History of England 1-6

Perhaps Schlesinger was still smarting from Lamont’s assault; perhaps he was simply putting the needs of his own country first. But when, on the evening of Tuesday 15 September, he suggested in an interview that the pound should have devalued along with the lira, he unleashed a cyclone. Schlesinger later protested that his remark had been offered unofficially, but it made no difference. Dawn had barely given way to sunrise on Wednesday 16 September when the feast on sterling began. George Soros, one of the more avid of the predators, recalled his conviction that ‘the Bundesbank was egging on the speculators’. In desperation, the Bank of England entered the fray, buying sterling on a colossal scale, but £1 billion was lost in minutes. The spade drove deeper, digging further into public money. The bank would have to raise interest rates; 12 per cent was agreed by Major. Perhaps he had no choice, perhaps it was the presence of Hurd, Clarke and Heseltine in Admiralty House that swayed him. All were convinced Europhiles. But the interest hike did not deceive the speculators, who saw in it only an act of desperation, and selling increased. Kenneth Clarke’s chauffeur spoke for many when he quietly said, ‘It hasn’t worked, sir.’ The politicians had been isolated from events, caught in the tragicomic position of knowing less ‘than anyone in the United Kingdom’.

Eddie George, the governor of the Bank of England, realized that ‘the game was up’. Britain had to get out. Once again, Hurd, Heseltine and Clarke, the ‘big beasts’, were summoned. Lamont desperately urged suspension, but the others overruled him. Interest rates were yanked up once more, to 15 per cent. It hadn’t worked the first time, so clearly they must try again even harder. The prime minister had mortgaged his reputation; he could not now withdraw. After a negligible rise, the pound slipped again. By the afternoon, the Bank of England had spent £15 billion in defence of sterling. Behind the scenes, the prime minister gave way. At 4 p.m., abruptly, there was silence on the trading floors as the news came that the Bank would no longer shore up the pound. The silence, one trader confirmed, lasted perhaps three seconds, before a whoop of triumph broke out. As if determined to give its audience one last flamboyant flourish, the pound dived through the bottom of the ERM. As one trader put it, ‘There was a sense of awe … that the markets could take on a central bank and win.’ Open competition had turned on its nurse.

At 7.30 p.m. on 16 September 1992, forever known as ‘Black Wednesday’, Norman Lamont announced Britain’s suspension from the ERM. It was to be a temporary measure, he assured the cameras, to be reversed when matters were ‘calmer’. The prime minister had remained uncannily composed throughout the debacle, but now he cracked. He determined to speak to Fleet Street; he wanted to reassure the chief editors that all was well and to ask them how they would present the day. But they were no more deceived than the speculators had been. Kelvin Mackenzie of the Sun genially informed him that he had ‘a big bucket of shit on my desk … and I intend pouring it all over you’. Major rallied enough to give the joshing answer, ‘Oh, you are a wag!’

A sense of collective responsibility ensured that Lamont remained, but he resigned nine months later. For all his outward protestations, he had never believed in Britain’s membership of the ERM and would remember the involvement of Heseltine, Hurd and Clarke with some bitterness. He wondered why the prime minister was spending so much time closeted with the big Europhile beasts while, as he put it, ‘we were haemorrhaging’. Major in turn insisted that since it was a question as much political as economic, the crisis was one in which the other ministers had a right to a say. For their part, the beasts felt like ‘doctors being brought in to watch the death of the patient’. In truth, there was no ready scapegoat for Black Wednesday; none could have foreseen the alacrity or skill with which the markets leapt on the stricken pound.