Sleepwalking into a nightmare future

By THIS IS MONEY
Updated:

 

Lord George, the late former Governor of the Bank of England, counselled caution regarding British membership of the single currency.

As this project was supposed to last for ever, he asked, what was the hurry?

In fact, as many of us suspected ten or more years ago, it was then or never for the abolition of sterling. Once the eurozone hit its first

major crisis, the design flaws would become apparent and Britain would keep the pound.

Our home-grown europhiliacs had good reason to believe they could pull this one off.

They had done it before, taking sterling into the euro's predecessor, the Exchange Rate Mechanism, in 1990, just ahead of the crisis that generated huge unemployment in Britain, prolonged a painful recession and ended with the ERM's collapse.

It was touch and go, but in the end we kept sterling. Now, of course, 'everyone' always 'knew' it was a bad idea for Britain to join the euro.

So as a little experiment, let's look ten years ahead and try to work out what everyone then will always have known. In other words, what are the terrible policy errors that, with hindsight, will appear perfectly obvious?

One clue is that they will be far from obvious now. On their day, Chancellors Anthony Barber, Nigel Lawson and Gordon Brown were praised to the skies for Budgets and policies that everyone subsequently knew to be disastrous.

So let's not get into the 'too far, too fast' debate regarding deficit reduction. That has been aired so comprehensively that whatever history's verdict, it will not come as a surprise.

More fruitful may be a hunt through economic policies that today cause barely a murmur of dissent, or even attract much attention. Somnolent consensus is usually a big danger sign.

So, how about the competitive devaluation being practised by just about every country, including ours? What sort of legacy can we expect from the debauching the world's currencies?

Then there is inflation.

Right now 'everyone' agrees that the Bank of England is right to ignore 'temporary' rises in the Consumer Prices Index. But a long enough series of temporary inflation rises starts to look suspiciously permanent.

Tax?

The British are accused of wanting Scandinavian public services but US tax levels. The way things are going, we will get American public services with Scandinavian tax levels.

Then there is regulation. New red tape is a mass-production industry, while cutting it is a gentle Ministerial hobby.

But perhaps the biggest policy error is to assume we have the luxury of pondering what sort of society we want to be. As we amble through the world economy, holding 'national conversations' about our work-life balance, the new economic superpowers are building up to maximum thrust.

It is much later than we think.

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