CITY AND SUBURBAN
We have had no end of a lesson, and we're not too late to learn it
CHRISTOPHER FILDES
Crafty old Francois Mitterrand knew how to run a referendum. Kenneth Clarke and John Major should have taken lessons from him. All those boxes stuffed with 'Our votes for the Maastricht treaty, mysteriously arriving in the nick of time from distant polling stations on Reunion and Martinique — these were just enough to swing it for the President and to rescue European monetary union for another day. My advice to the French people was straightforward — Votez non, votez souvent — and I must say that if they had taken it they would have saved themselves and all the rest of us a lot of trouble. Mr Major's ministers might even be united in looking forward to the next elec- tion. As things worked out they got the worst of all worlds. They hitched the pound to the mark by way of the exchange rate mechanism, they bought the idea that this was a first step towards monetary union, they accepted a recession as the price they had to pay, but as soon as France showed signs of having second thoughts their policy collapsed and sterling with it. More wound- ing still, from the day of that disaster onwards, the economy never looked back. Now here they are again, mesmerised by Europe's latest monetary experiment, not sure if they can afford either to go in or to stay out, resolved only to get round the next corner and now hitting or splitting on the notion of a referendum. This would be a suitable moment for them to review what happened in the last experiment, or even to agree that it went wrong. They could take their text from Kipling:
Let us admit it freely, as a business people should - We have had no end of a lesson: it will do us no end of good.
What correctness costs
NOW they have a primer. Philip Stephens's Politics and the Pound (Macmillan, £20) takes them through the story from the day we went in and the stock market cheered, to the day we crashed out and made the mar- ket even happier. On that Wednesday the Bank of England sent every penny of the reserves over the top to certain death. These Passchendaele tactics were dictated by the Treasury, which took them from the Foreign Office, which insisted that we must observe the proprieties, which meant that nothing could be done until Sir Nigel Wicks could traipse across to Brussels and get his fellow monetary bureaucrats to ratify our exit. Courtesy costs nothing, but this cor- rectness cost us something like £4 billion. All that sticky summer, ministers found themselves in a deepening hole and could think of nothing to do but keep digging. The pound was under pressure in the ERM, and the rulebook answer was to put up interest rates — but how could they, when borrowers were going bust all round them and the lenders themselves, the banks and building societies, looked none too safe? So instead the then Chancellor pledged himself to maintain sterling's parity beyond a scintilla of doubt, and the Prime Minister in the most ostentatious manner put his shirt on it. Then the market raised the stakes and called their bluff. They lost, but neither of them paid, or not on the nail.
Blushing pink
THEY had surfed in on a wave of enthusi- asm. Mr Stephens quotes a prescient man- darin: 'Everyone agrees. So we must be wrong.' Not everyone agreed, if I may so remind Mr Stephens — but it was the bien pensant cause of the day. (He spares his own paper's blush-pink embarrassment.) The pri- macy of politics, he says, obscured the reality of economics. I would rather say that the British establishment had suffered one of its failures of nerve and had reached, as it does at such times, for an instant remedy. We were not very good at managing our affairs — the economy had overheated and infla- tion had taken off again — and here was something that would do it for us. It would provide what we needed: a discipline. Just so, said a City dissident, might a fat broker take up squash, hoping to get fit unless his heart gave out first. So monetary policy was handed over to the Germans, in the unreal belief that they would run it to suit us. When Britain joined the ERM, I wrote in this column that it could do nothing for us that we could not, if we chose, do for ourselves. No more could the single currency. If we want sound and stable money, the remedy, as the Governor of the Bank of England has reminded us, is in our own hands. That was and is no end of a lesson, it could do us no end of good and we have paid enough to learn it.
Encore, encore
I CAN hardly believe that Arnold Wein- stock is retiring. In fact, I don't. After all those years as managing director of the Gen- eral Electric Company, he is to be honorary chairman emeritus, of all things. The non- honorary chairman is a front-man from the world of politics, which is how Lord Wein- stock always liked to play it. He remains the biggest individual shareholder and will come in to the office every day. The most durable opponent on the battleground of British business has merely shifted his ground.
Where ignorance is bliss
THE Securities and Futures Authority has a funny way of protecting investors. It cleared Peter Baring and Andrew Tuckey, his mayor of the palace, from responsibility for the collapse of Barings — they did not know what was happening. On the same day the SFA rebuked a City firm for pass- ing on information about prices to its cus- tomers. I like the verdict of John Rathbone, the consultant: 'So far as the SFA is con- cerned, ensuring that borrowers have up- to-date knowledge of market pricing is harmful, while running a company so incompetently that the bondholders forfeit all their investment is no problem at all.'
Soak the rich
MILK is everywhere — milk on my cuffs, on my shirt, on my tie, white blobs sprayed across the carpet like a Milky Way. I have been trying to open a carton, with the usual result. What annoys me even more than my soaking is that these cartons have made the brothers who supply them fabulously rich. One of them has just sold out to the other for the thick end of £3 billion. How rich would they be if they made something that worked?
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