European exchange rate union

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Price increase in the EC member states from 1970 to 1980

The European Exchange Rate Association (EERV) was a multilateral intervention system between European currencies and was based on the Basel Agreement (April 10, 1972, implemented on April 24, 1972, keywords: currency snake , snake in the tunnel ), in which the six member states of the then European Economic Community had initially agreed a bilateral system of intervention for their currencies against the US dollar . Officially, this was an agreement between the central banks of the Member States of the Community to reduce the fluctuation margins of their currencies.

Until January 1, 1973, the EEC consisted only of its six founding countries. Great Britain, Ireland and Denmark joined the EEC on January 1st.

On March 21, 1972, the European Council instructed the central banks of the member states of the EEC to establish a mutual intervention system with fixed exchange rates and an exchange rate range of ± 2.25%. On May 1, 1972 (still under the Bretton Woods system ), the six EEC states together with the four current candidate countries (United Kingdom, Ireland, Denmark and Norway) founded the European Exchange Rate Union, then called "Snake" for short . On the occasion of a sterling crisis caused by inflation and the weakness of the balance of payments, the United Kingdom left on June 23, 1972, together with Ireland. In January 1973 the rate of the Italian lira came under pressure. The Swiss National Bank initially bought foreign currencies; on January 23, 1973, it closed its currency exchange, stopped its support purchases and announced publicly that it would stay out of the market until it calmed down. This is considered to be the 'beginning of the end' of the Bretton Woods system. In February 1973, Italy then left the EERC. On February 12, the US government announced that it would devalue the US dollar by 10 percent. On March 1, the Bundesbank had to reissue DM 8 billion in central bank money in order to meet its purchasing obligations. The next day the German foreign exchange exchange was closed at the request of the Bundesbank. Most of the other industrialized countries also closed their foreign exchange exchanges, so that their central banks escaped the previous purchase obligation. On March 19, 1973 the foreign exchange exchanges reopened. France left the EERR in January 1974, but rejoined it in mid-1975, only to leave again in March 1976. The numerous currency entries and exits are an indication of the weaknesses of the system.

The original peg to the US dollar in the Bretton Woods system turned out to be disadvantageous. A “bilateral intervention system” against the US dollar became a “multilateral” intervention system between European currencies, in which each participating central bank on its foreign exchange market either buys its currency with loans from the other central banks or itss when the full range (intervention rates) is reached had to give up (sell) their own currency.

The European Council decided on 5 December 1978, the introduction of the European Monetary System (EMS) as a successor to the EWKV.

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literature

Individual evidence

  1. ↑ a b c Norbert Kleinheyer: The Further Development of the European Monetary System 1987, p. 24f.
  2. ^ Otmar Emminger : D-Mark, dollar, currency crises - memories of a former Bundesbank president . 1986, p. 228f.
  3. ^ Otmar Emminger: D-Mark, dollar, currency crises - memories of a former Bundesbank president . 1986, p. 236.
  4. ↑ Die Zeit: A memorial by my own hand