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ALTIF transcripts: Remembering Black Wednesday Part One (Sir Paul Tucker, Jonathan Portes, and Duncan Weldon.)

On 16 September 1992, after an “extremely difficult and turbulent day”, sterling was driven out of the Exchange Rate Mechanism, shattering the central economic policy of John Major’s government and arguably setting Britain on a path to the fringes of, and ultimately the exit from, the European Union. In the first of a three-part series, Neil and Jonathan look back on the run up to the crisis with Jonathan Portes, Sir Paul Tucker, both of whom had ringside seats in the Treasury and Bank of England respectively, and economic historian Duncan Weldon.

Presented by Jonathan Ford and Neil Collins.

With Sir Paul Tucker, Jonathan Portes, and Duncan Weldon.

Produced and edited by Nick Hilton for Podot.

Additional editing by Ewan Cameron.

Hosted on Acast. See acast.com/privacy for more information.

Jonathan Ford 00:06

Hello, and welcome to a long time in finance with Jonathan Ford and Neil Collins, in partnership with briefcase dot news, the service that brings intelligent curation and analysis to your media monitoring.

Announcement 00:22

Today has been an extremely difficult and turbulent day, massive speculative flows have continued to disrupt the functioning Exchange Rate Mechanism. As Chairman…

Jonathan Ford 00:33
That was Norman Lamont, speaking on the steps of the Treasury on the 16th of September 1992

Neil Collins 00:41
30 years ago

Jonathan Ford 00:42

You remember that?

Neil Collins 00:43

I’m afraid I do

Jonathan Ford 00:50

Black Wednesday!

Neil Collins 00:52

Vivid clarity and was an extraordinary day it was

Jonathan Ford 00:54

Britain, having spent whatever it was two years in the Exchange Rate Mechanism of the European Economic Community, I suppose it was then or the community… crashes out. The main policy of its government in absolute ruins. Everyone is wondering what will happen next, will the Prime Minister have to resign? Basically, it’s a huge historical event.

Announcement 01:13

With colleagues tomorrow, and may make further statements then. But until then, I have nothing further to say thank you very much.

Neil Collins 01:20

And it echoes down the decades, it’s extraordinary the impact that it has had. And you could argue that it was really the last straw for a big chunk of the Conservative Party, which sealed their antipathy towards Europe generally, and eventually led us to leave the European Union.

Jonathan Ford 01:41

Lots to talk about. There’s a new departure for a long time in finance, we’re going to not just do this in one episode, we’re going to do three episodes, looking at the background to black Wednesday, the day itself, and the aftermath. What comes next? Well, we might as well just get stuck in!

Neil Collins 02:01

Yeah, the background is that the UK economy has always, I mean for many, many decades been hugely prone to inflation. And in the 1970s, it really got completely out of hand. And we had inflation, which peaked over 25% at one point, and the conservatives under Margaret Thatcher came in determined to do something about it. But they didn’t really know what to do. And they tried all sorts of things.

Jonathan Ford 02:33

So we go back to the right to the beginning of the 70s. We are in in a post war monetary arrangement known as Bretton Woods, which links the pound to what’s called an anchor, which was in that case, the value of gold through the American dollar. But the Americans break that system up, they’ve had enough of it. So as you say, we spend the 70s, with the pound just floating, lots of inflation, terrible time. So we end up with very high real interest rates and a very high pound, partly because North Sea oil comes on stream in the early 80s, the oil price is very high, the pound shoots up and most of British Industry pretty much turns its face to the wall and dies at that point. And you have 3 million unemployed, which is the highest level since the 1930s and causes enormous conniptions in not just the Labour Party, but the Conservative Party, which is very split on whether this is a good idea. But by the mid-80s, it seems to have worked and inflation has been reduced.

Neil Collins 03:32
Yes, I wouldn’t say it’s been eliminated. It’s been sort of tamed. But it’s still a problem.

