Recalling the disaster of UK's flirtation with joining the euro

When the government did eventually join the ERM, far from preparing the UK for possible Euro entry, it caused a UK boom and bust which was entirely predictable

by Sir John Redwood MP on 17 December 2013 10:24

I do not normally dwell on the past. Last week I was phoned about a couple of memos the press had seen as more documents were released under the 25 year rule. As they are of some long term and even topical interest I will set out some background.

In the middle 1980s I was both Head of the Policy Unit and Economic Adviser to Prime Minister Margaret Thatcher. One of the memos they have found is my note on the state of interest rate and currency management in 1984, when I first detected that the Treasury and Bank were moving away from domestic money supply targeting to trying to manage the value of the pound.

I strongly supported the stated policy of money targets. The Treasury went on to shadow the DM, a policy I thought would prove damaging. When the government did eventually join the ERM, far from preparing the UK for possible Euro entry, it caused a UK boom and bust which was entirely predictable.

The memo was just one of many communications sent to the PM to keep her up to date with these big issues, as we fought to grow the economy after the high deficits and inflationary tendencies of the late 1970s.

During my time at Number 10 the PM did resist any official policy of shadowing the DM or joining the ERM. She did not want to believe at first that Treasury was managing the pound without that being the express policy, and then became worried when the evidence pointed in that direction.

I with others continued to brief her against the ERM right up the time when her colleagues effectively forced her to allow entry. In the later period Nicholas Ridley was the principal opponent of the ERM from within the Cabinet, who constantly made the case. The second memo was a piece about how we were handling the Stock Exchange.

The possibility of an OFT enquiry into the practises of the Exchange furthered the development of thinking in the markets which in due course resulted in Big Bang. I expected Stock Exchange reform to lead to a big expansion of the London markets, with many new entrants and much more capital and talent at work.

I also expected it to mean the financial services and banking industries would break out of the narrow confines of the Square Mile, and help with the task of developing and improving the derelict lands to the East around the old docks. So it proved. It is curious that out of all the memos and briefings I wrote with my Policy Unit team these two should be the ones that excite interest or have survived to see the light of day so far.

The Policy Unit used to brief the PM on most domestic policy issues which crossed her desk. These briefs were welcomed by the PM who found they combined clear summaries of the different positions being taken around Whitehall with suggested ways of reaching a conclusion or an alternative strategy which might be superior.

Most of the memos came back with underlining and notes to show they had been useful. Occasionally, as with the one I wrote that proposed a major privatisation programme for the new Parliament in 1983 it did not get returned because she wanted to keep hold of it. After leaving office she donated it with other papers to the archives at Churchill College Cambridge.

This blog post, reproduced here by kind permission of Mr. Redwood, originally appeared on

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