ALEX BRUMMER: Labour is playing with fire when it talks of 'war gaming' for a run on the pound

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The 1997 Blair-Brown Labour government came to office determined to show economic competence after sterling's brutal exit from the Exchange Rate Mechanism in 1992.

It achieved this by making sure that new spending on the NHS was paid for by taxation, the budget deficit was under control and inflation enforced by an independent Bank of England.

It took the financial crisis to destroy Gordon Brown's credibility and put the nation's 'triple A' credit rating under threat.

In an extraordinary reversal of this caution, shadow chancellor John McDonnell dares to talk about 'war gaming' for a run on the pound if Labour is elected.

Shadow chancellor John McDonnell and Labour leader Jeremy Corbyn at the Labour Party conference in Brighton

He says the party must be prepared for a 'potential assault' by opponents in the City when Jeremy Corbyn stands at the dispatch box as Prime Minister.

In effect, McDonnell is rehearsing Harold Wilson's famous attack on the 'gnomes of Zurich' when the pound fell on his watch.

What McDonnell needs to consider is why it might happen. Foreign exchanges would take fright at nationalisation of public utilities, breaking of PFI contracts, raising corporation tax and personal taxes until the pips squeak. 

Such actions would destroy the credibility of a newly installed Labour government on the spot.

Mainstream politicians and central banks rarely address the value of national currencies for fear of provoking an unstoppable flight of capital. 

Bank of England governor Mark Carney has made it clear that the economy's stability is dependent on the 'kindness of strangers' who invest here.

Labour clearly is not listening.

German switch

Far from being no change, the German election could reshape Europe's economy.

Markets are already showing jitters, with the pound at a ten-week high against the euro. Angela Merkel's challenge is twofold. 

The presence of a bloc of 94 far-Right politicians from the AfD will raise questions about the scale of German assistance to an ailing European banking system, while her likely coalition with the liberal Free Democratic Party and the Greens could lead to serious rethinking about industry.

A shift is possible in Germany because of the strength of the economy. Unemployment is low, industrial production and exports are strong, while surging tax receipts meant Berlin ran up a surplus of £16billion in the first half of the year.

If Merkel needs to offer coalition partners incentives to be part of her administration, there will be no shortage of headroom. Theresa May's £1billion subvention to the DUP in Northern Ireland will look minor league.

The motor and power industries may need to head in new directions. Donald Trump takes punishment for failure to honour the Paris climate goals, but Germany's pledge to cut emissions by 40 per cent from 1990 levels by 2020 has moved into the distance.

The invincible reputation of German motor engineering has been wounded by the Volkswagen emissions scandal and allegations of a price-fixing cartel among component suppliers. 

The biggest black mark against the big German car makers is that they build bigger and faster motors at a moment when the industry is moving in a different direction. 

Volvo is going electric from 2019, the Japanese are turning out hybrids, electric and hydrogen cars, and US manufacturers are in a race to the death for battery propelled, more autonomous vehicles, so that Ford and GM can head off upstart Tesla at the canyon. 

If a move to cleaner German cars is not speeded up, export performance could end up in a ditch.

As for utilities, Merkel was quick to switch off nuclear generation after the Fukushima disaster of 2011. 

The result has been continued use of brown coal, which still accounts for 25 per cent of electricity and produces twice as much carbon emission as natural gas. 

RWE and Eon, the German utilities invested in Britain, will have their hands full at home.

Equifax neglect

Given the scale of the data breach at Equifax, it is hardly surprising that the credit scoring group's boss Richard Smith has been ousted.

Investors who have seen billions wiped off the company's value since the disclosure might wonder why it has taken so long.

Of more interest to 400,000 people in Britain is why they have not been personally notified of the breach, what steps are being taken to recover data and make it secure and how they are to be protected against losses from cyber-crime. Scandalous.