Jonathan Ford 03:40

The government starts to cautiously try to speed up the rate of economic growth, they say, well, let’s have a bit of a boom. And Nigel Lawson, who was the chancellor at the time cuts taxes, he reforms them, interest rates come down. And of course, the oil price is falling in the mid-80s. So the economy picks up quite sharply. But the problem is, inflation immediately starts to rear its ugly head again. And this is the point I think when the government starts to think about or certainly Lawson starts to think about whether there is a new monetary anchor, which he can use to try and bring down inflation without having a rerun of the early 1980s. And the way he thinks about trying to do this is to initially do what’s called shadow the Deutsche Mark. So effectively, he starts to move interest rates in order to preserve the pounds value against the Deutsche Mark. And that then leads on to the Exchange Rate Mechanism. And maybe it’s worth just saying at this point. What was the ERM exactly?

Neil Collins 04:46
The Exchange Rate Mechanism was a system whereby the currencies of Europe could move within a very narrow band against the Deutsche Mark.

Jonathan Ford 04:57
So it was designed to sort of smooth out fluctuations, limit fluctuations between them.

Neil Collins 05:02
Yes, and also to ensure that there was responsible monetary behaviour in some of the Southern European countries which had been prone to inflation, similar sorts of problems to the UK.

Jonathan Ford 05:15

And the other thing, of course, is that the ERM’s anchor, the anchor within the system, is the German currency, the Mark. And Germany is almost unique at this point in having an independent central bank. So the central bank runs its own affairs. And basically, it has this fantastic sort of credibility because German inflation during the 70s, which was a terrible time, it’s been pretty low. And they seemed to be pretty rigorous.

Neil Collins 05:42
I think that the Bundesbank was set up with very strong independence because of the hyperinflation in Germany which was well in living memory at the time.

Jonathan Ford 05:56
What, in the 1920s? What, in your living memory?

Neil Collins 05:57
Yes. Well… I think you’ll find you’re almost, but I think that was the reason why it was set up in that way.

Jonathan Ford 06:08

Yes. Okay. So you talked about the currencies or the countries of southern Europe, which had bad inflation, they did join when it was created in 1979, I think, but Britain did not. Britain said we don’t want to be in the ERM, we were quite happy to carry on floating. I think it’s certainly true to say that Mrs. Thatcher was extremely sceptical about the idea of tying the pound to other countries.

Neil Collins 06:33
I think there was a sort of more visceral underlying reason that she didn’t like the idea of being beholden to the Germans.

Jonathan Ford 06:40

Right? She didn’t want other countries setting British interest rates. Thankfully, back to the late 80s. Basically, Nigel Lawson is shadowing the Deutsche Bank. Mrs. Thatcher is still very much around, although, at this stage becoming a little less popular with not only the public but with her own party. And there are a series of wars over European policy. And in particular, whether we should go into the Exchange Rate Mechanism as a way of solving this problem of Britain’s recurrent inflation. They sort of go on for quite a long time, don’t they?

Neil Collins 07:17
There was, there was a lot of this. Yes.

Jonathan Ford 07:21

So as you now, we talked to Paul Tucker, who was the governor of the Bank of England’s Private Secretary, was very close to these events, about the whole question of why the ERM became such a sort of touchstone. Here, he’s going to explain why he thinks the government changed its mind in the late 80s, or at least the bits of the government that was the Prime Minister, Mrs. Thatcher changed its mind and became very open to the idea of this radical move of basically allowing the Germans as you say, to set our interest rates.

