Major leads where Britain cannot follow

ON SATURDAY I was talking to a young American political reporter who has been covering the Clinton-Gore bus tour in the United States. She was fascinated by the crowds that turned out, particularly in small cities that would not normally get on to a presidential campaign schedule. The crowds were bigger and more enthusiastic and they arrived earlier than any she had seen before. At first she thought this might be the result of good advance work, but after a few days she concluded that the crowds were middle America wanting to see history in the making.

There were many teenage girls of the sort that turn out for pop stars. The Clinton-Gore ticket is a young man's ticket and it has glamour; President Reagan had glamour, too, but for the blue-rinse generation. Clinton-Gore, and it is a campaign double act, have a star quality that has not been seen in American politics since the Kennedy years of the Sixties.

In 1988, Governor Dukakis had a 17-point lead in the public opinion polls immediately after the Democratic convention. But he proved to be a boring candidate, fighting the successor to a popular president in the middle of a boom. Bill Clinton has a 25-point lead; he is a charismatic candidate fighting a weak and unpopular president in the middle of a recession that will not go away.

At present no less than 80 per cent of the Democrats who voted for Reagan say that they will vote for Mr Clinton, and 80 per cent of Ross Perot's supporters are also backing Mr Clinton. The Perot campaign was important; he was not a real candidate, but the protest was a real protest.

The president himself is running so exhausted and ineffective a campaign that there are widespread rumours that he is seriously ill, that he will have to leave the ticket, that his sickness in Tokyo was a slight stroke, and so on.

The probability, therefore, is that Mr Clinton will be elected in November.

Scandal is unlikely to prevent that. Most Americans assume that he has slept with a number of women other than his wife, and will not change their political views if this number turns out to be somewhat larger than was first thought.

A Clinton victory would be significant in Britain because the American political cycle is so similar to ours. In 1974, with the defeat of Ted Heath, the Conservatives reached a cyclical low point in Britain; in 1976 the Republicans lost to Jimmy Carter. The true believers then won control of the two parties, Margaret Thatcher in Britain and Ronald Reagan in America. The second Reagan victory in 1984 and the third Thatcher victory in 1987 represented the peaks of this Conservative cycle.

In 1989, George Bush succeeded Mr Reagan and in 1990 John Major succeeded Mrs Thatcher. Mr Bush and Mr Major were both seen as moderates and both won re-election. Yet by now both men have alienated the true believers in their own parties. Mr Bush is seen by most American conservatives as having betrayed Reaganism; Mr Major is seen by some Conservative Members of Parliament as having betrayed Thatcherism. Both are criticised inside their own parties for their economic policy, even by those who do not belong to the right-wing group.

In April, Mr Major scraped home against Neil Kinnock, but it was a close-run election and a narrow majority. The Democrats have not nominated a Kinnock. If Mr Major had been fighting a Brown-Blair ticket, he might well have lost in April. Mr Bush is fighting the American equivalent of that ticket, and his campaign is taking place a few months later in the political and economic cycle.

If Mr Bush loses, the conservative cycle in the United States will have come to an end, although no doubt a new one will start. The second stage of the Reagan rocket will have splashed into the sea.

Can the Conservative Party in Britain avoid a comparable splashdown? There certainly are rising pressures for a new economic policy, and in some quarters for a new leader.

In yesterday's Sunday Times the lead story was an off-the- record interview with the Prime Minister on economic policy. All the journalistic evidence was that the Prime Minister's own views were being expressed, though without direct quotation.

Mr Major told the Sunday Times that he had embarked on an economic strategy 'designed to see the British pound replace the German mark as the hardest and most trusted currency in the European Community'. This is an extension of his more public commitment to zero inflation.

The question is whether his objective is attainable: the answer, unfortunately, is that it is not.

What does Britain lack to replace the mark as the central European currency? We are not Germany. We do not have Germany's economy, Germany's geographical position, Germany's historic horror of inflation, the constitutional position of the Bundesbank, Germany's long-term record of price stability, Germany's central position in the European Community or Germany's manufacturing base.

Britain can perform more or less well against our competitors, including the Germans. We are no more capable of replacing the German mark as the central currency of the exchange rate mechanism than we are of replacing the United States as the main military power in Nato or Japan as the dominant export economy of the Far East. The objective the Prime Minister has set himself is beyond his, or Britain's, power.

The economic damage that can be caused by the vain pursuit of this objective is almost unlimited. Deflation in a depression is dangerous. Some of us were warning of the consequences of joining the exchange rate mechanism during a recession before the fatal decision was taken in October 1990. Since that time, the Prime Minister and the Chancellor have quite consistently been over- optimistic about recovery. Each quarter that they have been proved wrong - and we have been proved right - they have come up with over-optimistic forecasts for a subsequent period.

Britain now faces another year, perhaps another two years, of depression, including unemployment rising above three million and the massacre of our building industry, as long as interest rates remain at their present level and as long as the pound remains overvalued by 30 per cent relative to the dollar. Some sectors may show occasional improvement, but there will be no general recovery. On the contrary, there will be sudden and unforeseen disasters as the pressure bears down on one weakened part of the structure or another. No one is safe.

At some point in this process, there will be a major exchange crisis in the European Monetary System, and that will affect sterling. Italy is already financially far weaker than Britain; Spain is in poor shape; France may reject Maastricht in the September referendum. Mr Major will have a choice. He can defend his sterling dream by raising interest rates, he can devalue, or he can refloat the pound. He should no doubt refloat the pound, despite his own commitment to the ERM.

The danger is that he will raise interest rates. If he believes in sterling as the central European currency, he will have to do so. Yet that could turn the depression into a slump.

The political cycle may be turning both in Britain and in the United States. Higher interest rates to defend sterling would ensure a political slump for the Conservatives and make likely an economic slump for Britain as well.