No magic in money
THE Chancellor and I seem to be in a minority. We neither of us think that the exchange rate mechanism of the European Monetary System has magical properties. Nor does the Prime Minister, but when at the weekend she lifted her veto on mem- bership, that was enough to give the stock market its best day for ten months. It was, in fact, the latest move in a game of political bluff. The game began with the Labour leadership's shift to a posture of `More European than thou.' The Euro- pean Community, long suspected as a conspiracy of capitalist-minded foreigners, was identified as a social market with a promising streak of dirigisme, so we should plunge our currency into its system — thus demonstrating at a blow how respectable Labour's economics now are. So plunging, Labour would catch their Tories not bath- ing and run away with their costumes. The Tories' pre-emptive counter-plan now seems to be to pick their moment, tear their clothes off and jump in. If they time it right, they will get what the Spanish got when they joined a stronger currency and cheaper money. (Not that the Spanish are pleased with the consequences.) If they time it wrong, they could approach the election with sterling under pressure and have to choose between jerking up interest rates, requesting a devaluation, pulling out of the system or blaming the Opposition. That may be politics, but it is not economics, and it is certainly not magic.
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