Downing Street Years - Margaret Thatcher [433]
There was nothing secret about these facts. They were available to anyone who wanted to know them. But nothing is more obstinate than a fashionable consensus. Nor is it without influence on Cabinet committees. I had no support at the seminar at the end of September. Nor did my arguments budge Nigel and Geoffrey. There was no point in continuing the discussion. I said that I was not convinced that the balance of argument had shifted in favour of joining. I said that I would hold a further meeting to which other colleagues would be invited.
Before this took place I had a long list of questions drawn up about the implications of the ERM. I hoped that these would illuminate some of the points we would need to discuss. It would be more charitable than accurate to suggest that the answers provided by the Treasury did so. Yet the paper which Nigel presented at the meeting now seems strangely prophetic. He suggested that we had to convince people that inflation would continue to come down and stay down, adding that there was still a nagging fear that sooner or later we would succumb to the temptation of going for an easy inflationary option. He also suggested that after a period of some years sticking to the same policy, this now needed a shot in the arm, a touch of imagination and freshness to help the explanation and to ensure that our policies continued to carry conviction. Entry into the ERM was, of course, the answer. Since it was Nigel’s policy of shadowing the deutschmark — an informal version of ERM entry — that was to lead to inflation and undermine confidence, there now seems a certain irony in these assertions.
It has to be said that the wider meeting which I held to discuss the ERM on the morning of Wednesday 13 November did not advance us any further than the earlier meetings. We went over the same ground and at the end I repeated that I had not been convinced by the arguments I had heard. However, I agreed that we should strictly maintain the line we had taken so far, namely that Britain would join the ERM ‘when the time was right’.
The position was unsatisfactory. Most of the arguments which persuaded me that we should not now enter the ERM applied to the principle — not just the circumstances — of entry. I knew that I was in a very small minority within the Cabinet on this matter, though most of my colleagues were probably not overinterested in it anyway. Geoffrey and Nigel, by contrast, were fervent. For Geoffrey membership of the ERM would be a demonstration of our European credentials. For Nigel it would provide stability in the turbulent and confusing world in which decisions about interest rates and monetary policy had to be made. And there is no doubt that those decisions could on occasion be extremely difficult.
INTEREST RATES AND INFLATION: 1986
It is worth noting at this point where the difficulty lay — and where it did not. Until 1987 when Nigel made the exchange rate the overriding objective of policy, there was no fundamental difference between us, although Nigel apparently now thinks I was ‘soft’ on interest rates. Anyone who recalls our decisions from 1979 to 1981 will find that implausible. It would also surprise anyone who considers that one of the main arguments advanced for joining the ERM, which Nigel so passionately wanted, was that it would lead to lower interest rates. And, as I shall show subsequently, there were occasions when I thought that he was soft on interest rates and wanted to raise them more quickly.* The two of us were equally opposed to inflation. If anything, I was more concerned than he was. It was my constant refrain that much as I might admire his fiscal reforms, he had made no further progress in getting down the underlying inflation rate.
Nevertheless, Nigel and I did have rather different starting points when it came to these matters. I was always