For months, ministers were resolute. Britain, they insisted, must remain aligned to the rest of Europe. It would spell ruin if we were to simply leave, they said. And they kept on saying that, until the day we actually left.
I refer not to what might happen in a few weeks’ time when Britain is scheduled to leave the EU, with or without a withdrawal agreement, but to the UK’s departure from the European Exchange Rate Mechanism (ERM) almost thirty years ago.
Then, as now, we were told that crashing out would have calamitous consequences. Unless our exchange rate with the rest of Europe was managed, it would ruin the economy, they insisted. The then Prime Minister, John Major, popped up – much as he does today – to warn that we could not manage on the outside.
Of course, we now know Britain did depart from the ERM. It was all very unplanned. And for many people trying to run businesses or pay a mortgage, wildly fluctuating exchange rates and interest rates at the time, did have consequences.
But far from spelling economic disaster, leaving the ERM marked a key moment in Britain’s economic recovery. Output rose. Unemployment fell. Trade increased and living standards improved.
I do not claim that our unmanaged departure from the EU in a few weeks would be as straightforward as exiting the ERM. Forty years of entanglement with the EU as a supranational rule-making body means there will be all kinds of collateral complications. The ERM was, after all, merely a means of price fixing, which could be stopped fairly simply.
No, my point is a broader one about how – especially when it comes to Europe policy – those that govern us can end up doing the right thing by accident, rather than design.
Almost as soon as sterling crashed out of the ERM, politicians, pundits and officials who had spent years insisting that we peg our currency to that of our EU trade partners appeared to forget that that had been their previous position. When the Bank of England – emulating an idea from the Reserve Bank of New Zealand – moved to a system of inflation targeting, the great and the good convinced themselves (and occasionally their biographers) that this idea had been their intention all along.
Politicians would like us to imagine that they arrive at their various policy positions through careful deliberation. As the ERM experience shows, they can end up in the right place by accident Might we be about to see something similar happen?
