Letter: Osborne must heed hard financial lessons

Douglas Mayer highlights (Letters, 21 May) some possible effects of Chancellor George Osborne's Office for Budget Responsibility (OBR) and compares it to Gordon Brown's monetary policy committee. Both involve hiving off to quangos those decisions and bases for policy which the government should have the guts to take itself.

Brown was lauded for setting up the MPC; but the implication was that he could not trust himself to set interest rates in our medium-term national interest rather than for his short-term party advantage. It also meant that he no longer had two weapons in his own armoury (monetary and fiscal) to deal with our economic needs.

This mirrored the German situation in the early 1990s. There were no doubt good historical reasons for the Bundesbank's independence (the 1920s hyperinflation). But when the German government pusillanimously refused to adopt the correct policy of greatly increased taxation to pay for reunification, the Bundesbank had no option but to maintain high interest rates.

This forced excessively high interest rates on the rest of the European Commission/ European Union, irrespective of their own economies' needs and despite opposition to the German policy (unanimous as I recall).

This led directly to the UK leaving the ERM in September 1992, from which the newly-elected Conservative government never recovered – ironically, as it ushered in ten years of genuine growth from which Labour benefited before squandering its legacy.

Having fudged the ERM rules on economic convergence, the EU set up the euro on a similarly false prospectus and with inadequate European Central Bank control; so at the first sign of trouble, the chickens are coming home to roost with a vengeance. Let us hope Osborne recognises the law of unintended consequences.

JOHN BIRKETT

Horseleys Park

St Andrews, Fife