CITY AND SUBURBAN
The Wim Kok effect, or why John Major must steer clear of Chancellor's Itch
CHRISTOPHER FILDES
Now that John Major has to spend all his weekends going to meetings of finance ministers, I wonder whether he has worked out which of them is Wim Kok. He may well think that quite a lot of them are called Wim Kok, or that if they aren't, they ought to be. The actual Mr Kok is the Dutch minister who found him more amen- able than Nigel Lawson, and went on to patronise his 'mouse steps' towards monet- ary union. I am curious to discover whether Mr Major is developing Chancellor's Itch. Almost all of them get it, in the end. They sweep into the Treasury confident in the success of their policies. They want to get on. Foreign jaunts and financial diplomacy they regard as a needless distraction. Then, as things start to go wrong, as the Com- mons becomes an unpleasantness and the television studio an interrogation cell, they suddenly find themselves yearning to be far away, their sense of success and self- importance unpunctured, in the company of their equals or at any rate of their opposite numbers. At these meetings they develop new interests.
Asymptom of the Itch is an outbreak of initiatives — Reggie Maudling had a Plan, Anthony Barber a Numeraire, Denis Healey had an Axis (with Mr Witteveen, the Dutchman who then ran the IMF). Sir Geoffrey Howe when he became Chancellor did not want to go to his first IMF meeting at all. He stamped his hush-puppy and asked why should he. His civil servants, like nannies per- suading him to eat up his porridge, coaxed him to the meeting, in Belgrade where he made a fine declaration of indifference, saying that Britain would now save herself by her exertions and everyone else by her example. Came the recession, though, and Sir Geoffrey took to the international circuit, aspiring to the chair of the Interim Committee, and finally developing his Itch in its tertiary form: an urge to be Foreign Secretary. His successor did not seem to have the same bent for diplomacy.
To students of the Itch, though, Mr Lawson's case affords a clinical study. In his first years in the Treasury, as Financial Secretary, he was the monetarist who wanted to control the supply of money and to let its price — the exchange rate — take the consequences and go where it would. That meant steering clear of the European Monetary System (and Sir Geoffrey, in those days, agreed). Mr Lawson as Chan- cellor was thought to have been converted to the EMS by the persuasions of his private secretary, but I think that the true conversion happened in the Plaza Hotel in New York. There a group of finance ministers with Mr Lawson to the fore agreed to ambush the over-mighty dollar and cut it down to size. It was just such a trap as he loved to spring. It sprang perfectly. Soon enough he had ministers agreeing (this time, from within the Louvre) that currencies were now where they should be and would therefore, by decree, stay put. He went on to lecture the IMF on the principles that should govern a world of fixed but adjustable (not very adjustable) exchange rates. Mr Lawson maintains that his opinions had been con- sistent, others saw a 180-degree turn. 'He trims' (said Sir Kit McMahon of the . Midland Bank) 'with such panache.' There followed the hitching of sterling's wagon to the star of the deutschmark — and the long wrangle over EMS membership which split him from the Prime Minister and ended in his resignation. He had come to believe (so he said in his resignation speech) that free markets needed an over-arching financial framework of unfree exchange rates. It is odd that the Conservatives now so ready to cast him as scapegoat (`terrible fellow, can't think how we put up with him') have developed a blind faith in the EMS as an instant cure for Britain's (and their) trou- bles. He might say of them what William Whitelaw said of them 15 years ago, when they were instant monetarists: 'They don't understand it. They just think it matters.'
Now it is John Major's turn, and he, too, makes a fascinating case study. He is the first Chancellor since Selwyn Lloyd (absit omen) to have come over from the Foreign Office. Did his spell there amount to a tertiary form of the Itch? Or was it an inoculation? It may have been. His experi- ences of Europe's foreign ministers were not such as to generate instant rapport; some of them, too, were Wim Koks. As Foreign Secretary, though, he asserted the principle — so alien to the Foreign Office — of something for something. His Black- pool speech set EMS membership as part of a bargain in which Britain had demands: open markets in Europe for services, open frontiers for money, open roads and seas and skies. As Chancellor, he has gone out of his way (notably on the morning after his Budget) to challenge the easy and widely held assumption that joining the EMS will cure chilblains. That assumption now comes under attack from Roger Boo- tle in his Greenwell Gilt Weekly: 'What attracts Conservative MPs and like-minded supporters is the short-term (and risky) benefits which arise from entering the system out of kilter with the other mem- bers — namely, lower interest rates and/or a higher mound.' What happens if this confidence trick does not come off — or if it falters in the run-up to the election? 'The authorities could then be faced with the choice of raising interest rates, accepting a devaluation, or being forced out of the system.'
Mr Major, shuddering at that night- mare, must reflect how many of his present troubles were brought on by the bold international initiatives of the past, symp- toms (as we can now see) of the dreaded Itch. Success at the Plaza gave the illusion that ministers could bend markets to their will. Agreement at the Louvre to over-ride currency markets brought distractions and disturbance elsewhere — in the world's share and bond markets, in the recrudes- cence of inflation. Britain's targeting the deutschmark brought the surge of cheap money for which we must now pay so dearly. Such are the illusions which attach themselves to the endless round of ministe- rial meetings. Such are the dangers of Chancellor's Itch. I would like to think that John Major is immune, because I hope to hear a Chancellor say once more that Britain will save herself by her exertions and Europe by her example.
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