Conflicting authorities: states, currency markets and the ERM crisis of 1992–93

2002 ◽  
Vol 28 (2) ◽  
pp. 359-380 ◽  
Author(s):  
PETER AYKENS
Keyword(s):  
Political Theory ◽  
European Monetary Union ◽  
International Political Economy ◽  
Currency Markets ◽  
European Monetary ◽  
The Road ◽  
Exchange Rate Mechanism ◽  
Considerable Confusion ◽  
The Many ◽  
Rate Mechanism

The concept of authority has recently received heightened attention in the international politics literature. Unfortunately, considerable confusion still exists regarding who possesses authority, how authority is constituted, how it erodes and how it differs from other means of generating compliance, most notably power. Drawing on work from international political economy and political theory, this article sets out to clarify some of the many ambiguities surrounding authority. It builds hypotheses regarding state/market authority relations and tests these hypotheses in the context of the Exchange Rate Mechanism (ERM) crisis of 1992–93. The article concludes that the ERM crisis did not represent a mere ‘bump in the road’ on the way to European Monetary Union, but rather the break-up of policy consensus in a dramatic way.

The Crisis in the EMS

1994 ◽  
Vol 29 (1) ◽  
pp. 80-96 ◽  
Author(s):  
Andreas Busch
Keyword(s):  
Annual Report ◽  
European Monetary System ◽  
Currency Markets ◽  
European Monetary ◽  
Bretton Woods ◽  
Exchange Rate Mechanism ◽  
Monetary System ◽  
Limited Duration ◽  
Rate Mechanism

After a Period of Stability of More Than Five Years, the European Monetary System (EMS) was forced into a series of realignments of the participating currencies' central rates in the months after September 1992. Following renewed turmoil on the currency markets in July 1993, on 2 August 1993 the ministers and central bank governors of the Community decided ‘to widen temporarily the obligatory marginal intervention thresholds of the participants in the exchange rate mechanism of the European Monetary System to ± 15 per cent around the bilateral central rates’. Although this measure was repeatedly emphasized as being ‘of limited duration’, as was the determination of some ministers to reach Monetary Union, these events have been designated as the ‘death’ of the EMS or its ‘breakdown’, and the Bank of International Settlements in its latest Annual Report called it ‘the most significant and far-reaching currency market crisis since the breakdown of the Bretton-Woods-system’.

Odd man out: rethinking British policy on European monetary integration

2003 ◽  
Vol 29 (3) ◽  
pp. 341-364 ◽  
Author(s):  
Mark Aspinwall
Keyword(s):  
Exchange Rate ◽  
Monetary Union ◽  
Alternative Explanation ◽  
Monetary Integration ◽  
Economic And Monetary Union ◽  
European Monetary ◽  
Economic Interests ◽  
Exchange Rate Mechanism ◽  
Opt Out ◽  
Rate Mechanism

This article examines British preferences on European monetary integration. It challenges dominant theories of preference formation, suggesting an alternative explanation focusing on governmental majority. Empirical evidence is presented on both UK economic behaviour and the views of domestic economic interests, as well as government majority. The article also analyses first and second-hand accounts of the main players involved in three cases: the decision not to join the Exchange Rate Mechanism in 1979, the decision to join the ERM in 1990, and the decision to opt out of stage 3 of Economic and Monetary Union.

Europe's monetary malaise: international institutions and domestic policy commitments

1996 ◽  
Vol 22 (3) ◽  
pp. 257-273 ◽  
Author(s):  
Wayne Sandholtz
Keyword(s):  
Exchange Rate ◽  
International Institutions ◽  
European Monetary System ◽  
Central Banks ◽  
European Monetary ◽  
Exchange Rate Mechanism ◽  
Monetary System ◽  
The Uk ◽  
Belgian Franc ◽  
Rate Mechanism

A yearlong nightmare for the European Monetary System (EMS) began in September 1992. Amid name–calling, finger–pointing, and hand–wringing, the British pound and the Italian lira dropped out of the Exchange Rate Mechanism (ERM). In succeeding months, virtually every other ERM currency came under attack.1 Three of them—the Spanish peseta, the Portuguese escudo, and the Irish punt—devalued within the system. Three others—the French franc, the Belgian franc, and the Danish krone—avoided devaluation, but only at the price of recurrent and costly rounds of intervention by multiple central banks. Finally, in August 1993, the defenders of the parities surrendered. The twelve EMS countries agreed to expand the fluctuation margins from 2.25 per cent on either side of parity (6 per cent for Spain, Portugal and the UK) to 15 per cent on either side of parity. The wider margins eliminated the potential for speculative attacks, but left the system only the thinnest veneer of exchange rate coordination. This article seeks not to assess the causes of the crisis but rather to explain why the EMS governments did not defuse it with a realignment—the mechanism built into the ERM for precisely such occasions.

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