The rancor over Britain’s forced exit from the European Exchange Rate Mechanism a decade ago may have subsided. But its economic relationship with the Continent hasn’t lost potency as political fodder.
Last month, at a London School of Economics conference to mark the anniversary of Britain’s ejection from the ERM, former Bundesbank chief Helmut Schlesinger, whose hard-line stance contributed to the pound’s devaluation in 1992, and Norman Lamont, whose handling of the crisis cost him his job as chancellor of the Exchequer, exchanged pleasantries and respectful comments -- if not genuine warmth. Now retired, Schlesinger apologized for what he said was an inaccurate report at the time that he favored devaluation of the pound. And Lord Lamont, as he is known today, credited the ERM with having broken British inflation during the country’s two-year membership.
The day’s most noteworthy comments, however, may have come from Bank for International Settlements chief Andrew Crockett, who in 1992 headed the Bank of England’s international department. Crockett contended that the devaluation resulted from Germany’s postunification economic boom, which required the Bundesbank to set rates too high for its European partners to support. Such economic shocks are hard to envision today, he said, adding that the European Central Bank’s monetary policy “will tend to harmonize the business cycle’’ across the euro area and help to prevent such disruptions.
On the shortlist of candidates to succeed Sir Eddie George at the Bank of England, Crockett was clearly establishing himself as the pro-euro choice if Gordon Brown and Tony Blair decide to push for the U.K. to join the euro zone. Stay tuned.
