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No, it would not have worked for the core because the core would have had to contend with strong revaluation pressures on their currencies vis-a-vis the non-Euro currencies.

The common feature of the European Exchange Rate Mechanism and the Euro is the shifting of the burden of depressing the DM exchange rate from the Bundesbank to the deficit countries.

It appears that the 1992/3 crisis of the European Exchange Rate Mechanism was used by the Bundesbank to assert itself as the most powerful institution in Europe, already. In a recent diary of mine I quoted
this third-person account by the Bundesbank itself:
Crises in the ERM. In 1992, investors lose confidence in the stability of the pound sterling, in particular, and then, in 1993, in the French franc, resulting in speculative selling of the pound and franc; in 1992, the United Kingdom and Italy leave the ERM; in 1993, the fluctuations margins around the bilateral central rates are expanded sharply. The Bundesbank with its commitment to price stability had refused to lower interest rates massively. The partner countries are forcibly reminded of their responsibility for their currencies; the process of convergence needed for monetary union is strengthened.
(links in the original)

Economics is politics by other means
by Carrie (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 09:48:44 AM EST
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