Lord Lamont was UK chancellor of the exchequer 1990-93
The euro was doomed from the start
The creation of the euro has been an error of historic dimensions and done great harm to the EU
which in its first 40 years had brought economic prosperity to the citizens of the Continent.
I had the privilege of negotiating Britain’s opt-out from the then new European single currency in 1991.
Norman Lamont, Telegraph 20 June 2015
Even the IMF’s chief economist, Olivier Blanchard, has expressed his dismay at the unreality of the negotiations and called for further debt relief to be a central part of any settlement.
Because of the absence of realistic debt write-off, Greece has had to undergo, to use the official euphemism, the most savage “internal devaluation”.
As a result real GDP in Greece fell by 27 per cent; unemployment reached 28 per cent; wages fell 37 per cent; pensions were reduced by up to 48 per cent; and government employment fell 30 per cent.
Syriza’s rise to power highlights a deeper problem about the EU: the conflict between the inflexible, irreversible rules of the euro and national democracy.
UK and the euro:
Norman Lamont, David Marsh and Charles Kennedy
What was being said in the UK at the birth of the currency, and if the currency can survive
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BBC video 12 juli 2011
DN Special: Kronan hade inte skuggan av en chans
Publicerad 1996-11-01
"The sky is the limit", deklarerar Dennis - det finns ingen gräns för hur högt riksbanken är beredd att sträcka sig. Medan centralbankschefen motar valutaspekulanterna tillbaka över bron med sitt räntevapen för regering och opposition nattliga krissamtal i statsministerns rum. Rödögda och med skrynkliga kläder kommer de ut med ett krispaket i god tid inan penningmarknaden öppnar.
Två gånger upprepas denna politiska bedrift och svenska folket får en uppvisning i trosvisst försvar av kronkursen.
England och Italien väljer en annan väg och ger upp pundets och lirans fasta kurs samma onsdag som den svenska marginalräntan höjs från 75 till 500 procent. En journalist frågar Englands finansminister Norman Lamont om inte Bank of England kunde ha gjort som svenska riksbanken och försvarat valutakursen genom en liknande räntehöjning.
"Yes, but we use common sense" ("Jo, men vi använder sunt förnuft"), blev svaret.
De två krisuppgörelserna i september gör inte det mäkta imponerande intryck på marknaden som riksbank, regering och det största oppositionspartiet (s) vill påskina. Första veckan i oktober fortsätter företag och penningplacerare att sälja kronor. Riksbanken döljer detta genom att köpa kronorna på termin, alltså med överenskommelse om senare leverans. Sådana stödköp behöver inte redovisas förrän tre månader senare. I statistiken ser det därför ut som om det av Bengt Dennis dikterade krispaketet imponerat på marknaden och valuta flödat in. I själva verket är utflödet nästan 20 miljarder kronor.
Riksbankens bluff om att valutaflödet vänt lyckas tillfälligt. Andra veckan i oktober inträder lugnet.
Men det är ett bedrägligt lugn.
I den offentliga debatten är en svensk devalvering en tanke som inte får tänkas, ett ord som inte får sägas, en bokstavskombination som inte får skrivas. I Sverige råder beredskapsanda kring den fasta kronkursen. En svensk tiger. Trots att allt fler svenskar får varsel om uppsägning och konkursansökningarna hopar sig på tingsrätterna vågar så gott som ingen offentligt yppa det mest förbjudna.
Men i avskildhet i handlarrum, banker och i finanschefernas kontorsrum analyserar man läget utan tabun. Under sensommaren och hösten 1992 börjar allt fler företag inse risken.
"Stålbadet i skuldfällan"
Rolf Englund påDN Debatt 26/8 1992
Lord Lamont was UK chancellor of the exchequer 1990-93 and is co-chairman of the Bruges Group
The problem with the EU is that at times its very nature exacerbates internal tensions.
That is why the euro may eventually break up
Norman Lamont, Financial Times, June 22 2005
Nine years ago on a train I had a chance conversation with Tony Blair about Europe. He concluded: “The thing is, you have to get in there, be as constructive as possible, and they will come round to our way of thinking.” I was astonished by this apparent naivety and replied: “I have seen this film before and I know the ending.”
But I want to say that I was wrong. His recent poisonous exchanges with Jacques Chirac may sound like previous British failed attempts at constructive engagement in Europe. But this film is different and has not yet ended.
I have some sympathy with Mr Blair. His experiences remind me strongly of my notorious 1992 meeting with European Union finance ministers in Bath shortly before Britain’s exit from the exchange rate mechanism. The mood was very sour and I, like Mr Blair today, was accused of inflexibility.
It /EMU/ creates incompatible demands from a single institution, the European Central Bank. In a rational world we would not care if the French adopted shorter working hours. Let them do so, then compete, and they will probably end up reforming. Impose reform and you have a crisis.
What now? I have been accused of supporting British withdrawal from the EU, although I never advocated such a course. In the mid-1990s, I said that the EU’s economic advantages were arguable, that Britain had different political aspirations from the rest of the EU and that, unless we resolved these differences, we might one day have to contemplate withdrawal.
The tapestry of Europe’s different nation states requires some over-arching architecture. But we have built the wrong sort of Europe with the wrong sort of institutions. We need to go back to the drawing board.
Believe me, politicians can't control
currencies
By Norman Lamont
Daily Telegraph 2000-09-24
Ten years on and sterling's ejection from the
European exchange rate mechanism
on Black Wednesday still has a surreal
quality about it.
Financial Times
2002-09-13
Picture the scene on September 16 1992. John Major's
senior ministers huddled around a borrowed transistor radio as the hurricane on
the currency markets washed away the government's economic policy and its
political authority.
