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The long‐term prospects of the European Monetary System (EMS) are examined from a non‐technical viewpoint, considering the system as a variable rather than a given. The prospects are seen as comprising three phases. The first phase, which has now concluded, is consolidation. The second phase is the current phase, and is the period in which the ‘inconsistent quartet’ emerges. This involves seeking to achieve the impossible task of reconciling free trade, full capital mobility, fixed (or managed) exchange rates, and national autonomy in the conduct of monetary policy. The third phase is starting to foresee European Monetary Union (EMU); in this phase full implementation of free trade and capital mobility will occur.

The negotiation of EMU is situated in an historical context, notably the mounting tensions in the post‐war Bretton Woods system, the Hague Summit of 1969, the eventual collapse of Bretton Woods and the creation of the European Monetary System in 1978–79. An account is given of the relaunch of EMU in 1988, of the start of the detailed negotiations, of the nature and significance of the Maastricht Agreement, and of the end game in 1991.

Few proposals have been made for the reform of what used to be called the international monetary system, and academic economists have tended to ignore the experience of the European Monetary System (EMS) in their research. An account is given here of this experience. It addresses the functioning of the EMS, considers desirable developments, and examines the difficulties that such developments are likely to encounter.

The concluding essay in the book, written in 1994. It summarizes the factors and events that led to the signing of the Maastricht Treaty in February 1992, and then gives the author's interpretation of events between the late spring of 1992 and early 1994, when the process of ratification and the crisis of the European Monetary System (EMS) interacted so powerfully. The concluding section reflects on the problems of implementing the treaty.

This chapter mentions some of the potential anomalies in the European Monetary System (EMS). It also consists of brief case-studies of those countries most affected by the crises and concentrates on the political and economic context in which key decisions to cope with the crisis occurred. Focus is placed on the Nordic countries (Finland, Norway, and Sweden), the UK, Italy, Spain, and France. Special attention is given to the Nordic countries where, it is argued, the advantages of striking a federal bargain with the European Union became the conventional wisdom during this period. The main argument of this chapter is that the enormous economic and political sacrifices endured by a range of European countries during the exchange rate turmoil of 1992 and 1993 can only be understood in the context of the federal bargain concluded at Maastricht. The most noteworthy characteristic of the 1992 and 1993 currency crises was probably the degree of consensus across political parties that there was no alternative but to defend exchange rate parities.

From the onset of European monetary cooperation until the current eurozone crisis, France and Germany have been at the heart of European decision-making on monetary affairs. Monetary integration provides an outstanding example of the impact of Franco-German bilateralism in a key European policy field. This chapter examines the crucial leadership role of the two states in setting the agenda for integration in monetary affairs—the European Monetary System (EMS) in the 1970s and Economic and Monetary Union (EMU) prior to the Maastricht Treaty in 1988–91. Despite different national monetary policy traditions and monetary cultures, France and Germany struck “compromises by proxy” acceptable to other states. During the current sovereign debt crisis, they have been pivotal in shaping the fate of the eurozone, providing common leadership. Chapter 8 also analyzes the growing asymmetry between France and Germany when it comes to financial resources and economic competitiveness, and its consequences for their common leadership capacity.

This chapter examines the quest for a new philosophy of the European Economic Community (EEC) exchange rate system, from Helmut Schmidt's “exotic idea” of late March 1978 to the publication of the Bremen Annex in mid-July of the same year. It begins with an overview of the monetary initiatives taken in March 1978, and culminating at the European Council in Copenhagen in early April 1978. It then considers the parallel attempts at hatching a new plan for European monetary cooperation, following the Copenhagen Summit, until the presentation of the Schulmann-Clappier draft that would form the basis of discussion at the Bremen European Council. It also traces the road to the production of the Bremen final communiqué that outlined the final guidelines of the European Monetary System. The chapter concludes by looking at the work (semi)secretly carried out by the so-called Group of Three, which devised what would become the Bremen Annex.

This book challenges a rather simplistic interpretation of the creation of the European Monetary System (EMS) and sheds new light on the wider trends in European monetary cooperation. Drawing on eighteen archives in six countries, including Britain, France, Germany, Ireland, Italy, and the European Economic Community (EEC), the book examines how a European consensus was built regarding European monetary cooperation in a world of floating currencies. It also considers the peculiarity of European monetary cooperation between 1974 and 1979—and interest in the wider perspective of post-1945 international economic history—in relation to transnational, intergovernmental, and supranational dimensions as well as the interaction among economic, political, political-psychological, and technical dimensions. It argues that European monetary cooperation in the mid- to late 1970s was one of the European responses to international economic and monetary crisis.

Keynesian proposals for reforming international monetary relations aim at establishing a world central bank that, in order to enhance stability and growth, imposes ceilings for current account balances and allows a distribution of reserves according to political priorities. For various mainly political reasons, it is highly improbable that such an institution will ever be founded. Moreover, analysing the reasons for the downfall of historical fixed-exchange-rate systems shows that, e.g., a deflationary effect of export-surplus policies or excessive reserve-keeping was a specific feature of the gold standard, but not necessarily of other paper standard systems. Often, a realignment would have removed key causes of instability. In the future, a system with two or even three key currencies might give better results, if accompanied by regulations on scope and structure of reserve keeping.

