From: smee@bristol.ac.uk (Paul Smee)
Newsgroups: soc.culture.british
Subject: Re: Currency Problems
Date: 29 Sep 92 16:16:57 GMT
Reply-To: P.Smee@bristol.ac.uk (Paul Smee)
Organization: University of Bristol

In article <haverkam.48.717775100@uni-duesseldorf.de> haverkam@uni-duesseldorf.de (Wilhelm Haverkamp) writes:
> It seems that the well-being of such a great nation like
> the British depends on wheather the British Pound is 2.80 DM or 3.12
> DM. For my opinion that is a completely unimportant question: in case
> of devaluation the British exports to Germany will increase, the import
> prices may become higher.  For German companies it will become more
> difficult to export goods to the UK. So what is the reason that British
> papers and politicians are so upset?

Your final question is a good one; I suspect the answer is merely some 
sort of perverse national pride based on 'my currency is stronger than
yours'.

However, the middle bit is (possibly) more complicated than you
describe.  (Some of it depending on which set of economic theories you
believe.) A lower pound MIGHT encourage foreign investment in the UK --
you can get more pounds, and so more shares, for your mark.  Also
cheaper for foreign companies to set up factories over here to get
around various import quotas and duties.  This might be good or bad,
again depending on your outlook.  The investment as such would tend to
help out industry and employment; on the other hand, foreign investors
tend to take their profits out back out of the country, which can hurt
the balance of trade.

On the other other hand, a lower pound MIGHT discourage foreign
investment, since the investors might worry that it could fall again,
and so lower the value of their investment.  However, this might either
be good or bad, because both the reasons I mentioned above apply, but
in reverse.  All a question of which model you believe -- and all of
them have been demonstrated to be not very reliable.

Your statement about how it should help out by making British exports
to other countries cheaper, and foreign imports to Britain more
expensive, is probably true in an ideal world.  However, there is some
fear that British industry has been so weakened by the past 13 years
that it will be unable to respond to any such increase in demand.  

If that is true (and some of us, like me, believe it) then people are
going to either cut back on their lifestyles, or buy imports at the
higher prices, simply because there ARE no British manufacturers.
(There was a long list in the papers over the weekend of things which
aren't made in this country any more; civilian aircraft were the latest
to go, with the final wind-down of a British Aerospace plant.)

If this effect holds (people having to rely on imports) then the most
likely result is either increasing pay-raise demands (so increasing
inflation and unemployment, on standard models), or a lower standard of
living and increasingly harsh governmental control over the
wage-bargaining process, neither of which the government would really
like to get into at the moment (at my guess).

It's also further confused by the fact that a lot of raw materials have
to be imported, which might drive up the prices of British goods.
(We're even importing COAL, for heaven's sake.  Even after the
devaluation, the government is planning to go ahead with the closure of
another bunch of British coal pits, and the power companies are
contracting outside.  Here's an island MADE of bloody coal, and we're
buying it in.  Sigh...  Sorry, getting carried away.)

-- 
Paul Smee, Computing Service, University of Bristol, Bristol BS8 1UD, UK
 P.Smee@bristol.ac.uk - ..!uunet!uknet!bsmail!p.smee - Tel +44 272 303132