THE ECONOMY
Irresistible force meets immovable handbag
JOCK BRUCE-GA RDYNE
Iknow that it is, just now, a profoundly unfashionable thing to do. But I suggest that we should raise a toast to Mrs That- cher this weekend. She appears, single- handed, to have saved us from a great piece of folly. She went to Madrid and kept her head when all about her, etc, etc.
By last weekend the clamour of advice to her to cut her losses and recognise at last that she was cornered, that she had no choice but to sanction deutschmark club membership for the pound, and at once, had grown positively deafening. Sir Leon Brittan, her senior commissioner in Brus- sels, had given us in the pages of the Daily Telegraph (as Churchill once said of a speech by Anthony Eden) 'every cliché in the English language save God is love and gentlemen will please adjust their clothes on leaving'. His brother Samuel had trot- ted out his all-too-familiar theme that we had but to tie the pound up to the mark and we must then, ineluctably, beyond-a- peradventure-of-a-doubt, enjoy German inflation rates in the long run. (Despairing- ly I dropped a note to remind Sam of what Keynes had had to say about that particu- lar qualifying phrase.) It would be a vast understatement to say that the stocks were sold, the press was squared, the middle classes quite prepared. For the most part the press and the middle classes regarded Mrs T's attitude as sheer, wilful perversity designed for no better purpose than to make mischief for her long-suffering Chan- cellor and Foreign Secretary — not to mention our poor old pound. Yet she dug her stilettos in and, on the essentials, declined to be moved.
I admit that this is not the way the outcome of the Madrid summit has been generally interpreted. On the contrary, it is seen as a big triumph for Mr Lawson and Sir Geoffrey, and a big humiliation for the lady. But for my money what mattered was that she did not agree that we should join the club unless and until we had first got our inflation rate down to the same sort of rate as the existing club members, and they had first demonstrated that the club itself could cope with the consequences of the liberalisation of capital markets. Thank God!
For as an anonymous Director of the Bank of England pointed out the other day, this is about the most unsuitable moment imaginable for us to sign our membership form — and find ourselves obliged to slash our interest rates to keep in station. That is the fate from which one pig-headed lady saved us earlier this week.
If this week's trade figures had been wicked, instead of being on the side of godliness, Mr Lawson could well have found himself obliged to concede yet another point, or even two, on base rates. And we should assuredly have been told by all right-thinking persons that if she had not been so myopic, all this could have been avoided. I readily concede that if we had followed Spain's example, we should no doubt have enjoyed Spain's experience — in spades. But the latest figures for Mr Lawson's much-beloved Little MO, and for bank borrowing, surely make it blindingly clear that a point on base rates is a great deal more appropriate at this particular juncture than a couple of points off. (And incidentally I trust we are not going to have the Treasury rubbishing Little MO now, just as it rubbished M3 and PSL2 and all the other messengers of days gone by, when they gave messages it did not care for.) Personally I have never understood Nigel Lawson's fascination with Little MO: I have, I fear, occasionally suspected him of picking her out simply because she was a sort of good-time girl of the monetary playground — easily accessible. But pick her he did: and I cannot believe that it would add to the credibility of his counter- inflation strategy if he were now to ditch her — even, if Sam Brittan will allow me, in favour of that stunning deutschmark girl.)
The bank borrowing figures, I noted,
were cheerfully explained away as being a reflection of the continuing vigour of the corporate investment boom (and therefore nothing to worry our heads about — so unlike our personal credit activities, which are to be deplored by one and all). I sometimes wonder just how valid this distinction really is. Certainly if we are in a muck sweat about the trade returns, as the conventional wisdom reckons that we should be, then a Japanese desk-top com- puter is no more comforting than a Mer- cedes car. But even if you are the sort of nut who believes, like me, that nowadays it makes a lot more sense to allow other countries to supply us with the cash to buy their goods than it does to supply them with the cash to buy ours, a boom is a boom whatever its complexion. While no one can deny that the housing market is now looking distinctly sickly (and since it is generally thought to have been the escala- tion in the value of our homes which provoked us into conspicuous consumption on the slate in the first place, sickliness in the housing market is presumably the precondition of our eventual cure) other signs of coolingloff are still not that easy to identify.
So while I continue to think that it must be a mistake to shove up our borrowing costs simply in order to resist descent through some magic rate for a basket of currency, the dollar or the deutschmark, I am less sure that 15 or even 16 per cent base rates necessarily constitutes overkill. After all, we went to 17 in 1979 before we finally contrived to call a halt.
'Be a good fellow, Watson, and fetch me a couple o cans of McEwans.'
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