Varoufakis and Lamont interviewed on Radio 4 on their peculiar political friendship
Further to this piece on my unlikely friendship with Lord Lamont, the BBC’s Radio 4 interviewed us, together. To hear the interview, on World At One, click on the play button below.
2 Comments
Reblogged this on Oikonomika Blog.
A nice interview but…
Today’s media deliberately avoids connecting the information “dots” and we should wonder why.
Here the above friendship is presented in terms of right vs left in a context of historical amnesia.
To anyone over 50 the alliance between these two is obvious. Here are 2 economist/Finance ministers who, 20 years apart,
stood up for their countries against the EU in order to protect their respective economies from poorly designed [as ever!] EU economic ‘zones’ that were politically rather than economically driven. In Lord Lamont’s case when he took the UK abruptly out of ERM, a forerunner of the Eurozone, and oversaw Britain’s opt-out from the Eurozone.
From wikipedia: https://en.wikipedia.org/wiki/Norman_Lamont
Negotiating the Maastricht Treaty
On succeeding Thatcher, the Major government had to decide its position on the negotiations on European Economic and Monetary Union (EMU) which would lead to the Maastricht Treaty. It had been Thatcher’s opposition to EMU which triggered the end of her premiership. Like Thatcher, Lamont was a long-standing opponent of EMU and the European single currency. In his memoirs, Lamont wrote that he was “horrified” when Ted Heath in 1972 announced Britain that it was accepting the Werner Plan for monetary union.[22] Newly appointed as Chancellor, Lamont therefore supported John Major’s idea of Britain negotiating an opt-out from the single currency. Negotiations on the economic aspects of the proposed treaty began in earnest at the end of 1990 with monthly meetings of European finance ministers. At an Intergovernmental Conference held in Rome on 15 December 1990, Lamont declared, “I remain unconvinced that the potential benefits of a single currency are as great as its supporters allege.”[23]
In a minute to the Cabinet’s Defence and Overseas Policy committee the following month, Lamont set out his three objectives for the negotiations: first, to ensure Britain didn’t have to join the single currency; second, to ensure the opt-out was legally water-tight; and third, to ensure that during the period in the run-up to the single currency, there should be no binding obligations on Britain.[23] In meeting the third of these, Lamont had to overcome the resistance of the prime minister and the foreign secretary, Douglas Hurd, who told Lamont: “I can’t see what you are so worked up about. We are in the ERM. What difference does it make if it is in the Treaty?”[24] Lamont decided to ignore their objections. At the next negotiating meeting on the treaty, he told his fellow European finance ministers that Britain would not accept membership of the ERM as a treaty obligation. As a result, the meeting agreed to remove it.
Lamont decided that the best way of securing the first two of his negotiating objectives was for Britain to draw up a protocol listing those parts of the treaty from which Britain would be exempted. When Wim Kok, the Dutch finance minister chairing the finance ministers’ negotiations at Maastricht decided that the meeting should review the British opt-out line-by-line, Lamont said the text was not negotiable. After Kok persevered, Lamont walked out of the meeting. In his absence, the protocol was endorsed without amendment.[25]
Chancellor of the Exchequer: ERM exit
Within the constraints of the ERM, sterling interest rates were cut seven times in 1991, falling from 14% to 10.5% in September, with inflation halving from 9.0% to 4.5% over the course of the year, leaving real interest rates just 0.5% lower.[16] The scope for swifter cuts in interest rates was squeezed by an event that few had anticipated when Britain joined the ERM: based on OECD indices of consumer prices, inflation in Germany, which had been 2.7% in 1990, rose to 5.1% in 1992, whilst in Britain inflation fell from 7.0% to 4.3%.[26] In response, the Bundesbank increased its discount rate from 6.0% in 1990 to 8.75% in July 1992, creating the conditions for the turbulence the ERM was to experience later that autumn.[27] Because of rising German rates, Lamont was only able to cut interest rates by a further 0.5% to 10% in May 1992, when UK conditions would arguably have warranted deeper cuts.
Despite the Conservatives’ surprise victory in the April 1992 general election, for these reasons, the ERM policy proved increasingly unsustainable and collapsed on Black Wednesday, when Lamont was forced to withdraw the pound from the ERM despite assuring the public that he would not do so just a week earlier. He faced fierce criticism at the time for his apparent insouciance in the face of the collapse of the stated central plank of his economic policy. Later that month, at a press conference in the garden of the British embassy in Washington, DC in response to a question as to why he appeared so cheerful, Lamont commented that it was a beautiful morning, adding, “My wife said she heard me singing in the bath this morning,” a response which led to the story that he was singing in the bath with happiness at leaving the ERM.[28] After Major left office and published his memoirs, Lamont publicly denied Major’s version of events, claiming that Major had effectively opted out of his responsibilities and left Lamont to carry the can for that day’s actions. On the evening of Black Wednesday and for days after, Major contemplated resigning, drafting a statement to that effect, but wrote Lamont a note instructing him not to resign.[29]
Major’s verdict on the ERM was that it was the medicine that cured Britain of inflation; “it hurt but it worked.”[30] Speaking a few days after Black Wednesday, the Governor of the Bank of England, Robin Leigh-Pemberton, argued that “the decision to join the ERM two years ago in the circumstances; that, having joined, we were right to endeavour to stick it out; and that, in the circumstances which evolved, we were right to withdraw.”[31] Lamont’s view expressed in his memoirs was more nuanced: without the discipline of the ERM, the Major government would have given up on the fight against inflation before Black Wednesday; ERM membership delivered a sharp break in Britain’s inflation performance; the judgment of the markets that the higher rates needed to maintain Britain’s membership was undoubtedly correct; “the ERM was a tool that broke in my hands when it had accomplished all that it could usefully do.”[32]