The Political Economy of E.M.S.

Abstract

T HE proposals for a European Monetary System put forward by France and Germany at the European Summit in Bremen appeared to take other countries by surprise. Problems of exchange rate instability were high on the agenda, but the political initiative which proposed a return to something like the Bretton Woods system of fixed but adjustable exchange rates within the Community, supported by a Europen Monetary Fund, went further than commonly expected. It was natural enough that the proposal should have been seen as a move towards Monetary Union an idea that had recently been revived by the Commission 1 and that the ensuing debate should range over fundamental political and economic issues such as the future of the Community, and the feasibility, desirability and scope for domestic as well as international economic policy action. This paper concentrates on the debate as it developed in the United Kingdom. At the time of writing, Britain, alone among the nine, remains outside the scheme, with the option to join later. The merits and costs of the EMS are still actively under discussion. But in other countries too there are uncertainties about the effects of EMS, the more so as there remain unresolved questions about whether the European Monetary Fund will be set up, about the relationship of European currencies to the Dollar, and about whether the EMS will evolve towards more comprehensive monetary union or remain as a kind of extended << snake s'. Expressions of scepticism about the durability or desirability of the arrangements are certainly not confined to Britain.