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"Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France and Great Britain"

Sevilla, Christina R. (1995) "Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France and Great Britain". In: UNSPECIFIED, Charleston, South Carolina. (Unpublished)

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    At the time of the September 1992 crisis, the conventional wisdom held in the ERM was due to an unfortunate contuence of exceptional circumstances -- the shock of German reunification, a debt-driven recession in Britain, and the uncertainties caused by the Danish and French referenda on Maastricht. This paper points to systemic factors at both the EC and domestic levels in explaining the September crisis. At the Community level, it is argued that the ERM was the victim of an underlying structural flaw in the Maastricht 3-stage plan for EMU. Intergovemmental bargaining, reflecting the differing national preferences of Germany and France in particular, produced an untenable compromise with potentially chaotic consequences: the matching of demanding economic convergence criteria with a strict timetable for their fulfillment, upon commencement of Stage II of the EMU process set for January 1994. Far from being epiphenomenal, this bargain was only the latest manifestation of an ongoing debate between "economist" and monetarist" approaches to monetary integration, tracing back to the early 1970s. and I argue that the "framing effects" of the Stage II criteria fundamentally altered the nature of economic discourse at Stage I, beginning in 1990. Specific reference numbers for debt ratios and relative and interest rate targets emphasized economic divergence in countries with clearly overvalued currencies, and invited markets to test the strength of govemments' political commitments to their exchange rate pegs. The second component of my explanation of the September crisis lies at the domestic level. Even though strict convergence criteria and timetables provided a severe test of the credibility of members' European commitments, it was not a foregone conclusion that the Maastricht bargain would result in turbulence on the currency markets. A margin of maneuver was left to the member governments, through the demonstration of a willingness to take painful measures, such as fiscal and wage restraint or timely interest rate hikes, to defend the ERM commitment.

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    Item Type: Conference or Workshop Item (UNSPECIFIED)
    Uncontrolled Keywords: Exchange Rate Mechanism (ERM).
    Subjects for non-EU documents: Countries > U.K.
    Countries > France
    Countries > Germany
    EU policies and themes > Policies & related activities > economic and financial affairs > EMU/EMS/euro
    EU policies and themes > EU institutions & developments > institutional development/policy > historical development of EC (pre-1986)
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Conference: European Union Studies Association (EUSA) > Biennial Conference > 1995 (4th), May 11-14, 1995
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 11 Apr 2007
    Page Range: p. 34
    Last Modified: 15 Feb 2011 17:45

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