European monetary system

from Wikipedia, the free encyclopedia

The European Monetary System ( EMS ) was a form of monetary policy cooperation between the countries of the European Communities that existed from March 13, 1979 to December 31, 1998 . The core element of the EMS was the so-called exchange rate mechanism (ERM), which was supposed to keep the exchange rate fluctuations within specifically determined ranges. On January 1, 1999, EMS II and the associated exchange rate mechanism II were introduced, which now regulate cooperation between the states of the euro currency area (" Eurozone ") and the other EU states.

History of the Bretton Woods system

The Bretton Woods System (BWS), founded in 1944 , set the exchange rate of each national currency against the US dollar ; this resulted in the exchange rates between all non-dollar currencies participating in the GVA. In March 1971, two years before the collapse of the Bretton Woods system, the EEC Council of Ministers made a fundamental decision that led to the establishment of the European Exchange Rate Union ("currency snake"), in which currency fluctuations between the EEC currencies were only within a range of ± 2.25% should be allowed. From 1973 the EEC countries let their currencies fluctuate against the dollar. After several attempts at currency integration, Helmut Schmidt and Valéry Giscard d'Estaing worked out the idea of ​​a European monetary system in which all EEC countries should participate in 1978/1979. Thereupon their proposals were discussed in the European Council in the summer of 1978 . On December 5, 1978, the European Council agreed on the establishment of the European Monetary System, which should replace the European Exchange Rate Union. On March 13, 1979, the European Monetary System came into effect retrospectively to January 1, 1979.

Goal setting

The main objective of the EMS was to create a zone of currency stability between the currencies of the participating countries in Europe by introducing fixed but adaptable exchange rates, and thus to improve Europe's position in the international monetary system. This exchange rate regime should protect the movement of goods, services and capital between the EC countries from exchange rate risks and thus facilitate and promote it. A uniform European market based on the US model was to be created.

Another goal of the EMS was to achieve greater internal stability in the respective countries and to pave the way to a European monetary union.

The European Council set out the objectives of the EMS in its resolution of December 5, 1978 on the establishment of the European Monetary System.

Members

Formally, all members of the European Community always belonged to the EMS, but not all countries applied the rules for the exchange rate and thus not all belonged to the exchange rate mechanism (ERM). From the beginning, eight countries applied the ERM:

Other countries joining the ERM were:

In the meantime, Italy and Great Britain withdrew from the EMS exchange rate mechanism when, on the so-called “ Black Wednesday ” (September 16, 1992) speculation caused massive disruptions in the currency markets. This was the beginning of a protracted European currency crisis.

Maintaining a stable exchange rate for at least two years within the EMS was one of four criteria for a country to be admitted to Economic and Monetary Union (EMU).

Mode of action

The core of the EMS was the European Currency Unit (ECU), which was used as a means of calculating and referencing exchange rates and as a means of payment and reserve currency of the central banks. In a so-called parity grid, central rates, expressed in ECU, were set by the participating countries, from which the bilateral central rates of a currency pair could be determined. Most exchange rates could fluctuate up or down by up to 2.25 percent, the total fluctuation range is 4.5 percent. Italy was allowed an expanded range of ± 6 percent, as it was the only country to have double-digit consumer price inflation rates in 1978. If the exchange rate between two countries exceeded the permitted range of ± 2.25 percent, the central banks of both countries concerned were obliged to intervene on the foreign exchange market by buying or selling foreign currency until the rate was within the range again. In August 1993, the pressure of speculative attacks on the foreign exchange market led to a crisis in the EMS, which caused the bandwidths of most EMS exchange rates to be expanded to ± 15 percent.

If the course could no longer be kept within the range through interventions, new central rates could be fixed in a realignment , which was used 17 times between 1979 and 1993.

End and succession

The EMS ended with the introduction of the euro on January 1st, 1999. As a successor regulation for the EU countries that are not yet members of the monetary union, the exchange rate mechanism II (ERM II) was introduced within the framework of EMS II .

See also

Individual evidence

  1. ↑ See Paul Krugman , Maurice Obstfeld : Internationale Wirtschaft , 7th ed., 2006, Pearson Studies, Munich, p. 707
  2. ↑ See Hasse (1989): The European Central Bank: Perspectives for a Further Development of the EWS, Bertelsmann-Verlag, Gütersloh p. 14
  3. ↑ a b See Meyers-Lexikon (2008): European Monetary System ( Memento from January 1, 2008 in the Internet Archive ), August 19, 2008
  4. ↑ See Krugman / Obstfeld (2006): Internationale Wirtschaft, 7th edition, Pearson-Studium, Munich, p. 714
  5. ↑ Cf. Collignon (1994): The European Monetary System in Transition, Gabler-Verlag, Wiesbaden, p. 19
  6. ↑ See Krugman / Obstfeld (2006): Internationale Wirtschaft, 7th edition, Pearson-Studium, Munich, p. 709
  7. ↑ Cf. Collignon (1994): The European Monetary System in Transition, Gabler-Verlag, Wiesbaden, from p. 23

Literature sources

  • Collignon, Stefan (1994): The European Monetary System in Transition , Gabler-Verlag, Wiesbaden
  • Hasse, Rolf H. (1989): The European Central Bank: Perspectives for a Further Development of the European Monetary System , Bertelsmann-Verlag, Gütersloh
  • Krugman, Paul R./Obstfeld, Maurice (2006): Internationale Wirtschaft , 7th edition, Pearson studies, Munich
  • Moulon-Druol, Emmanuel, A Europe Made of Money. The Emergence of the European Monetary System, Ithaca, London 2012.
  • Thiemeyer, Guido, Helmut Schmidt and the founding of the European monetary system, in: Franz Knipping, Matthias Schönwald (eds.), Between Awakening and Crisis. European integration 1970–1984 Trier 2004, pp. 245–268.

Web links