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Go for the Jugular

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics
June 4, 2010
Atlantic Monthly


On Tuesday, September 15, the pound took another beating. Spain's finance minister telephoned Norman Lamont, his British counterpart, to ask him how things were. "Awful," Lamont answered.

That evening Lamont convened a meeting with Robin Leigh-Pemberton, the governor of the Bank of England. The two men agreed that the central bank should buy the pound aggressively the next morning. As the meeting wound down, Leigh-Pemberton read out a message from his press office. Helmut Schlesinger, the president of the German Bundesbank, had given an interview to the Wall Street Journal and a German financial newspaper, Handelsblatt. According to a news agency report on his remarks, Schlesinger believed there would have to be a broad realignment of Europe's currencies.

Lamont was stunned. Schlesinger's remark was tantamount to calling for the pound to devalue. Already his public statements had triggered an assault on Italy's lira. Now the German central banker  was attacking Britain. Lamont asked Leigh-Pemberton to call Schlesinger immediately, overruling Leigh-Pemberton's concern that the punctilious Bundesbanker did not like to have his dinner interrupted.

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