This book has documented the prehistory of European monetary cooperation and the negotiations that took place in order to establish the European Monetary System (EMS). It has highlighted two important features: the transnational learning process amid a transnationally connected monetary elite and the impact of the emergence of the European Council in the European Economic Community's (EEC) institutional setup. These features constitute the intellectual and technical roots, as well as the political and institutional origins, of the monetary scheme that entered into force in March 1979. The book concludes by relating its findings to wider historiographical issues and situating them within the perspective of the ways in which European integration was conceptualized by political scientists. It also examines the five main implications of the EMS creation and offers an alternative explanation for its adoption, one that is different from the existing historical literature and the literature on political science.

This chapter examines the European Monetary System (EMS) negotiations from the Bremen European Council until late September 1978, when the debate over the role of the European Currency Unit in the new exchange rate system had been largely settled, and how such negotiations relate to monetary debates of the previous years. It first considers the early technical discussions leading up to the first post-Bremen Finance Council of July 24 and goes on to discuss the second phase of discussions in August, during which the European Economic Community (EEC) member states made their official positions known. It then assesses the progressive evolution of the negotiations along a Bundesbank-inspired line over the month of September. It also analyzes the “concurrent studies” and the emergence of differing opinions on the most important points concerning the exchange rate system.

This chapter addresses the issue of Britain's participation (and degree of participation) in, the European Monetary System (EMS). It does not attempt any direct conclusion to that issue. Instead, it constructs a theoretical model which may have a bearing upon it — and considers similar questions which have come up in the past, and will surely continue to do so, as far ahead as one can look. Thus what it means by an international economy is one consisting of a number of national economies, each of which uses its own money. Within each nation are a number (which we take to be a large number) of separate decision-makers, persons and firms, private and public, which have commercial and financial relations between them. The parties to a transaction may have the same, or they may have different, national attachments.

This chapter focuses on the end of the European Monetary System (EMS) negotiations and the launch of the new exchange rate system. The discussion covers the second and last phase of the negotiations, from the decision to adopt a Parity grid system until the entry into force of the EMS in March 1979. It first considers how the various negotiators involved decided on the functioning of the “Belgian compromise,” that is, how the divergence indicator would operate. It then examines the consequences of the agreement on the Parity grid system, along with the intensification of political contacts in order to win the participation in the EMS of the British, Irish, and Italian governments. It also comments on the end of the concurrent studies and the extent to which their deadlock had the potential to become an obstacle for the inception of the EMS as a whole. The chapter concludes by looking at the Brussels European Council and the delayed launch of the EMS.

This chapter examines how monetary union changed national labor markets in Europe. It begins with a discussion of assumptions and theoretical foundations of a dual-sector economy consisting of the exposed or tradables sector and the sheltered or nontradables sector. It then considers the European Monetary System's exchange-rate mechanism, and how the Maastricht criteria restored sheltered sector employers' bargaining strength. It also explains how inflation convergence synchronized price competitiveness among European Economic and Monetary Union (EMU) candidate countries, accounting for the lack of divergence in the EMU North and South's current account balances. It shows that monetary union removed two institutional constraints that enhanced employers' ability to uphold wage moderation, which in turn facilitated low-inflation governance in national labor markets across Europe: national-level, non-accommodating central banks and the Maastricht criteria.

Though Roy Jenkins had a short involvement with EMU as president of the European Commission, he developed an approach that was to prove of great longer-term significance. His contribution mattered not in the economic thought that he brought to the subject, but rather in his very political understanding of EMU’s importance and of the best route to achieve monetary union. This last would require the active commitment of Europe’s leaders, through the European Council. It would also entail a rejection of the gradualism and caution that had prevailed in the EMU debate since the failure of the Werner Plan. By contrast, Jenkins’ ideas about the importance of the fiscal dimension of EMU, based on the MacDougall Report of 1977, had much less impact—a failure that would contribute to some of the more recent travails of EMU. This chapter is based on original archive research.

This chapter examines the political and institutional features of wage-setting regimes that favor sheltered sector interests in European Economic and Monetary Union (EMU) countries. Using a most-different case comparison of Ireland and Spain, it considers why both countries suffered similar declines in real exchange rate competitiveness after entering the EMU despite having different institutional, political, and economic characteristics. The chapter first discusses the monetary transition of Ireland and Spain in greater detail before comparing their commitments to the European Monetary System. It then looks at bargaining fragmentation in Spain and wage inflation in Ireland's sheltered sector and goes on to show that both countries suffered a similar fate after 1999 due to the absence of a strong export-sector check on collective bargaining that could deliver encompassing wage moderation.

This chapter considers the possible connection between the exchange rate regime and inflation performance. A basic framework is conceptualized, using a heuristic approach and a model of inflation based on money demand and money supply. Empirical studies are then discussed and surveyed in the chapter to further discover whether or not these regimes affect inflation. In this analysis, the European Monetary System is one establishment that is studied, as are the works of Levy-Yeyati and Sturzenegger and many others. The conclusion derived from the analysis of data and evidence suggests that exchange rate regimes play an important role in influencing inflation, and results show that tempering inflation can be achieved through pegged exchange rates in order to help discipline policy.