Abstract
Roughly two years after German unification, the European Monetary System (EMS) experienced a period of severe and recurring speculative crises involving a range of currencies, some of which devalued or left the Exchange Rate Mechanism (ERM) altogether.1 The crises reached an initial peak in September 1992, when sterling and the lira left the ERM, and culminated in the decision at the beginning of August 1993 to widen the permissible bands of fluctuation within the ERM from 2.25 per cent to 15 per cent on either side of parity. Since a prominent feature of the crises was the tension created by the high German interest rates associated with the budgetary expansion involved in German Economic, Monetary and Social Union (GEMSU), and since the German authorities had pressed as early as 1990 for an appreciation of the Deutsche Mark vis-a-vis the other currencies in the ERM, it is not surprising that the currency union is sometimes regarded as having caused the EMS crises.
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