Economic policy in the UK has now, of course, a much greater European dimension. I cannot remember, during most of the good times, that anyone was overly concerned with, for example, the latest interest rate decision of the German Bundesbank. To what extent has this loss of independence been responsible for Britain's return to the economic sick bay? This is, plainly, one of those topics upon which, if one seeks opinions from six different economists, one is likely to end up with seven different views.
Before the formal decision to enter the European exchange rate mechanism (ERM) last October, there were two serious flirtations with membership. The first was Lawson's attempt to enter at a Deutschmark rate of DM 3.75 in the autumn of 1985. This was unsuccessful and so cannot have done any damage in itself. But what about the long episode of "shadowing" the Deutschmark, at a rate of just below three Deutschmarks, from early in 1987 to the spring of 1988? This came after a period in which the pound had fallen sharply in response to the big drop in oil prices of 1986. Sterling was then more of a petro-currency. The collapse in oil prices undermined, too, the pound's value on the foreign exchanges.
The currency markets, however, have a tendency to overshoot. The difficulty, therefore, with the 1987-88 shadowing episode was that it began at a point where the pound, having overshot on the way downwards, was ripe for recovery. This was good for industry - and, in the short term at least, for the rest of us - in that sterling's buoyancy allowed interest rates to be brought down to 7.5% by May 1988. Now we can see that interest rates were reduced at a time when they should not have been.
A similar analysis, brought right up to date, raises questions about the entry level of the pound into the ERM. Sterling had recovered prior to entry, indeed partly because of the view in financial markets that ERM membership would make the pound a safe currency. The difficulty was presented by that old market adage "Buy on the rumour, sell on the fact". In other words, sterling may have entered the ERM at just the point when it was ready for a fall, making it difficult, initially at least, to cut interest rates within the ERM framework.
Now we are in, however, we are clearly in to stay. In the long term ERM membership will act as an important constraint on politicians, making it harder for them to expand the economy for their own electoral purposes. It should also act as a restraining influence on the rest of us. In the context of the past four years that can only be a good thing.
(David Smith is economics editor of The Sunday Times.)