Black Wednesday

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As Black Wednesday ( English Black Wednesday ) September 16, 1992 is referred to, on which there was a crisis of the European Monetary System  (EMS). It was triggered by speculation against the British pound sterling (and, to a lesser extent, the Italian lira ), both of which were viewed as overvalued. The Bank of England tried to support the crumbling exchange rate of the pound by buying billions, but it failed. As a result, the UK had to devalue the pound and left the EMS. For the British government under Prime Minister John Major , the event meant a serious loss of prestige. Speculators like George Soros , on the other hand, made billions in profits.

prehistory

The United Kingdom joined the EMS on October 8, 1990. In concrete terms, accession meant that the Bank of England undertook to keep the British pound at a stable exchange rate against the German mark within certain, narrow fluctuations of ± 6%. To maintain the fixed exchange rate relationship with the Deutsche Mark , the Bank of England had essentially two monetary policy instruments at its disposal: varying the central bank interest rate and direct intervention in the foreign exchange market by buying and selling currency reserves. The exchange rate was set by the British government at £ 1 = DM 2.95, which was the current rate at the time. In the longer term, however, this rate corresponded to a relatively high pound value, and the then Bundesbank President Karl Otto Pöhl warned the British Chancellor of the Exchequer John Major in a telephone conversation against setting the rate without prior negotiations. However, the fixed exchange rate was announced at short notice in a unilateral act by the British government. Domestic political reasons were the main reasons for the relative urgency in setting the exchange rate unilaterally and for quickly joining the EMS. After the resignation of her Chancellor of the Exchequer Nigel Lawson on October 26, 1989, Prime Minister Margaret Thatcher wanted to show a political success together with her new Chancellor of the Exchequer, John Major, at the forthcoming Conservative Congress . For reasons of national prestige, too, a lower entry price was not an option. Chancellor of the Exchequer Major hoped that the high value of the pound would make imports cheaper and thus dampen price increases in the United Kingdom. The hope of the supporters of EWS membership was that Great Britain would, if the pound were closely linked to the German mark, also import the low inflation rate of the German Federal Republic. This would make the United Kingdom, like the Federal Republic, which is envied in this regard, an "oasis of monetary stability" and thus attractive for investors. From the outset, however, many financial experts up to the boardrooms of the Bundesbank considered the value of the pound to be too high. Although the latter did not express this view publicly, this view probably played a role later when it came to defending this course. Immediately after joining the EMS, the British government cut its central bank interest rates, and the pound exchange rate initially remained stable in the target range without the need for major intervention.

The crisis and “Black Wednesday” on September 16, 1992

From the beginning of the 1990s, the Deutsche Bundesbank began, under its President Helmut Schlesinger , to raise key interest rates in order to counter the risk of inflation in the wake of German reunification . The UK had to follow this monetary policy for better or for worse. However, the high interest rates led to strong domestic protests because many home buyers could no longer service the high lending rates. The British government tried several times to persuade the Bundesbank leadership to lower its key interest rates, which did not happen.

The credibility of the EMS was also shaken after the majority of voters in Denmark rejected the Maastricht Treaty , which provided for the gradual formation of a European monetary union from the structures of the EMS, in a referendum on June 2, 1992 . It was therefore to be feared that the French voters, who were to be questioned in a referendum for September 20, 1992, would also reject the treaty.

On September 15, 1992, Bundesbank President Helmut Schlesinger gave the Handelsblatt and the Wall Street Journal an interview in which he spoke of the fact that “one or two currencies from the EMS could come under pressure” before the scheduled French referendum. The interview was published in advance by Handelsblatt without Schlesinger's authorization and, in a sense, marked the start of speculation against the two currencies in the EMS, which many saw as overvalued, the Italian lira and the British pound. In a later justification, Schlesinger pointed out that in the same interview he had explicitly defended the British pound and found that the relevant British authorities had taken appropriate precautions.

George Soros and other investors believed that the British pound was overvalued and that Britain would either devalue the pound or leave the EMS. Soros and others used large sums of money to weaken the pound. At first the British central bank tried to stabilize its currency through support purchases. A devaluation of the pound was out of the question in order not to miss the political goal of controlling inflation. When that had little effect, however, it announced on September 16, 1992, the so-called “Black Wednesday” ( “Black Wednesday” ), an interest rate hike from initially 10% to 12% in order to increase the attractiveness of the pound and attract investors . Only a few hours later, the central bank announced an increase in the interest rate to 15%. The speculators ignored this statement and continued to bet large sums against the British pound, so that around 7 p.m. local time the Chancellor of the Exchequer , Norman Lamont , announced that Great Britain would leave the EMS and the interest rates would return to the old one Would be lowered by 10%. As a result, the British pound fell nearly 15% against the German mark and 25% against the US dollar over the next five weeks.

This speculation brought Soros billions in profits and the nickname "The man who broke the Bank of England ".

Domestically, the crisis in Great Britain ruined the electorate's confidence in the economic policy competence of the Major government. The currency crisis was felt by not a few as a national humiliation, which was caused by a compulsory set of rules of European institutions. Anti-European sentiment rose in the UK and the 1997 general election was won by a large majority by the opposition Labor Party headed by Tony Blair .

The cost of supporting the British pound on Black Wednesday, ultimately borne by the British taxpayer, was estimated very differently. An analysis by the UK government came to around £ 3.3 billion in 2005, compared with much higher estimates of £ 13 billion to £ 27 billion previously.

See also

Web link

Individual evidence

  1. ↑ Euro Moments: UK joins Exchange Rate Mechanism mechanism. BBC News, May 19, 2014, accessed December 26, 2015 .
  2. ↑ 1990–1992: Britain and the politics of the European exchange rate mechanism. libcom.org, January 13, 2006, accessed December 26, 2015 .
  3. ^ Black Wednesday (BBC 1997). 1997, accessed December 26, 2015 .
  4. ^ Christopher Huhne: Schlesinger: a banker's guilt: The president of the Bundesbank has been woefully indiscreet. But the Chancellor, too, is a diminished figure, says Christopher Huhne. The Independent, October 2, 1992, accessed December 26, 2015 .
  5. ^ Craig R. Whitney: Blaming the Bundesbank. The New York Times, October 17, 1993, accessed December 26, 2015 .
  6. ↑ Udo Perina and Nikolaus Piper: Europe after the storm. (PDF) ZEIT online, September 25, 1992, accessed December 26, 2015 .
  7. ^ Helmut Schlesinger: Blaming the Bundesbank. December 5, 1993, accessed on December 26, 2015 (Schelsinger's letter to the NYT).
  8. ^ Matthew Tempest: Treasury papers reveal cost of Black Wednesday. The Guardian, February 9, 2005, accessed December 26, 2015 .