The Bank of England's Eddie George pacing the prime
minister's temporary offices in Whitehall's Admiralty House, glued to his
pocket Reuters monitor as the Bank emptied it s foreign exchange reserves.
Interest rates raised to a breathtaking 15 per cent.
An ashen-faced
Norman Lamont, bathed in television lights outside the Treasury, announcing,
preposterously, that the government had chosen to suspend sterling from the
ERM......more
Believe me, politicians can't control
currencies
By Norman Lamont
Daily Telegraph 2000-09-24
One of the lessons of currency crises - and I speak from experience - is that the less politicians talk about currencies the better.
American politicians say almost nothing about the dollar, which goes from strength to strength. By contrast, Europe's politicians can't resist the temptation to speak but can't make up their minds whether a weak euro is a good or bad thing. Last week Giuliano Amato, Italy's Prime Minister, claimed the weak euro was making Italian businessmen "very happy".
His words must have made Wim Duisenberg, the embattled president of the European Central Bank, want to tear out some of his ample hair. It is little wonder that the markets are confused. There was a delicious irony in the news on Friday that the US had joined in the co-ordinated international effort to prop up the plunging euro.
When the new currency was launched in January 1999, as the crowds in Brussels drank champagne and waved their euro flags, the world was told that Europe now had a currency "to stare the dollar in the face". Not for the first time there was a hint of anti-Americanism in the euro-rhetoric. Many observers thought there wouldn't be an international attempt to shore up the euro last week because the American government wouldn't want to use American taxpayers' money so recklessly just before a presidential election.
That the US Treasury should act against its own instincts illustrates that the weakness of the euro, in some official minds, is now considered a real threat to international financial stability. The last time the US intervened in the currency markets was in 1998 when the weak Yen threatened both the Japanese banking system and the Chinese currency.
Certainly the fall in the euro was gathering pace. In the last 11 days it touched eight new lows against the dollar as well as establishing lows against the yen and the Swiss franc. The American government was probably influenced by their major exporting companies such as Intel, giving profits warnings and complaining about the weak euro.
Inevitably, people in Britain will compare the European Central Bank's efforts to rescue the euro with Britain's experience on Black Wednesday, an event I remember all too well. But the two situations are different. In 1992, the pound was in a fixed exchange rate system. The Bank of England was not exercising a discretionary judgment as the ECB was doing last week.
On Black Wednesday, we were subject to the rigid rules of a system under which the Bank was automatically obliged to pay holders of sterling with European currencies fixed at pre-determined rates. From my point of view as Chancellor at the time the most frustrating thing about Black Wednesday was that we had no discretion at all.
With hindsight, the whole ERM system was doomed to failure in a modern world of free capital flows. But today the European Central Bank is operating in a world of floating exchange rates, and there is no reason why it should lose reserves on the scale that all the individual national central banks did in the currency crises of both 1992 and 1993.
The experiences of 1992 did not show that Central Bank intervention will always, in every circumstance, fail. In 1985, the so-called "Plaza Accord" between France, Germany, Britain, Japan, and America, which entailed intervention over a period of weeks, did indeed succeed in holding the dollar down against the yen and the Deutschmark.
That was a long time ago, however, and markets have continued to grow. Turnover in the foreign exchange markets is now at least $1,500 billion a day. Even the Federal Reserve cannot go on spending money indefinitely at the rate it did last Friday. Probably the markets will pause after the combined intervention - but not for long.
Occasionally, it is true, central bank intervention has worked when it has forced speculators to unwind highly-borrowed positions. But the weakening of the euro has been a drip drip process. It has taken 20 months for the euro to slide 25 per cent. Unlike the sterling crisis of 1992 speculation has played little part.
In my view, intervention is appropriate only in very, very specific circumstances - and even then the odds are against success. The key is that central bank intervention be in harmony with, rather than hostile to, the economic fundamentals. Frustrated European finance ministers keep repeating that the level of the euro does not reflect the allegedly sound fundamentals in euroland. One is tempted to retort that if the euro is not reflecting fundamentals, it must be reflecting something else - perhaps an absence of belief in the very idea of the euro.
What the finance ministers ignore, moreover, is that Europe's big corporations are exporting capital as eagerly as Russian oligarchs keen to get their money to Switzerland. The euro's weakness reflects a serious flight of capital out of the EU countries which have signed up to it. In the 20 months of the single currency's existence there has been a net outflow from euroland of nearly £200 billion. Even French companies have joined the rush.
Romano Prodi, the President of the European Commission, has foolishly tried to portray the weakness of the euro as somehow the fault of the United States and its "failure" to curb its trade deficit. But the strong dollar and the resulting trade deficit merely reflect the attractiveness of America's "new economy" to investors.
In time the euro will recover. Before then, however, it will receive an equally important vote of no confidence in this week's referendum in Denmark, splendidly if inadvertently timed to coincide with Labour's conference in Brighton. Perhaps the central banks will be very lucky with their timing and catch the turning point. If the euro strengthens, Mr Amato and Gerhard Schröder, the German Chancellor - who have been preaching the benefits of a weak currency - will doubtless start telling us about the benefits of a strong currency.
The truth is that the weakness or strength of the euro is not the most important point, and certainly has little to do with whether Britain should join. What matters is whether the euro really will deliver stability and prosperity to all the euroland countries, and not just to the Franco-German core.
The evidence of what is currently happening in Ireland is that Europe's one-size-fits-all interest rate doesn't work, and is about to create the biggest boom and bust Ireland has ever seen. That is what we ought to be debating. For those in Britain undecided about the euro: watch Ireland, not Denmark.
