German unification in 1990 led to a significant increase in domestic German demand in the early 1990s, which again led to higher inflation and thereby higher German interest rates. This presented problems for the other EMS countries, since the D-mark was the anchor currency in the EMS. At the same time, growth in Europe was coming to a standstill, and currency markets increasingly focused on the diverging economic development of the European countries. In the summer of 1992 it also became clear that the European integration plans were met with considerable scepticism by the general public, and this gave rise to uncertainty as to the future of an Economic and Monetary Union. A combination of these circumstances triggered a prolonged EMS crisis. Many participants, including Denmark, had to raise interest rates, and several currencies were devalued. After a brief period of strong currency pressure the UK and Italy decided to opt out of the EMS. On 2 August 1993 the unrest culminated with the increase of the EMS fluctuation bands to +/-15 per cent, and the EMS had in effect collapsed.
Last update: 03/27/2007
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Collapse of the EMS
