LONDON: European leaders must throw off the burden of the euro if they want their economies to thrive, said the former finance minister who was forced to take Britain out of the European currency system that proceeded the single currency.
Norman Lamont, Britain's chancellor of the exchequer from 1990 to 1993, said Greece was likely to crash out - or be pushed out - of the world's second-largest reserve currency, while Spain and Italy should jump too if they wanted growth to revive.
"There is no way Spain or Italy will recover their competitiveness vis-a-vis Germany if they remain within the euro, but outside they may well do," Lamont said in an interview.
"Spain I think is basically solvent at historic rates of interest - ie rates around 3 to 4 percent - which I don't think are going to return in the next decade," he said.
As finance minister during Britain's humiliating "Black Wednesday" currency crisis in 1992, Lamont was forced to take sterling out of the European Exchange Rate Mechanism (ERM) after hemorrhaging reserves to currency traders such as George Soros, who famously made over $1 billion betting against the pound.
While Lamont had appreciated the inflation-lowering benefits of effectively pegging the pound to the Deutsche Mark through the ERM grid, he was an opponent of the European grand plan for monetary union.
When the markets pounced on Sept. 16 1992 and sterling tumbled out of the ERM, it ushered in a decade of average growth for Britain a percentage point above the European Union average of 2.4 percent - and far better than what Germany, France, Italy or Spain achieved in that time.
"BLEEDING TO DEATH"
Europe set up the ERM in 1979 but it was another decade before Britain took the leap. John Major, as finance minister to Margaret Thatcher, took Britain into the ERM in 1990, just a month before Thatcher was ousted as leader by her own party.
But Germany and Britain were economically diverging: just as Britain needed lower interest rates, Germany was raising rates to contain the inflation sparked by policy decisions resulting from unification after the fall of the Berlin Wall, A weaker US dollar also meant a stronger Deutsch Mark and more pressure on the pound.
"I saw the logic of the argument that by linking our currency to the Deutsche Mark, the inflation rates of England and Germany would converge ... But after about a year and a half, two years, it was obvious that the tool had really outlived its usefulness," Lamont said.
"The markets had actually delivered one the opportunity for a more flexible policy." Flexible but chaotic, at least on the day. As sterling plunged on Black Wednesday, the Bank of England spent billions of pounds to support the currency and jacked up interest rates, but it was in vain; markets could even break the Bank of England.
indiatimes.com
Norman Lamont, Britain's chancellor of the exchequer from 1990 to 1993, said Greece was likely to crash out - or be pushed out - of the world's second-largest reserve currency, while Spain and Italy should jump too if they wanted growth to revive.
"There is no way Spain or Italy will recover their competitiveness vis-a-vis Germany if they remain within the euro, but outside they may well do," Lamont said in an interview.
"Spain I think is basically solvent at historic rates of interest - ie rates around 3 to 4 percent - which I don't think are going to return in the next decade," he said.
As finance minister during Britain's humiliating "Black Wednesday" currency crisis in 1992, Lamont was forced to take sterling out of the European Exchange Rate Mechanism (ERM) after hemorrhaging reserves to currency traders such as George Soros, who famously made over $1 billion betting against the pound.
While Lamont had appreciated the inflation-lowering benefits of effectively pegging the pound to the Deutsche Mark through the ERM grid, he was an opponent of the European grand plan for monetary union.
When the markets pounced on Sept. 16 1992 and sterling tumbled out of the ERM, it ushered in a decade of average growth for Britain a percentage point above the European Union average of 2.4 percent - and far better than what Germany, France, Italy or Spain achieved in that time.
"BLEEDING TO DEATH"
Europe set up the ERM in 1979 but it was another decade before Britain took the leap. John Major, as finance minister to Margaret Thatcher, took Britain into the ERM in 1990, just a month before Thatcher was ousted as leader by her own party.
But Germany and Britain were economically diverging: just as Britain needed lower interest rates, Germany was raising rates to contain the inflation sparked by policy decisions resulting from unification after the fall of the Berlin Wall, A weaker US dollar also meant a stronger Deutsch Mark and more pressure on the pound.
"I saw the logic of the argument that by linking our currency to the Deutsche Mark, the inflation rates of England and Germany would converge ... But after about a year and a half, two years, it was obvious that the tool had really outlived its usefulness," Lamont said.
"The markets had actually delivered one the opportunity for a more flexible policy." Flexible but chaotic, at least on the day. As sterling plunged on Black Wednesday, the Bank of England spent billions of pounds to support the currency and jacked up interest rates, but it was in vain; markets could even break the Bank of England.
indiatimes.com
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