Paul Tucker 07:55

The decision to join the ERM was very interesting and almost a case study in how government can sometimes work. It was a decision taken, in a way in desperation. You’re making this podcast during a period where there’s lots of debate about UK macro economic policy, and a number of times people refer back to how Margaret Thatcher was committed to sound money. And I think the truth is that Margaret Thatcher would like to have been committed to sound money, but could never actually stick to sound money. And the consequence of this during the 1980s, was that Treasury-led monetary policy in Downing Street and monetary policy jumped around from 1979 from relying on one monetary target, and then another monetary target, a couple of monetary targets together, and then an abandonment of monetary targets. And then, oh my goodness, we still haven’t gotten inflation under control. It didn’t get much below 5% and then started rising again, we’ll have to hitch ourselves to those Germans, to the Bundesbank. And a piece missing was that as the 1980s progressed, then Chancellor Nigel Lawson was promoting the idea of angling independence to then Prime Minister, Prime Minister. And she wasn’t having it. When I was governor, as private secretary, at the Bank of England to Robin de Pemberton. At one point, Alex Allen, who was principal private Chancellor phoned and read for me only the notes he had taken out of a meeting between Lawson and Thatcher, where Lawson set up a case for Bank of England independence, and she wasn’t having it. And there was nothing left. Treasury trying out intermediate targets of various degrees of complexity and opacity hadn’t worked. And therefore it was if we are actually going to conquer inflation, and if we can’t trust the politicians to do that, and if we’re not prepared to give it to the Bank of England, well, then we better hitch ourselves to the Bundesbank, I think it was a decision take them out of despair.

Jonathan Ford 10:07

It’s worth noting from what he says, you know how radical this suggestion is because, as you’ve said, the Bundesbank is an independent central bank. Britain has this tradition that it’s politicians who set interest rates, they decide when to move the rate at the Bank of England.

Neil Collins 10:24

Which at the time seemed a sort of natural order of things. And I don’t think that the expression, an independent Bank of England, appears anywhere in any sort of commentary at the time, because I don’t think it was really ever suggested, until very close to the departure from the ERM

Jonathan Ford 10:45

When Nigel Lawson is still he’s still Chancellor, he’s trying to persuade Mrs Thatcher of the idea of joining the ERM. He basically says, we could make Bank of England independent, and she says over my dead body or something on those…. So it is considered very, very briefly, but I think the real point about the radical nature of this policy is everyone apart from Mrs. Thatcher at this stage in the late 80s, seems to be in favour of moving from a situation where they control interest rates to not only a situation where they’ve handed that power over to somebody else, but they’ve handed it to an independent central bank, the Bundesbank. That is a massive shift! And you sort of wonder whether they really understood exactly how radical a change it would be to the way that the economy was run.

Neil Collins 11:33

I don’t think they understood this at all. There are two things that you can do, you can control your own interest rates, or you can control your currency. But you cannot do both. And that is a sort of a central tenet of economics, which I don’t think that the cabinet at the time, really understood.

Jonathan Ford 11:55

Late 1980s. There’s a huge series of battles. They’re not just about the ERM, they’re about other things, which Mrs. Thatcher is doing. She’s become quite unpopular with the public. And she is at war with her Chancellor of the Exchequer, which is never a good look in the British system. And in October 1989, frustrated by the fact he cannot persuade Mrs. Thatcher and he feels that she is undermining his economic policy. Nigel Lawson resigns. And Mrs. Thatcher promote a little-known cabinet misery weirdly, as foreign secretary at that stage, but this still little known called John Major,

Neil Collins 12:32

Little known then and now.

Jonathan Ford:

John Major becomes Chancellor, the Exchequer.

Neil Collins 12:36
And he is mad keen on the ERM. And joining it.

Jonathan Ford 12:40

Well, you see, I’m interested in John Major, because I think… my theory is that John Major basically comes in, he’s very ambitious, and he decides his signature economic policy, this time when inflation is running up, and there’s a general malaise , is to solve this problem and then bring Britain into the ERM. And Mrs. Thatcher is obviously weakening by the hour because she’s become much, much more unpopular and the Conservative Party has become dubious about whether she should lead them into the next election. He in the end, sells the ERM quite effectively to her as a way to relaunch her premiership and show that she is prepared to listen to the rest of the cabinet and she’s actually a wise leader. This great achievement takes place on October the third 1990. They do it the next morning, and there’s no discussion with the Europeans. They’re just told that Britain is now joining the ERM at the rate of the day, which is 2 Deutschmarks, 95.

