Britain’s Currency Crisis: A Case of Deja Vu or Sign of a Failed State?
A tale of stupidity, incompetence and amnesia.
It was George Santayana who said that “ those who cannot learn from history are doomed to repeat it”
And I cannot think of anything more apt in describing Britain’s current economic crisis.
For those who have long memories or some knowledge of British politics, they will remember that John Major was Chancellor of Exchequer from October 1989 till November 1990 when Margaret Thatcher was kicked out of the leadership of the Conservative party by those who were pro-European.
What was interesting about Major’s time as Britain’s CFO was that it was on his watch that the United Kingdom joined the exchange rate mechanism — the ERM.
The ERM meant to be the precursor to joining the Euro, which entailed shadowing the Deutsche Mark, the German currency.
No sooner had this decision been taken than Major became Prime Minister.
This meant that it fell to Norman Lamont, his successor at the treasury to deal with the direct consequences of pegging our currency to the largest economy on the continent.
Early 90s Britain was a very tough place.
Not too dissimilar to what we are currently facing.
We were neck deep in a recession. Lots of people were losing their homes, because of their inability to keep up with mortgage payments.
The conundrum for Major’s government was to raise interest rates and wipe out the British public or beg their German counterparts to lower their interest rates, which would help Britain remain in the exchange rate mechanism and save face.
But by mid September 1992, it became clear that the United Kingdom could no longer remain in the ERM and it had to raise interest rates as it was seriously hemorrhaging huge sums backing its currency.
While this was going on the piranhas across the pond had taken notice.
These piranhas forced the almighty bank of England into taking a position that cost the British tax payer billions of pounds.