EMU (Economic And Monetary Union)

11 Pages 2686 Words

icht Treaty, which made EMU its centrepiece. Alone among European leaders, and despite being undermined by dissent in her own cabinet, Margaret Thatcher attempted to stand out against these developments.
The Maastricht Treaty, signed in 1992, closely followed the Delors proposals. Stage One of EMU would involve the abolition of exchange controls, the entry of all currencies into the narrow band of the ERM and steps towards economic convergence. Stage Two, starting in 1994, would see the creation of a European Monetary Institute and the granting of independence to national central banks, paving the way for a European Central Bank (ECB) free of government interference. In Stage Three, from which the UK and Denmark negotiated opt-outs, countries meeting the convergence criteria would fix their rates irrevocably and move towards the transformation of the ECU into a genuine currency, with a target date of 1997 but some allowance for slippage.
The UK had reluctantly participated in the ERM for the first time in October 1990, a period which coincided with a domestic recession, German reunification and the inauguration of an increasingly rigid policy of European currency management, which in practice meant locking every country's exchange rate to the D-Mark. A series of disasters ensued. It suited Germany, which had over-inflated its money supply in the process of exchanging D-Marks one-for-one for East German Ostmarks, to keep interest rates high. Other countries, especially the UK, needed low interest rates to stimulate their economies. The Maastricht Treaty proved extremely controversial. Denmark rejected it in a referendum. It barely passed through the British Parliament and doubts arose over its ratification in France. In September 1992 these strains culminated in violent currency speculation, resulting in the departure of the pound and the lira from the ERM and the devaluation of the peseta. A year later, renewed currency turmoil destab...