Neil Collins 13:41
When you think about it, it is absolutely bizarre way of taking these important decisions.

Jonathan Ford 13:46

So two things around that. So there’s some surprise in Europe, Britain joined, its just announced it’s basically joining at this central rate of 295, which is seen as quite a demanding rate for Sterling to live with. A lot of Europeans said, well we’re a bit surprised. You know, John Major’s has called us up. And when we said, well, do you want to negotiate the rate? He said, certainly not. It’s already done. What do you think of that? What do you think, we missed a trick ?

Neil Collins 14:09

I think we certainly missed a trick with hindsight, but at the time, it was an ideological decision. In a way, it was vindicated very soon afterwards, because Major won the next election. So it looked like a great triumph at the time.

Jonathan Ford 14:25
The other thing, of course, about that particular day, the third of October, was that it was a big day in Germany.

Neil Collins 14:32
Oh, yes, no longer two Germanies.

Jonathan Ford 14:35
So Germany re-unifies the day Britain decides to join the Exchange Rate Mechanism. And basically, of course, that comes to play an important role in the whole story.

Neil Collins 14:47

I think I’d say that was a central role in the whole story, because the price of unification with East Germany was parity with the Deutsche Mark. And in order to stop inflation running way at this takeover, which was clearly at the wrong price at the time, the Bundesbank put up interest rates.

Jonathan Ford 15:06
We also talked to Paul Tucker about unification and what it meant for the German economy. And this is basically what he had to say about that.

Paul Tucker 15:14

German unification had a profound effect, not just on where the UK ended up, but the whole of continental Europe. The response was a vast amount of public spending in the eastern parts of the unified Germany to improve its infrastructure. And it was remarkable. I accompanied the governor very shortly afterwards, and motorways had been built where there hadn’t been motorways, all sorts of things. And of course, this was an injection of demand into the economy, the Deutsche Mark needed to appreciate, in real terms, in order to keep the German economy in imbalance. But the best way of doing that as well, the simplest way of doing that would have been for Germany, to revalue within the ERM against everybody else, everybody else. And they weren’t having that. But they had to get their real appreciation. And the only way they could do that was to have, for Germany to have higher inflation than all of the other members of the ERM.

Jonathan Ford 16:12

So here we are Britain’s now in the ERM. And almost immediately afterwards, despite the fact she’s tried to show how broad-minded she is, Mrs. Thatcher falls anyway. Who succeeds her? Well, it’s John Major. And so it’s all panned out pretty well for him. And he goes round at this stage. Because in the early days, the ERM looks as if we’ve managed to pull off this miracle, we’ve kind of got the credibility of the Bundesbank, so we don’t have to raise interest rates that much, and inflation is sort of not going up anymore. So Major goes around make giving lots of speeches saying clever old me was my idea. Remember whose name was over the door, the ERM, which of course, in the long run comes to be a bit more of a problem from his perspective.

Neil Collins 16:56
Bit of an albatross in the end.

Jonathan Ford 17:00

But as we discussed earlier, there’s sort of behind the scenes, there is something profound going on, which is that we’ve outsourced our interest rates. And basically, the government, which has historically taken the decision is no longer in control. There’s a real doubt about whether anyone really understands what that means.

Neil Collins 17:18

No, I don’t think they did for a minute. They thought that just tying Sterling to the Deutsche Mark, the credibility of the Deutsche Mark would rub off on Sterling and everything will be fine. Yeah.

Jonathan Ford 17:30

And then we had a chat with Paul Tucker. And, and this is what he had to say about that side of it.

