The trouble with a referendum, as Kenneth Clarke noted, is that people do not always answer the question you ask them. You want to know if they favour a bimetallistic approach to the currency, and they say ‘Throw the rascals out.’ Something of the sort may be happening to Jacques Chirac. He had the French all geared up to vote for Europe’s new constitution, the polls are now running against him, but it may be that the voters have tired of a President who keeps flying off to Japan to watch the sumo wrestling. Even so, a Non vote next month would halt the constitution in its tracks, and would not say much for Europe’s confidence in its structures, current and proposed. Last month another structure came apart. This was the Stability and Growth Pact, which was supposed to set limits to European governments’ capacity to borrow. It could be used to bully minor players like Portugal, but when it did not suit France and Germany, they overrode it. In the end all agreed that every country would be allowed its good causes, and that borrowing in support of these causes would somehow not count. This leaf was torn from the Book-Fudgers’ Manual, which teaches shaky companies with flaky auditors how to treat a loss as an exceptional item and leave it out of the profit and loss account. It can be written off below the line. The money, of course, is still lost or, in Europe, still borrowed, and the pact is now a write-off.
Requiescat in pacto
A small group of mourners, long-faced, sober-suited, lament the pact’s passing. These are the central bankers whose countries signed up for the euro. ‘Dismayed’ is the word that Mervyn King, Governor of the Bank of England, found for them. He looks after this country’s currency, but the euro is notoriously a currency without a country, and the pact was the closest it came to a substitute. Without it, every member country is free to borrow at large or, more simply, to keep selective books, as Greece did. Europe would have one monetary policy and a dozen fiscal policies. How long could that be sustained? Could foolish virgins expect to issue paper on the same terms as the wise ones? Would the markets learn to distinguish between Greek euros and, say, Ruritanian euros? Once that happened, Europe would, by definition, no longer have a single currency, and another of its structures would be written off.
We have been somewhere like this before. The Danes dismayed an earlier batch of central bankers by voting No to the Treaty of Maastricht. Suddenly, the treaty’s goal of monetary union began to look less than predestined. Europe’s Exchange Rate Mechanism creaked and cracked. The pound and the lira flew off. Finally, it was France’s turn to hold a referendum on Maastricht, and a Non vote would have halted the euro. It went the other way in a desperate finish, swayed by boxes of Oui votes flown in from French overseas territories like Martinique and Réunion. Who would have thought that beneath their swaying palms and on their dazzling beaches, monetary sentiment would run so strongly — and all one way, too? Perhaps President Chirac has boxes like these up his sleeve. My message to the French people is now what it was then: Votez Non, votez souvent.
Cards on the table
In the poker game politely known as Anaconda Roll ’Em, you ruin your neighbour (or try to) by passing him a hand of cards selected to frustrate him. No player ever picked up such a bag of rusty nails as the hand passed on by Harold Wilson to Jim Callaghan. As soon as he took over as Prime Minister, the pound collapsed. Within months, Denis Healey as Chancellor had to turn back at the airport. He was on his way to see the International Monetary Fund, but soon enough the IMF arrived to see him. In the midst of all this, the new Prime Minister had to face his party conference, and he chose to put his unwanted cards on the table: ‘The cosy world we were told would go on for ever, where full employment could be created by a stroke of the Chancellor’s pen — that cosy world has gone. We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment.’
Room for improvement
This was not the stuff to cheer the party faithful, but it was the overdue truth, and an end to the post-war certainties. Taking Keynes’s name in vain, successive governments had tried to grow the economy by managing demand. Public borrowing and spending could speed it up, and another little drop of inflation wouldn’t do us any harm. It did, though. It was a drug and we needed to kick it. If, as was said at the time, the words were Peter Jay’s — he was then married to the Prime Minister’s daughter — they were none the worse for that. Between the two of them, they declared the old policies bankrupt, and made room for the new ones. From then on, very slowly, our cards began to improve.
Include me out
I would never make a Conservative candidate. I think that public spending has risen so fast that there must be more stuffing to be beaten out of it. I suspect that some of this money is serving to reinforce failure. I yearn to see more scope for competition and choice, which would show up, as they do, the real winners and see off failing schools and hospitals as they see off failing factories and shops. This is, I think, what Schumpeter meant by creative destruction. As events have now shown, this would amount to two strikes against me, or three if I managed to upset the Catholic Herald. Just to be on the safe side, though, I should make clear that I look at Liverpool through the eyes of a Manchester man.