"The Collapse of the EMS: Symptomatic of a Doomed EMU?"

Velis, John O. (1995) "The Collapse of the EMS: Symptomatic of a Doomed EMU?". In: UNSPECIFIED, Charleston, South Carolina. (Unpublished)

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Abstract

In the soul searching following the tumult of the 1992 EMS crisis, observers and policy makers have been left wondering about its causes, and pondering the way forward to Economic and Monetary Union (EMU) in the context of the Maastricht Prescription. It is the contention of this paper that the need for monetary union is not completely justified on economic grounds, and that political considerations have played a large role in the formulation of the criteria for EMU. The paradox is that while the move toward Monetary Union (MU) and the path laid forth to achieve it embody political imperatives, decisions made on primarily political grounds created a system that was economically unsustainable; it is an ironic fact that a lack of continent wide political support may have indeed played a large role in the 1992 crisis. The paper is organized as follows: Section 1 assesses arguments for and against MU; we conclude that the benefits may not unequivocally exceed the costs when considered in a purely economic sense. Section 2 examines the political motivations behind MU in general and the process of EMU specifically, with attention to the Maastricht Treaty; we suggest that the Maastricht process is more politically (and perhaps inappropriately) motivated. Section 3 examines the September 1992 currency crisis and argues that political factors stemming from the Maastricht treaty substantially aid in understanding the causes of the crisis. Concluding remarks follow, and we briefly assess the future of the Maastricht process.

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