Paul Tucker 17:35

After the UK entered the ERM. There was a kind of debate partly played out in public about what this meant. And the governor gave a speech saying; this is a discipline, which will mean maintaining the peg over domestic monetary conditions. And he explained how that would kind of wage setting and price setting and the FT ran a leader which of course, I haven’t seen for over 30 years, which said the governor of the Bank is the only person that’s spelling it out. The reason that mattered is that as time went on, it became apparent that in both the Treasury and number 10, I suspect but certainly in the Treasury, and in much of the bank, people wanted their cake and eat it. They wanted to be in the ERM but they still wants to run domestic monetary policy.

Jonathan Ford 18:20
Its a bit like you wanted to have their cake and eat it

Neil Collins 18:24
Yes. An early example of cakeism.

Jonathan Ford 18:27

Which always ends well I find. But Germany is absorbing the effects of reunification and the Bundesbank does when it sees inflation in Germany starting to rise does exactly what it’s always been designed to do. It starts to raise interest rates, just as the UK is sliding into recession. And it has to raise its own rates despite the fact that the economy is tailing off very quickly. And basically that means the recession deepens. One of the things which is new about this recession is basically it comes about because one of Mrs. Thatcher’s revolutions in the 1980s is to expand homeownership. And there are millions of people who are owning their first home, which they’ve taken on mortgages. And the fact that you have these big sort of expansion of the mortgage market, lots more people have borrowed lots more money, it turns house prices into an incredibly toxic issue and this sort of concept of negative equity. So we talked to an economic historian Duncan Weldon about this and he explained why, basically, the recession of the early 90s become such a worry if you like, to the government and chancellors, because they have these millions of people who are suddenly facing hardship.

Duncan Weldon 19:43

Really on the back of things like Right to Buy for council houses in the 1980s hugely expands homeownership in Britain. The banks really moving into the mortgage market alongside the building societies, much more mortgaged country, British households are much more exposed to changes in income fast rates by the late 80s, the early 90s, than they really have been in the past. You know, as recently as the 1960s. You know, changes in interest rates don’t make a huge difference to many households, because having a mortgage being a homeowner is still sort of, you know, not where most people are. So rising homeownership, more exposure to interest rates. So the moment you start to see interest rates going up really 1991, 1992, onwards, you start to see this immediate hit to household incomes. And then you start to see house prices fall materially. And yeah, that’s when we start hearing about negative equity in Britain as a big thing for really the first real time it’s a major issue.

Neil Collins 20:39

What Major thought was the acid test was the result of the election in 92. Rather against many people’s expectations. He won it. Yeah, which must have cemented his view that he was right about the ERM.

Jonathan Ford 20:57
And not only is the election victory, a big thing, but of course, in the manifesto, which the Conservatives put out, they made a big thing about their fight against inflation. So it contained quote, such as membership of the ERM is now central to our counter inflation discipline, and also pledged to move the UK to a narrower band, so the pound would only be allowed to fluctuate, I think it was 6% were the bands when we joined in 1990 – I think they were gonna go to 2%. So it was going to be incredibly tightly pegged to this very aggressive central point of entry.

Neil Collins 21:35
I think it was hubristic.

Jonathan Ford 21:36
Do you think they just thought it was over? We got through all this?

Neil Collins 21:39
Yes, I think I think they did. And they’d just been vindicated by the election result.

Jonathan Ford 21:44

Well, actually, they were completely wrong. Because immediately after the election, things start going seriously wrong. Britain is hoping to bring down interest rates, because the recession is over, as you say, Major has won his election, he can hopefully bask in a recovery, but the Germans carry on raising interest rates in the summer of 1992. They put them up to almost 10%. When they raise interest rates in the summer of 1992. Sterling starts to come under a lot of pressure. I suppose we ought to say a bit about the Chancellor of the Exchequer and John Major, who is this thinker from a sort of Greek tragedy, Norman Lamont.

