The European currency system today is in a shambles, the expectations of a unified monetary structure shattered. The paradox is that on January 1, 1993, all restrictions on the movement of capital within the European community were supposed to be lifted. That movement was also supposed to flow along the smooth track of a managed system that would provide stability through the fixed parities of each currency—the mark, the pound, the franc, the lira, and so on—to each other. By the end of the decade there was even supposed to be a single unified currency for all of Europe, replacing the different national currencies. Now all that is gone. In one chaotic month of September 1992, it all broke up. What happened and what does this mean for the future of Europe?
The European currencies were managed through the Exchange Rate Mechanism (ERM), called colloquially “the snake.” This was supposed to maintain a fixed relation of each currency to one another in order to provide stable expectations for exchange rates for those buying and selling goods and services within Europe. The variations between the “strong” currencies, such as the German mark and the English pound, were supposed to vary by only 2 percent; between the mark and the Spanish peseta by 6 percent....
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