Black Wednesday revisited

Asked what the lessons of Britain’s brief and ignominious membership of the Exchange Rate Mechanism meant for the euro, he stuck very much to official line, explaining to the assembled journalists – not for the first time – that the euro was an issue that would be judged on its own merits and would be done so against the Treasury’s five economic tests.

Even though it was the tenth anniversary to the day that a punch-drunk Norman Lamont announced on the steps of Number 11 that Britain had withdrawn from the ERM, the PM’s man would not, he insisted, act as a commentator in relation to Black Wednesday. And with that questioning moved back to more current business.

You only need look at how politicians, regulators and business people reacted to last week’s anniversary to see how heavily the events of a decade ago continue to prey on the mind of UK plc. And if we were not already engaged in a phoney war with Iraq, it would have garnered more column inches than it did.

Whatever protestations interested parties might make to the contrary, the question of whether or not Britain should join the euro will not just be determined by whether Gordon Brown is able to tick his five boxes.

It will be as much about whether we as a country can finally consign the bitter and costly experience of the ERM debacle to the dustbin of history.

So as the British Chamber of Commerce announced it would undertake a major piece of research gauging its members’ views on the euro, the ‘no’ and ‘yes’ campaign groups released pamphlets that – they each argued – proved the case for and against membership of the single currency.

The BCC poll, to be carried out in November, will play no small part in the debate. It will ‘determine whether businesses in the UK have the information they need in order to take advantage of the commercial opportunities or face the competitive challenges that the introduction of the euro as a foreign currency brings’.

But – in as much as these things ever are – it will be one of the few impartial and objective contributions to the debate.

Others see the ERM experience very differently. Latching on to the anniversary, the Federation of Small Businesses reminded the government about the effect of the ERM on small businesses and to restate its view that the UK should stay loyal to the pound and stay out of the euro. ‘We believe it is crucial to remind the present government of the dire effects of the ERM days had on the UK economy ten years ago,’ said FSB policy chairman John Walker. ‘In the euro, the straightjacket would be even worse.’

A pamphlet produced by Business for Sterling, part of the ‘no’ campaign, argued the pursuit of stable exchange rates within Euroland helped to upset the stability of the British economy, explaining – for good measure – why Britain’s other exchange rate regimes over the last century have also failed.

The pamphlet argued membership of the ERM aggravated and prolonged Britain’s worst post-war recession. ‘The need to defend the value of the pound meant interest rates were raised in the trough of a recession, increasing job losses, bankruptcies and the number of homes in negative equity,’ it thundered.

But the events of 16 September 1992 could not have been interpreted more differently elsewhere. In its new pamphlet, Taking a Pounding, Britain in Europe argued the euro was the answer to the problems of the ERM not a replication of them. ‘The volatility of sterling against our largest trading partners has been a key problem for the British economy over many years,’ the group said, arguing that fixed rate regimes are doomed as they can be destroyed by the power of speculators. The euro, it insisted, cannot.

Writing in the pamphlet, former Conservative chancellor Lord Howe warmed to the theme. ‘The decision to join the ERM was too much driven by political considerations and too little on an assessment of the economic factors,’ he wrote. ‘The process of deliberation on which the Treasury is currently engaged should ensure that Britain joins when the time is right.’

For now the government is playing a straight bat.

‘In principle, the government is in favour of UK membership of EMU; in practice, the economic conditions must be right,’ argues the DTI.

‘The determining factor underpinning any government decision on membership of the single currency is the national economic interest and whether the economic case for joining is clear and unambiguous.

‘On the basis of the assessment, the government will take a decision on whether the five tests have been met. If it recommends UK entry, it will be put to a vote in parliament and then to a referendum of the British people. Government, parliament and the people must all agree.’

If the referendum results in a ‘yes’ vote, it is likely to take more than three years for the euro to be introduced and sterling consigned to history. If nothing else, the euro debate needs a referendum sooner rather than later. l

  • To see the two camps’ views go to and

  • The Treasury’s Euro Preparations Unit has produced a self-test euro thermometer for business at

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