Yanis Varoufakis claims European democracy was 'poisoned'
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On September 16, 1992, the pound collapsed, forcing the UK to withdraw from Europe’s Exchange Rate Mechanism (ERM). The economic crisis, later dubbed Black Wednesday, was partly triggered by comments from the head of Germany’s Bundesbank, a Government official has claimed in a new book.
The events of September 1992 has been documented by the late Jeremy Heywood, who served as the Chancellor’s principal private secretary from 1991 to 1997.
Although he passed away in October 2018, his wife Suzanne Heywood has recently published a record of his career in the book: ‘What Does Jeremy Think? Jeremy Heywood and the Making of Modern Britain’.
The book details the cataclysmic effect of comments made by Helmut Schlesinger, the head of Bundesbank, to the press the day before Black Wednesday crippled the UK economy.
From the third quarter of 1992, the UK economy started to falter and required Europe to lower its interest rates to help prevent the economy from free falling.
However, Germany’s Bundesbank refused, leaving the UK in a difficult position.
On September 5, 1992, then-Chancellor Norman Lamont met with European Finance Ministers in a desperate bid to get Germany to reduce their interest rates but officials refused, arguing they needed to keep rates high to dampen down inflation post-reunification.
As a result, sterling continued to weaken.
Other European countries were also beginning to waiver, including Finland, Sweden and Italy.
On September 13 the Italians devalued the lira and Germany agreed to reduce their interest rates slightly.
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John Major, the Prime Minister at the time, resisted pressures to devalue the pound and instead favoured realigning all currencies within the ERM, rather than just the lira and sterling.
However, this was not something under consideration from other EU members.
As a result, government officials were shocked to hear on the evening of September 15 that Mr Schlesinger had told reporters realigning all currencies would have been the best course of action.
The meeting, attended by the Chancellor, Mr Heywood, the governor and deputy governor of the Bank of England, was interrupted by the news of Mr Schlesinger’s comments.
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The book claims: “Owen Barder, the Chancellor’s private secretary, stuck his head around the door. ‘I have a call from your office, Mr Governor.’
“Robin Leigh-Pemberton nodded, unfurled himself from his seat and walked out.
“A few minutes later, he burst back in. ‘Schlesinger has told reporters from Handelsblatt and the Wall Street Journal that a wider realignment of currencies than just the move in the lira would have been a good thing,’ he said.”
The news is said to have created panic within the room, as the German’s comments were going to be front-page news tomorrow.
Ms Heywood wrote: “‘You need to speak to Schlesinger,’ the Chancellor told the governor, his voice sharp.
“‘He needs to retract his words. If he doesn’t, speculators will go mad shorting the pound.'”
Mr Schlesinger later apologised for his comments and lashed out at the reporters for printing his words without prior approval, however, the articles went ahead as planned.
According to the book, Mr Heywood said: “Whether or not he intended it, he’s torpedoed the pound… and seems surprised that journalists want to print his words.”
The next day, Black Wednesday, the pound collapsed, dropping below the lower currency exchange limit mandated by the ERM.
The UK was then forced to withdraw from the ERM.
‘What Does Jeremy Think? Jeremy Heywood and the Making of Modern Britain’ (Harper Collins, £25) by Suzanne Heywood is out now.
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