The+European+Monetary+System

By: Stacy M.

The European Monetary System (EMS) is the Exchange rate of the EU. It was established on the year of 1979 to stabilize exchange rates among members at a time when currencies were dropping dramatically because of the economic recession of the 1970s. It hoped the promotion of stable currencies would cause the foundations for a future monetary union and a single currency among member states. The whole being of the EMS is the Exchange Rate Mechanism (ERM). “This system was designed to reduce the amount that the currencies of member states could fluctuate against each other. By evening out exchange rate fluctuations and stabilizing currencies, the ERM was intended to stimulate trade and investment among EU members, and to help prevent inflation by linking weaker national currencies to the strong and stable German national currency, the deutsche mark//.//.

The EMS was highly successful in the 1980s. It helped promote collective responsibility and discipline that contributed to a reduction of inflation after 1987, to a period of exchange rate stability. Its success led to the push of the Maastricht Treaty toward economic and monetary integration. “The EMS survived by increasing the amount that currencies could fluctuate against one another, but the increase was so great that members’ currencies could fluctuate almost at will. The EMS was held together only by the EU’s political will to create monetary union and a single currency. The role of the EMS has remained essentially unchanged with the introduction of the euro. It regulates exchange rates between the euro and those EU states that did not join the single currency.”

 “The EMU introduced a single currency, the euro, for EU members. In January 2002 the euro replaced the national currencies of 12 EU member nations. Fourteen EU members do not currently participate in the single currency. They are Denmark, Sweden, the United Kingdom, nine of the ten nations that joined the EU in 2004, and Bulgaria and Romania. Slovenia adopted the euro in January 2007, having become the first of the members added in 2004 to meet the necessary economic requirements.

[i] Derek W. Urwin, B.A., M.A., Ph.D.    "European Union," Microsoft® Encarta® Online Encyclopedia 2008 [|http://encarta.msn.com] © 1997-2008 Microsoft Corporation. < http://encarta.msn.com/encyclopedia_761579567_7/European_Union.html> [ii] Derek W. Urwin, B.A., M.A., Ph.D.    "European Union," Microsoft® Encarta® Online Encyclopedia 2008 [|http://encarta.msn.com] © 1997-2008 Microsoft Corporation. < http://encarta.msn.com/encyclopedia_761579567_7/European_Union.html> [iii]    Derek W. Urwin, B.A., M.A., Ph.D.    "European Union," Microsoft® Encarta® Online Encyclopedia 2008 [|http://encarta.msn.com] © 1997-2008 Microsoft Corporation. < http://encarta.msn.com/encyclopedia_761579567_7/European_Union.html>