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The Long Shadow of Black Wednesday

When the United Kingdom was forced to abandon the European Monetary System's exchange rate mechanism 30 years ago, British officials took it as a happy consequence that the UK would not qualify for the euro. But this meant that Britain would continue to have one foot in Europe and one foot out – until it finally put both out.

BERKELEY – This September 16 will mark 30 years since “Black Wednesday,” when the British pound was ignominiously ejected from the exchange rate mechanism (ERM) of the European Monetary System. Not all anniversaries are occasions for celebration. This one certainly is not.

Black Wednesday was “a day of disaster,” from which Prime Minister John Major’s government never recovered. It had been Major, as Chancellor of the Exchequer in Margaret Thatcher’s government, who led Britain into the ERM in 1990, overriding the objections of his balky prime minister.

Major saw pegging the pound to Germany’s Deutsche Mark as a way to solve Britain’s economic problems at a stroke. Pegging to the Deutsche Mark would supposedly import German monetary-policy credibility and subdue Britain’s chronic inflation. Emulating the model of Europe’s most successful economy promised to invigorate economic growth.