The bigwigs were wrong about the euro. They’re wrong about leaving the EU, too

    5 March 2016

    From the Times, June 2003: ‘Senior ministers to lead push for euro.’ From the Financial Times of 4 January 2016: ‘Economists say remaining in the EU is vital for UK’s future prosperity.’ From the FT, 23 January: ‘300 senior lawyers push for Britain to stay in Europe.’ The FT, 25 January: ‘Leaving EU would damage UK’s global influence, says big pharma.’ Oh, and not forgetting that old favourite: ‘Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.’ That was a letter from 364 economists to the Times, criticising the Thatcher government in March 1981.

    Do you see a common thread here? When those with power and influence on a big question agree, when the consensus is overwhelmingly one way, then watch out. That famous letter rang the bell for the start of the British economy’s recovery from the miseries of the 1970s, with Geoffrey Howe’s budgets laying the foundation for a decade of growth. Unfortunately, Britain then joined the Exchange Rate Mechanism, that precursor to the euro, because we were told by clever people it would make our economy more like Germany’s. The price of supporting an unsupportable exchange rate was the ruinous cost of money, culminating in the farce of raising Bank Rate twice in a single day, to 15 per cent. And the result of the Bank of England’s attempts to bolster the pound was a massive transfer of wealth to the billionaire speculator George Soros.

    Less remarked at the time was the fact that thousands of companies suddenly became competitive, while individuals made profits from holding dollars and boosted the recovery when they spent their gains. Some time later, a woman thanked me for buying her greenhouse after she took my advice in the Daily Telegraph before the ERM exit to buy dollars at two to the pound. Neither of us believed the government’s oft-repeated pledge to hold the exchange rate. After the devaluation the economy rebounded, allowing Gordon Brown to claim with a straight face eight years later that he had abolished boom and bust.

    When Tony Blair was desperate for us to join the euro, putting Britain ‘at the heart of Europe’ was the achingly fashionable thing to do. If we failed to grasp the opportunity, sterling would be left like a cork bobbing between the waves of two mega-currencies. Fortunately, Ed Balls dreamed up five tests for joining, none of which Blair understood but which he could not easily brush aside. Politicians and ‘opinion-formers’ argued that Frankfurt would overtake London as Europe’s financial centre if we failed to join (honestly, they did). Some wag pointed out that there was no nightlife in Frankfurt on Thursdays, because that’s when she visited her mother.

    Now we have the referendum on Brexit ahead of us. It’s a truism to say that nobody has much clue about what would happen if we vote to leave, least of all the Governor of the Bank of England (whose forecasting record is hardly impressive) with his dire warnings of financial instability, capital flight and higher interest rates.

    The stayers’ case boils down to ‘Always keep a-hold of nurse for fear of finding something worse’. They are, by and large, the sort of agreeable, liberal people who urged us to ease off on Geoffrey Howe’s austerity, thought the pain of the ERM worthwhile and advocated the single currency for Britain. They are also, if you like, the great and the good: the Davos elite of bankers, inter-national corporate chiefs and europhiles for whom the status quo is just fine, thanks.

    The leavers seem a more disparate bunch, from pull-up-the-drawbridge Little Englanders to those who, more in sorrow than anger, see the EU as irretrievably broken, and so far from its free-trade-zone origins as to be unrecognisable. Ah, yes, trade. This is supposed to be clincher for the stayers. But Michael Burrage, for the moderately sceptical Civitas think tank, is not so sure: ‘The main aim of governments has been to ensure that membership of the EU is seen as a prized asset… this has resulted in a mis-selling of the trade benefits of the single market comparable in some respects to the mis-selling of payment protection insurance… with far more serious consequences.’

    The great and the good do not always know best, especially when they agree with each other. Instinct is often as good a guide on big questions as painstaking analysis. And the most basic question in this debate remains: Who’s in charge? Those running the EU mean well (we hope) but they are effectively unaccountable. British democracy is defective in many ways — it’s more an elected dictatorship — but its most potent symbol is not some grand building with flags outside. It’s the removal van outside 10 Downing Streeet the day after a general election.