Building the Community (1958-95) - Exploring monetary Union (1969-92)

7 important questions on Building the Community (1958-95) - Exploring monetary Union (1969-92)

What is the economic and monetary union?

Programme in 1969 to coordinate economic policy in preparation for the switch to a single currency.

Why did the US withdraw from the Bretton Woods system?

The cost of fighting the war in Vietnam caused inflation and undermined international confidence  in the dollar
The high oil prices caused by the Yom Kippur War between Isreal and the Arabs

How did the EEC negotiate monetary policy in the seventies?

1972 'snake in the tunnel' -> within which EEC member states would work to hold value of their national currencies within 2.25% either way of the US dollar, and 1% relative to each other
1979 replaced by European Monetary System (EMS)
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What was the European Monetary Sytem?`

EEC member states linked their currencies to one another through Exchange Rate Mechanism based on the European Currency Unit (ecu) designed to keep exchange rates stable.
  • Ecu value determined by a basket of the EEC’s national currencies, each weighted according to their national strengths
  • Participants had to keep their currency within 2,25% either way of the ecu

Why was the EMS created?

- Hoped that it would create monetary stability
- Hoped that the ecu would become normal means for settling debts between EEC members
o Would psychologically prepare Europeans for single currency

Why did the Commission want the EMU

- Helped encourage more economic efficiency
- Allowing the EEC to take a stronger role in the international economy

Why did Germany and Britain found it difficult to control their exchange rates?

  • - German reunification
  • - Britain found the demands of the ERM too much tp beat
    • Delayed joining until 1990, when inflation and interest rates were high, and its efforts to keep the pound stable was undermined by speculation on international currency markets
    • Black Wednesday 16 September 1992 -> Britain withdrew from the ERM

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