The European Monetary System and Economic and Monetary Union

Abstract

Like its predecessor, the “Snake” Arrangement¹, the European Monetary System (EMS) was created largely (though by no means exclusively) as a manifestation of profound European concern at the irresponsibility of the United States in the field of international monetary economics — notably the lack of any clear policy for the dollar. Also, like its predecessor, the EMS is an intermediary step on the road to a full economic and monetary union (EMU), agreed upon by the Heads of Government of the original six founder Member States of the EEC in Den Haag at the end of 1969 — “provided that the political will to do so existed”. This decision was a logical one since these countries — whose economies are open or very open ones (see Table 1) — were conducting half of their trade with each other, they had become highly integrated, the successful management of the Common Agricultural Policy (CAP) requires stable exchange rates, and, the Community — under the pressure of France — desired, as the world’s most important trading bloc, to create its own“ international monetary personality”. The most logical way of achieving all these aims — as well as eventually creating a political union — was to create an EMU.