Black Wednesday: The disaster that shaped today's Tories

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Most 25th anniversaries are marked by a celebration of some sort. On such happy occasions, couples gather around them their closest friends, recalling fond memories.

For Eurosceptics, today’s 25th anniversary of Britain’s fall-out from the Exchange Rate Mechanism (ERM) on September 16, 1992, an event which became known as ‘Black Wednesday,’ is indeed a cause for celebration. They see it as ‘White Wednesday’, the day when Britain freed itself from the yoke of European integration.

But one person who will definitely not be celebrating today is Sir John Major, whose Conservative government suffered a blow to its credibility from which it never fully recovered.

So, 25 years later, what are the long-term implications of Black Wednesday, both politically and economically?

In October 1990, as Chancellor of the Exchequer, John Major had cajoled Margaret Thatcher into joining the ERM as a means of combatting inflation. But Major’s mistake when he became Prime Minister was to stake his entire political reputation on staying in the ERM.

Six days before ‘Black Wednesday’, Major declared that to come out of the ERM would be ‘the soft option, the devaluer’s option’.

The international money markets quickly took a different view and the pound came under tremendous pressure. Major gathered his senior ministers in Admiralty House on the morning of September 16 – Downing Street was being repaired at the time following an IRA mortar attack.

Each time Ministers agreed to a hike in interest rates the pound failed to rally, forcing the Chancellor of the Exchequer Norman Lamont to suspend Britain’s membership.

The short-term political damage was evident in the House of Commons a few days later when John Smith, the Leader of the Opposition, described Major as ‘the devalued Prime Minister of a devalued Government’.

Major secretly wanted to resign, but his senior colleagues talked him out of it. Meanwhile, Norman Lamont survived as Chancellor for another eight months, before leaving the Government claiming that Major was ‘in office not in power’.

It had all been so different for Major when he had signed the Maastricht Treaty in December 1991, declaring it ‘game, set and match’ for Britain. Only a handful of Conservative rebels had opposed it on that occasion. Black Wednesday changed all that. It was the moment at which a majority of the Conservative Party turned their backs on Europe, unleashing a civil war on which still resonates to this day.

At an ugly Conservative party conference in the autumn of 1992, Norman Tebbit dubbed the ERM ‘the eternal recession mechanism’. Replying to an ill-tempered debate, the Foreign Secretary Douglas Hurd pleaded with his party to give the madness of disunity a miss, as the Prime Minister passed him ‘give ‘em hell’ notes, writing ‘don’t worry about causing offence’.

Thereafter, a bill had to be passed to ensure the Parliamentary ratification of the Maastricht Treaty. Emboldened, Conservative MPs like Iain Duncan Smith, egged on by Margaret Thatcher in the House of Lords, voted against the Government night after night. In the words of Tristan Garel-Jones, the Minister for Europe at the time, the Conservative Party ‘bled to death’ for 18 months.

Only by presenting the rebels with a nuclear option of an early general election, which they would have lost, was Major finally able to get the Treaty passed in July 1993.

Economically, Black Wednesday was also a disaster for the Major government. Up until that point, it was the Labour Party which had not been trusted on the economy, having devalued the pound in 1949 and again in 1967.

The ERM debacle was seen as a national humiliation on a scale comparable with the International Monetary Fund (IMF) crisis of September 1976, when Denis Healey had been forced to go ‘cap in hand’ to the bankers to bail out Britain.

Having enjoyed a sizeable lead over Labour on economic competence at every general election between 1964 and 1992, after Black Wednesday the Conservatives were now seen as the economically incompetent party.

In the years that followed, voters suffered negative equity on their mortgages. Even when the economy recovered from 1993 onwards thanks to the wise stewardship of Kenneth Clarke, the voters remembered their dire personal economic experiences and refused to give the Conservatives any credit. Instead, they transferred their growing economic optimism onto the charismatic Tony Blair and his revamped new Labour Party, which won a landslide at the 1997 General Election.

But the most important impact of Black Wednesday was to turn the Conservatives from a largely pro-European Party into a mainly sceptical one. From now on, a growing band of Eurosceptics saw the European integration project as flawed economically, and as the cause of the recession in Britain. As John Major put it in his memoirs, the ERM debacle turned ‘a quarter century of unease into a flat rejection of any wider involvement in Europe’.

In his first party conference speech as leader in October 2006, David Cameron, recognising that his colleagues had become obsessed with the issue, urged them to stop ‘banging on’ about Europe.

But 10 years later his gamble to lance the boil of Europe failed as Britain voted to leave the European Union. Among his many mistakes during the referendum campaign, Cameron massively under-estimated the ideological resolve of the Euro-sceptics.

That ideology was forged on Black Wednesday, or should that be ‘White Wednesday’?

Mark Stuart is a political academic from York who has written the biographies of John Smith and Douglas Hurd.