European Monetary System
The European Monetary System (EMS) was an existing one from March 13, 1979 to 31 December 1998 the form of monetary cooperation between the countries of the European Community. Core element of the EMS was the so-called exchange-rate mechanism (ERM ), which should keep the exchange rate fluctuations within specific pre-determined limits. On 1 January 1999, the ERM II and the corresponding exchange rate mechanism II were then introduced, which now govern the cooperation between the countries of the euro area and other EU countries.
Formation of the EMS
Founded in 1944 Bretton Woods system had fixed the exchange rate of each country's currency against the U.S. dollar and certain exchange rates between two non-dollar currencies. In March 1971, a few months before the collapse of the Bretton Woods system, the EEC Council of Ministers took a decision in principle that led to the creation of the European exchange rate mechanism in which currency fluctuations between the EEC currencies only within a range of ± 2.25 % should be allowed. From 1973 the EU countries could vary their currencies against the dollar and limited the exchange rate fluctuations of their currencies with each one forever. After several attempts of monetary integration, the idea of a European Monetary System, in which all EC countries should be involved, was drafted by Helmut Schmidt and Valéry Giscard d' Estaing 1978/1979. It was then still in the summer of 1978 to advise the European Council on its proposals. On 5 December 1978, the European Council agreed on the establishment of the European Monetary System, which should take the place of the European Exchange Rate Mechanism. On March 13, 1979, the European Monetary System entered retroactive to January 1, 1979 into effect.
The objective of the EWS
The main objective of the EMS was in Europe with the introduction of solid but adjustable exchange rates to create a zone of monetary stability between the currencies of the participating countries and thus to achieve an improvement in Europe's position in the international monetary system. This exchange rate regime should preserve the goods, services and capital between the Community countries against currency exchange risk and thus facilitate and promote. A single European market after the U.S. model should be created.
Another aim of the EMS was also to achieve greater internal stability of the countries and pave the way for a European Monetary Union.
The objective of the EMS in its Resolution of 5 December 1978 circumscribed the European Council on the establishment of the European Monetary System.
Members in the EMS
Formally were always all members of the European Community to the EWS, but not all countries used the rules for the exchange rate and therefore not all belonged to the exchange rate mechanism ( ERM ). From the start turned eight countries in the ERM:
Other accession countries into the ERM were:
- Mid-1989 Spain
- The end of 1990 the UK
- In early 1992, Portugal
- Beginning of 1995, Austria
- The end of 1996 Finland
- Beginning of 1998 Greece
In the meantime, were Italy and the United Kingdom out of the Exchange Rate Mechanism of the EMS, as it came in the sterling crisis to massive disruptions in the currency markets. This was the beginning of a protracted European currency crisis.
Maintaining a stable exchange rate over at least two years within the EMS was one of four criteria for a country to Economic and Monetary Union ( EMU) could be allowed.
Operation of the EWS
Core of the EMS was the European Currency Unit ( ECU European Currency Unit = ) that was used as a rake and reference means the exchange rates as well as cash and reserve currency of central banks. In a so called parity grid were central rates expressed in ECU, set by the participating countries from which bilateral central rates of a currency pair could be identified. Most exchange rates could vary by up to 2.25 per cent up or down, the range of variation is thus a total of 4.5 percent. Italy has an extended range of ± 6 percent granted because it is the only country in 1978 had double-digit inflation for consumer prices. About step of the exchange rate between two countries, the allowable range of ± 2.25 percent, the central banks of both countries concerned were obliged to intervene by, for example, the purchase and sale of foreign currency on the foreign exchange market until the price was back within the band. In August 1993, it came under pressure from speculative attacks on the currency market to a crisis of the EMS, which necessitated the widening of the margins of most EMS exchange rates to ± 15 percent.
The course was no longer tenable by interventions in the bandwidth, so you could fix in a Realignment new central rates, which is 1979-1993 17 times made use of.
End of the EMS and succession planning
The EMS has been completed with the introduction of the euro on 1 January 1999. As a successor treaty to the EU countries that are members of the monetary union are not, II ( ERM II) was introduced as part of the ERM II exchange rate mechanism.