Getting it right next time

IT IS always easier to predict the past than the future, but the differing interpretations of the events of September 1992 show that even agreeing what happened is not always simple.

Defying all the criticism heaped on his unrepentant head, ex-Chancellor Lord Lamont appears determined to snatch victory from the jaws of the infamous exit from the Exchange Rate Mechanism.

Admittedly, sterling ultimately weathered the storm in some style. As economist Stephen Lewis points out and the chart of its average value below confirms, in the past five years the pound achieved remarkable stability - and over the past three it was much more stable than the euro.

But arguing that the ERM experience was a necessary part of this is like claiming that Germany's World War II defeat was worthwhile because its economy later recovered. There must be better ways to do things.

Today, the more important question-is what happens in the next decade. Can the ERM trauma and happier aftermath help us to manage it better?

One of the key mistakes was to enter the ERM at a time when German interest rates were soaring due to the strains of reunification. That, at least, should not be repeated. But another crucial error was was to join at too high a rate - with sterling at 2.95 marks. Today, as the debate on euro entry steps up, sterling is at the equivalent of 3.11 marks. The danger of getting it wrong a second time is all too clear.

As Bank for International Settlements boss Andrew Crockett warned on Monday, pitching the rate too high is far more dangerous than pitching it too low. More and more businessmen are now saying that the answer is not to join the euro at all.

Even if the vote eventually went in favour, it would be crucial to choose a realistic entry rate. The City view is that this would have the pound 5% to 10% lower than it is now.

Bridging this gap does not look easy. UK base rates at 4% are still well above euroland's 3.25%, and the next move in euroland could be down as its economy struggles. But monetary dove Sushil Wadhwani is now calling for lower rates here, believing that inflation will undershoot the Bank of England's 2.5% target.

A huge unknown for the next decade is how the dollar performs. It is already under strain from the huge US trade deficit. The warning from a White House aide that war on Iraq could cost up to $200bn (£130bn) hardly helps. Yet, astonishingly, the greenback rose on Monday. That was partly due to Japan's warning that it may need to devalue the yen.

Royal Bank of Scotland economist Geoff Dicks gives another reason. 'The US economy is sicker than Europe, but it has better doctors.'

Premier grows up

PREMIER Oil is not exactly a rebel teenager, but it has found a way to dispose of both its parents at the same time. It's buying out of its main shareholders Petronas and Amerada Hess is a signal that oil explorers, famed for blazing faraway exploration trails and burning cash, are growing up and thinking about long-term value for shareholders.

Premier's high ambitions led it into a string of huge projects in Asia, with correspondingly hefty debts. Its weakened balance sheet strained to support its far-flung ventures. These days, big investors are much more focused on seeing a return from their outlay. Big oil is ruled by financial controls and the old days of freespending explorers are a distant memory.

But since Premier shares are still only half their level of five years ago, investors will not mourn their passing.

Pension pain

PENSIONS gloom has been rampant all year. The latest survey from JPMorgan Fleming makes it deeper than ever. It reports that the numbers facing 'hardship' in retirement have grown by a million a year since 1996.

More than half the working population - 16m people - will have a pension income of less than 40% of their final salary. Less than one in three of the working population, or 8.7m, will be 'comfortable' in retirement.

Longer life, lower interest rates and plunging stock markets have made this an annus miserabilis for pension savers. But Paul Hersey, of researchers RAKM who compiled the Fleming survey, points out it does not take account of other forms of saving, such as Peps and Isas.

For many home owners, the steep rise in property prices offers some form of safety net. But selling the roof over your head is hardly the ideal way to protect your old age.