Neil Collins 22:24

From the Shetlands…

Jonathan Ford 22:27

He’s got these tremendous black eyebrows and white hair, so he looks a bit like a badger. Anyway, so he’s in this weird position. Basically, he’s not really a true believer in the ERM policy. He thinks it’s a bit mad. But basically, he’s taken this job as Chancellor under John Major’s of course who’s mad keen on…because it’s his great idea, the ERM, and he has to defend it publicly. And as the summer of 1992 wears on, he starts to realise a) this policy is one he doesn’t believe in – two, it’s basically going to hell in a handcart. He’s like a kind of frog trapped in a cauldron and the cauldron is heating up. Yeah, unlike the normal frog, this frog knows it’s gonna get boiled and is a bit sad about it. So he, he kind of the frog inquires where there are ways in which you can exit the cauldron. And then in the summer of 92, he asked his private office for a secret paper. So we talked to Jonathan Cortez, who was in the private offices of Norman Lamont, and he explained how he was asked, along with Jeremy Hayward later, the cabinet secretary, they were asked to come up with suggestions of what the UK should, what the government should do if the ERM continued to be such a complete nightmare.

Jonathan Cortez 23:43

Jeremy Hayward, and I wrote him a note saying; this isn’t working, we need to get out. How do we do that? Probably the only option available is a significant devaluation within the ERM, we need to cut interest rates. So we need to, we would need to devalue sufficiently that the pound would be a stable at a level of interest rates that was consistent with, which was appropriate given British domestic economic conditions were, at that time we were in a recession. So that probably meant quite a significant devaluation. And we probably need to widen the ERM bands as well. So we wrote him a note saying, look, you know, if you want an escape route, you need to be thinking about something along these lines. We didn’t do quite this quite behind the back of the permanent secretary, Terry Burns. You know, I think Jeremy told Terry, this was going on, but this was clearly not sort of official Treasury advice, because Terry certainly didn’t want anything on paper. You know, it wasn’t our job.

Jonathan Ford 24:48

So basically what Norman Lamont is told by Cortez and Jeremy Heywood is, this is going to end badly. And basically, he reads this and then he comes back and this is Jonathan Portes, talking about what Norman Lamont says

Jonathan Portes 24:55

After we delivered this note, Norman came to us and said, I’ve read this, I agree with the analysis. I just can’t do it politically. And given where the Prime Minister is, we have to stick with the current policy. And my job was a speech writer. And he said, I want to go and make a speech, pitting my colours to the mast effectively, even though I don’t believe it, making the best case that we can possibly make for the ERM. So I wrote a speech, which I think was given in about June of 1992. Where Lamont really went out and said, we have to stick with ERM, even if it’s painful, it’s the right thing to do. Anything else will be a complete disaster.

Jonathan Ford 25:40

So basically, what he’s really saying is he’s saying, you know, I’m on this train, and it’s steaming down the railroad towards the buffers. The brake has just come off in my hands. So good luck passengers.

Neil Collins 25:52
Hasn’t he got a boiling frog in the in the engine room.

Jonathan Ford 25:57
There was also a boiling frog, in a railway train that’s going to buffers.

Neil Collins 26:03

I would, I would say the heat is provided, obviously, as always, by the markets, because it became increasingly obvious that it was unsustainable, however, enthusiastically, Major, and his reluctant Chancellor spoke up in favour of it.

Jonathan Ford 26:23

And that’s the point. So over the summer, as the storm clouds gather, they basically spend their time they spend over the railway train that’s going towards the buffer. They spend that time giving increasingly frantic speeches saying we are never ever going to do two things, which are the only two things in their power to avoid disaster. One is to raise interest rate, we’re not going to do that. And the second is to devalue, we’re never going to do that either. So basically, they have completely lashed themselves to the Master’s policy.

Neil Collins 26:54

They even borrowed money in Deutsche Marks, as a demonstration. As a demonstration, where we wouldn’t be borrowing this if we were going to leave the ERM.

