went much further than the ritual “no devaluation” protestations required by a fixed exchange rate regime. It is normal in such circumstances for the chancellor to resign, if only to take another post. But in this case the ERM policy was first and foremost Major’s. As he remarked when Lamont offered to resign, his chancellor was his “lightning conductor.” When Lamont had served that purpose, and the press turned him into a scapegoat for slow economic recovery, he was sacked. If the chancellor had gone in September 1992, the prime minister might have had to go, too; and the reputation of both men would now be higher.
No one comes out of this episode with credit. Ministers such as Kenneth Clarke and Michael Heseltine were called in on the fatal day by Major to protect his flank. They just added to the reserve loss by insisting on holding out a few hours longer out of misplaced European sentiment.
But why did Major make the original decisions to…