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The ERM crisis of 1992 shredded the Tories' reputation as the competent party of government. Labour has faced the Covid crisis with an attempt to build a politics of competence - but what can it learn from the ERM crisis? And does competence mean now what it meant then?
On 16 September 1992, 'Black Wednesday', the Conservative government abandoned the European Exchange Rate Mechanism (ERM), a system in which each country committed to maintain its exchange rates within a target bandwidth around a centrally defined parity. On that day alone, in order to maintain the parity of the pound, the Bank of England and the Treasury had already spent $28 billion of reserves on buying up sterling to defend its value. They had raised the interest rate from 10 per cent to 12 per cent - and had even considered a further rise to 15 per cent.1 This desperate attempt to maintain parity within the ERM proved financially costly and politically humiliating. From mid-September 1992 onwards, the Labour Party acquired an advantage in the polls that, far from narrowing, grew into the landslide victory of 1997. There is a consensus that the consequence of the ERM mishandling was the Tories' loss of one of their most precious electoral advantages: the reputation for competence. Anthony King, in the wake of the 1997 general election, wrote:
The Conservative Party throughout most of its history, especially during the present century, has had a reputation for solid competence. The party might be dull and uninspired, it might be out of touch with the needs of ordinary people, its values might not be desperately attractive; but at least the Conservatives know how to run things ... The history of Britain's financial crises in the twentieth century fed the Tories' reputation. Between 1900 and 1992 there were four full-blown financial crises involving the British government, and Labour administrations were implicated in all of them ... The two parties' contrasting reputation alone gave the Conservatives a substantial inbuilt electoral advantage ... What happened on 16 September 1992 - Black Wednesday - was that a Conservative government threw all that away.2
The ERM crisis was evoked in the early stages of the current pandemic, when it became apparent that the British government...