There is a growing consensus in Britain that urgent membership of the Exchange Rate Mechanism of the European Monetary System is required to cure Britain's inflation and to secure the re-election of the Conservatives at the next election. The argument put forward by proponents of membership is, however, flawed and many of those who argue for membership have secondary reasons unconnected with sound analyses of the problems facing the British economy. Most of these arguments skim swiftly over the economic reasons for membership to concentrate on the political or the future of the EEC. And, indeed, many proponents of ERM are also unapologetic supporters of full monetary union.
It is interesting that the clamouring for membership of the ERM is only now being put forward as a panacea for our inflationary problems. It was not so mooted as a cure for the inflation faced by Britain in the early 1980s. Is it a coincidence that the current calls for membership of the ERM occur at the same time as those in favour of full monetary union are pressing ahead on the next stage of their plan?
This paper seeks to scrutinise the major arguments put forward in favour of ERM membership - whether it be early membership, or even membership "when the time is right". It argues that membership of the ERM would not solve the problems faced by Britain. It seeks to establish this by concentrating on the following areas:
- by exposing the flaws in the economic argument in favour of joining the ERM;
- by highlighting the political implications of membership.