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Analysis: Despite opting out of monetary union, the British help bailout the Irish.
Then Germany began cranking up its post-communism unification boom at the same time Britain entered into recession. This brought the pound under attack from currency speculators two years later.
On Sept. 16, 1992, "Black Wednesday," Britain's Conservative government was forced to raise interest rates to 12 percent in the hope of getting speculators to buy sterling. The effort failed. George Soros is reported to have made a billion dollars that day shorting the pound. Britain left the ERM and never seriously considered joining the euro.
The chancellor of the exchequer on Black Wednesday was Norman Lamont, serving as his "special adviser" was 25-year-old David Cameron, who today is Britain's prime minister. The lesson Cameron and Osborne took away, rightly or wrongly, was that when you join a currency union you lose control of your economic destiny to the bigger fish — and the reunited Germany is always going to be a bigger economic fish than Britain.
For a long while being on the sidelines of European monetary union was just fine with the Brits. The single currency was launched in 1999 and for much of the next decade the pound was worth 40 percent more than the euro. Britons flocked to the eurozone on holidays and snapped up expensive houses in Tuscany and the Cote d'Azur and cheap apartments on Spain's coast. The Algarve in Portugal was like an extension of London's stock broker suburbs except it hardly ever rained on the golf course.
But the events of the last three years have been a salutary lesson for the British on the interconnectedness of the European economy despite their not taking part in the euro. One of the centers of the banking crisis of 2007-2008 was London. The pound lost value against the Euro and plunged into recession. Britain may not be part of the euro but for its own economic sake it must work in concert with its EU partners to make sure the euro doesn't collapse.
Just before leaving office last May, the Labour government led by Gordon Brown and his chancellor, Alastair Darling, signed Britain up to the "Stabilisation Mechanism" — an EU fund originally meant to help members that suffered the economic shocks created by major natural disasters. But the fund was used in the bailout of the Greek economy last spring and is now expected to be used in the Irish bailout. Any funds left over will be used in the next bailout — and yes, there are expected to be more before Europe's economic crisis ends.
Speculation today is focused on which European countries will be next to require the International Monetary Fund and the EU to come to the rescue. Portugal and Spain are the names being mentioned. It's the latter that is the real concern. Spain's largest bank, Santander, already owns three British banks.
Call it globalization, call it integration — whatever terms the British use — geography, history and diplomatic/economic realpolitik make it impossible, in the words of economist Philip Whyte, to "clean its hands of involvement in the euro crisis."