Britain Joins Europe, Cont'd

October 15, 1990

Britain's sudden entry into the European Monetary System after 11 years of staying out is a welcome U-turn by Prime Minister Margaret Thatcher. It suggests that Britain means to play its full role in Europe as a counterweight to united Germany, and feels up to it. Only a year ago, the highly respected chancellor of the exchequer, Nigel Lawson, resigned when Mrs. Thatcher vetoed his effort to link the pound to the European Community currencies. Now Mr. Lawson's successor, John Major, has done it with her blessing.

Part of this is domestic politics, to refute the accusation that Mrs. Thatcher's chauvinism isolates Britain from Europe and to counter the reputation for responsibility being forged by the opposition Labor Party under Neil Kinnock. The ruling Conservatives are well behind in the polls and must call an election by summer 1992.

Britain now pegs the pound to 2.95 German marks and undertakes to keep it within 6 percent of that. The move is recognition that Britain, punishing itself with high interest rates, could no longer fight inflation alone. But it risks the fragile export competitiveness of British manufactures, by pegging them to a strong mark that may get stronger. This could make British products prohibitively expensive in future years.

Having taken this step, Britain will play its first role by delaying as best it can the final conversion of the European Monetary System into a single currency with a supranational central bank.

It is fair to say that the British people and politicians have long since joined Europe intellectually but refrain from doing so emotionally. The Channel Tunnel linking Britain to France will be operating within two years and has already started to affect real estate values in southeastern England and northeastern France, where there is a house-buying binge. This is an interdependence from which there is no turning back.

Mrs. Thatcher has recognized the inevitable. The British financial community's confidence in her government immediately rose. Had Mrs. Thatcher recognized the inevitable a year earlier, she would still have Mr. Lawson in her cabinet and confidence would be that much higher.

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