Editing Black Wednesday (section)

==Prelude==
{{further|Monetarism}}
When the ERM was set up in 1979, the United Kingdom declined to join. This was a controversial decision, as the [[Chancellor of the Exchequer]], [[Geoffrey Howe]], was staunchly pro-European. His successor, [[Nigel Lawson]], whilst not at all advocating a [[fixed exchange rate system]], nevertheless so admired the low inflationary record of [[West Germany]] as to become, by the mid-eighties, a self-styled "exchange-rate monetarist", one viewing the sterling–Deutschmark exchange rate as at least as reliable a guide to domestic inflation{{snd}} and hence to  the setting of interest rates{{snd}} as any of the various [[Money supply#M0|M0-M3 measures]] beloved of those he labelled as "[[A Bold Stroke for a Wife#Simon Pure|Simon Pure]]" monetarists. He justified this by pointing to the dependable strength of the [[Deutsche Mark]] and the reliably anti-inflationary management of the Mark by the [[Deutsche Bundesbank|Bundesbank]], both of which he explained by citing the lasting impact in Germany of the disastrous hyperinflation of the inter-war [[Weimar Republic]]. Thus, although the UK had not joined the ERM, at Lawson's direction (and with Prime Minister [[Margaret Thatcher]]'s reluctant acquiescence), from early 1987 to March 1988 the Treasury followed a semi-official policy of "shadowing" the Deutsche Mark.<ref>{{Cite news|title=Not while I'm alive, he ain't&nbsp;– Part 4 Thatcher and Lawson|work=[[The Westminster Hour]]|publisher=BBC Radio 4|date=15 May 2003|url=http://news.bbc.co.uk/2/hi/programmes/the_westminster_hour/archive/2318013.stm}}</ref> Matters came to a head in a clash between Lawson and Thatcher's economic adviser [[Alan Walters]], when Walters claimed that the Exchange Rate Mechanism was "half baked".<ref>{{cite news |url=https://www.telegraph.co.uk/news/obituaries/4126227/Sir-Alan-Walters.html |title=Sir Alan Walters |type=obituary |work=The Daily Telegraph |date=5 January 2009 |access-date=21 October 2019}}</ref>

This led to Lawson's resignation as Chancellor; he was replaced by former Treasury Chief Secretary [[John Major]] who, with [[Foreign Secretary (United Kingdom)|Foreign Secretary]] [[Douglas Hurd]], convinced the Cabinet to sign Britain up to the ERM in October 1990, effectively guaranteeing that the UK Government would follow an economic and [[monetary policy]] preventing the [[exchange rate]] between the pound and other member currencies from fluctuating by more than 6%. On 8 October 1990, Thatcher entered the pound into the ERM at [[Deutsche Mark|DM]]{{nbsp}}2.95 to £1. Hence, if the exchange rate ever neared the bottom of its permitted range, DM{{nbsp}}2.773 (€1.4178 at the DM/Euro conversion rate), the government would be obliged to intervene. In 1989, the UK had inflation three times the rate of Germany, higher interest rates at 15%, and much lower labour productivity than France and Germany, which indicated the UK's different economic state in comparison to other ERM countries.<ref>{{cite magazine |url=https://libcom.org/library/britain-european-exchange-rate-mechanism |first1=Werner |last1=Bonefeld |first2=Peter |last2=Burnham|title=1990–1992: Britain and the politics of the European exchange rate mechanism |magazine=Libcom |date=13 January 2006 |access-date=17 January 2024}}</ref><!--Seems also to have been published in the journal and Capital & Class, Volume 20, Issue 3 https://doi.org/10.1177/030981689606000102. Verify before citing; it's behind a paywall.-->

From the beginning of the 1990s, high German interest rates, set by the Bundesbank to counteract inflationary effects related to excess expenditure on [[German reunification]], caused significant stress across the whole of the ERM. The UK and Italy had additional difficulties with their [[double deficit (economics)|double deficit]]s, while the UK was also hurt by the rapid depreciation of the United States dollar&nbsp;– a currency in which many British exports were priced&nbsp;– that summer. Issues of national prestige and the commitment to a doctrine that the fixing of exchange rates within the ERM was a pathway to a single European currency inhibited the adjustment of exchange rates. In the wake of the rejection of the [[Maastricht Treaty]] by the Danish electorate in [[1992 Danish Maastricht Treaty referendum|a referendum]] in the spring of 1992, and an announcement that there would be [[1992 French Maastricht Treaty referendum|a referendum in France]] as well, those ERM currencies that were trading close to the bottom of their ERM bands came under pressure from foreign exchange traders.<ref>{{cite journal |last=Aykens |first=Peter |url=https://www.jstor.org/stable/20097797 |title=Conflicting Authorities: States, Currency Markets and the ERM Crisis of 1992–93 |journal=Review of International Studies |volume=28 |issue=2 |date=April 2002 |publisher=Cambridge University Press |pages=359–380 |doi=10.1017/S0260210502003595 |access-date=21 October 2019 |jstor=20097797}}</ref>

In the months leading up to Black Wednesday, among many other currency traders, [[George Soros]] had been building a huge [[Short (finance)|short position]] in sterling that would become immensely profitable if the currency fell below the lower band of the ERM. Soros believed the rate at which the United Kingdom was brought into the Exchange Rate Mechanism was too high, inflation was too high (triple the German rate), and British interest rates were hurting their asset prices.<ref name="amazon1">{{cite book|title=More Money Than God: Hedge Funds and the Making of a New Elite |first=Sebastian |last=Mallaby |isbn=9781594202551 |publisher=Penguin Press HC |date=10 June 2010}}</ref>