Jonathan Ford 27:06

But that’s interesting, because in a way, I think you see the (inaudible) not strength, but weakness, because doing all these increasingly frantic things, claiming their loyalty, as you say, the markets are not showing any signs of being impressed by this and they just basically carry on turning up the heat, to see what happens next.

Neil Collins 27:26

I remember coming back from my holidays in early September, and being asked what I thought was going to happen next, I just said it’s unsustainable. I don’t know exactly when it’s going to fall apart, but it is bound to fall apart. Because it’s a one-way bet against Sterling. There is no downside in this bet. Only upside and so people were piling in and the Bank of England was losing reserves.

Jonathan Ford 27:52

It’s worth also at this point, bringing in another kind of dimension to this tremendous storm sale that is brewing over Threadneedle Street, which is Europe is going through the ratification of this Maastricht Treaty, which is designed among other things to bring about monetary union. Monetary Union, of course plays into the ERM because it’s the final stage of the ERM kind of leads on and this idea that all these currencies, which are going to be squashed into the Euros, it finally becomes, they will all converge, and therefore convergence to the markets is all about narrowing the band for the ERM and going to nothing and then turning into a single currency. And then in June of 1992, the Danes throw a whopping great spanner in the works, because they reject the Maastricht Treaty in a referendum which astonishes everybody and all of a sudden, everyone says, oh, I don’t know, maybe this isn’t going to happen after all, and maybe the currencies rather than scrunching together are again to bounce back and ERM will be abandoned as a pointless exercise or an unachievable exercise. With all this turbulence going on, the fundamental problem remains the same. The UK economy is in a mess and needs lower rates, as you say, it’s all unsustainable, but it can’t get them inside the ERM and it won’t leave the ERM or devalue, which means that the UK has one last kind of rope to hang on to and it is no longer on a railway train. It’s now in a lifeboat. A sinking lifeboat.

Neil Collins 29:26
I’d say it’s the last throw of the dice. A desperate throw of the dice.

Jonathan Ford 29:29

So it’s in a railway train with dice, a frog in a boiling cauldron with dice, which its throwing into the bottom of the cauldron. But its last hope is that Germany does something to help it. And we all know that those sort of hopes end well. And well, in early September, Britain hosts this meeting of European finance ministers, it’s in Bath on the fourth of September and Lamont goes down because he’s the, he’s the host and in this very grand… you’ve been to the assembly rooms in Bath and both are fantastically grand. And he basically goes into this meeting and he says to Schlesinger, brackets, independent head at the Bundesbank bank, you’ve got to cut your rates. And he doesn’t just say you’ve got to cut your rates. He says you’ve got to cut your rates on Monday, which is basically three days away. And Schlesinger, the meeting is just a total fiasco. He asked him four times (inaudible) and Schlesinger says, I think he just evade the question. He gets very, very crossed, and he’s asked about it afterwards. And he says, I’m not an employee of Norman Lamont. And he gets so cross that he says Theo Waigel, who is the German finance minister, in Bavarian, which they both speak, so even German speakers can’t really work out what the hell they’re talking about. He says, I’m going to walk out and Waigul turns to Lamont and says, you can carry on asking the question, but you’ll always get the same answer. And so, it’s really embarrassing and a disaster, and all it does is create lots of bad blood and doesn’t achieve anything. So it’s a disaster. All avenues it seems to me are now completely closed, if they’ve basically completely boxed themselves in and we’ll find out what happens next.

Neil Collins 31:18

So in this first episode we’ve seen how the solution to one problem, inflation, simply created another one; the need to prop up an overvalued currency and how that deepend the UK’s recession. We’ve also seen how politicians denied every possibility of a great reckoning. Next week in part 2 which will be on Tuesday rather than Friday we will look at how markets took their revenge.

Now, that was a long time in finance with Jonathan Ford and Neil Collins, editing and production by Nick Hilton. And our sponsorship partner is briefcase dot news. Join us again next week.

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