The City of London and the Process of European Monetary Integration

Abstract

In the United Kingdom, the debate about the making of the ERM of the EMS, the first real step in the process of European monetary integration, had since the beginning been characterized by skepticism and a notable lack of interest in British socio-economic sectors. In particular, the City had on many occasions expressed its preference for autonomous tight monetary policies over joining the ERM of the EMS in 1978 (Talani 2000). The failure of the Thatcher government to deliver price stability and a strong currency convinced many in the City that the time had come to revisit the City’s position on European monetary integration. Thus, the interests underlying the decision to join the ERM have to be traced in the change of macroeconomic policy preferences of the dominant socio-economic group, namely the financial community and the City. On the one hand, these interests were constituted by the need to continue pursuing an anti-inflationary policy in the face of clear signs that the economy was overheating; and on the other, the need to influence the negotiations leading to the definition of the Economic Monetary Union (EMU) process.