Black Wednesday, 30 years ago: A British humiliation

September 16, 1992 marks the 30th anniversary of the ejection of the Pound Sterling from the European Monetary System (EMS), described as a “disastrous day” by then Prime Minister John Major, who never recovered politically. . Then Chancellor of the Exchequer, who had persuaded 7 years earlier his boss a hardly enthusiastic Margaret Thatcher, was convinced that this indexation to the Deutsche Mark underlying the EMS would at least indirectly benefit an unstable British economy conducive to inflationary outbreaks. The Pound would thus gain in credibility and the monetary policy of the Bundesbank which then dominated all of Europe – and even the world! – would reinvigorate a chronically ill Britain.

Except that reunification was a very heavy burden to bear for Germany which began to gradually raise its interest rates and whose economic cycle quickly rubbed off on Great Britain that was left with no choice but to follow and raise her own so as not to suffer the flight of capital which could now circulate freely within the EMS. This forced increase in British rates, however, came at the worst possible time because the country was already experiencing a fall in its real estate market which – as we know – has always considerably influenced the economy of this country. Logically, the Deutsche Mark – and the Pound Sterling which followed its fluctuations – appreciated substantially because of their respective higher interest rates, and this all the more so since the dollar fell at the same time because the Reserve federal government reduced its own. This situation was becoming untenable for the British economy because the fact is that the Pound had entered the EMS at an already incomprehensibly high level, which was literally choking its economy as the Pound approached and then exceeded the level of 2 dollars.

This analysis was carried out by George Soros and by a few other Hedge Funds who bet big on the fall of the Pound, understanding that the Bank of England would not be able to defend its level for long. This fateful Black Wednesday therefore started with a rise in British rates from 10 to 12%, which amounted to increasing the rates on variable mortgages by 20% in a context of a real estate market in liquefaction. Nothing helped since speculation against the pound intensified, so much so that the Bank of England shocked everyone by announcing – at lunchtime – an additional increase in its rates from 12 to 15% ! Traumatizing in passing the holders of mortgages who suffered an increase of no less than 50% of the burden of their debt in less than 24 hours. Led by Soros, the whole planet then began to sell the British currency to whoever wanted to buy it, that is to say to the Bank of England which was the only entity in the world to still want it… Few after the markets closed on September 16, 1992, Chancellor Norman Lamont was forced to abruptly announce to the press on a London sidewalk the cancellation of this second rate hike and at the same time the exit from the EMS, before cutting these same rate to 9% the next morning.

This desperate defense of the Pound cost nearly 3.5 billion, but was above all extraordinarily heavy with consequences because the abandonment of the EMS was the infallible harbinger of the refusal to adopt the Euro by Great Britain. This nation was indeed from then on in an ambivalent posture vis-à-vis the European Union, until Brexit came in 2016. For other nations, this resounding event was on the contrary an ultimate motivation to complete the advent of the single currency. This Black Wednesday was also a game-changer in France as it came just 4 days before the referendum on the Maastricht Treaty which, according to almost all polls, was supposed to be rejected by a majority of voters. It was adopted against all odds by France, thus making it possible to keep alive the European project because a majority of French people were impressed by the British chaos. Asked a few years later about his strategy during this day that changed the situation in his country and throughout Europe, Norman Lamont replied in French and in a very sympathetic way, paraphrasing Piaf: “Je ne regrette rien” (I do not regret anything).  We neither.