Britain’s Role in the World Economy

British governments have long struggled with the relationship between the domestic and the world economies. Thus, many governments have failed to resolve the ‘trilemma’, the trade-off between the variables of exchange rates, capital movements and domestic policy.1 Certainly, the economic debates of the Thatcher governments featured increasingly vehement arguments about the stance that Britain should adopt towards the rest of the economic world. In the early years, sterling appreciated rapidly. Many, at the time and subsequently, thought that this was a major factor in the return of mass unemployment.2 The Thatcherites — a then minute group of politicians and economists — came under fierce attack for their apparent indifference to the sharp rise in the rate of both sterling and unemployment. Subsequently, the Thatcherites turned on each other over the relationship of sterling to the DM, and whether Britain should join the EMS. The strongest advocates of ‘shadowing’ the DM, and joining the EMS, were those who had withstood the earlier storms, in particular Howe and Lawson.3 Thatcher resisted these arguments, and denounced at Bruges ‘a European super-state exercising a new dominance from Brussels’.4