Strategies for Monetary Integration Revisited

Causes and Effects of the European Monetary Crises of 1992–93*

“…First, it can be seen as a compromise between 'economist' and 'monetarist' arguments,22 involving a phased combination of growing convergence and increasing exchange rate stability. Secondly, it was a way of reassuring national politicians that the future monetary arrangements would be viable as well as desirable by moving gradually closer to monetary union; here it reflected longstanding 'neofunctionalist ' thinking about how high-level decisions can be broken down into a large number of low-level decisions so that politicians are led to take the big decisions in a series of small steps (Cobham, 1989). Thirdly, the Delors-Maastricht strategy can be seen as a means of persuading Germany to participate, by convincing Germany that the other countries were serious about EMU, by letting Germany design the system so that it would have an incentive to join, and/or by setting criteria which would limit entry to prevent the new arrangements from being diluted by countries less disciplined than Germany (see, in particular, De Grauwe, 1994a).…”

Comparisons of Real Exchange Rate Volatility Across Exchange Rate Systems

“…This is indicative of drift in intra-EMS real exchange rates that is not present in non-EMS rates. Such drift would result from under-indexation of nominal exchange-rate adjustments, which is a well-established feature of the EMS (Cobham, 1989) and probably reflects a concern to avoid a full accommodation of domestic inflationary pressures, as mentioned above.…”

“…In particular it argues that short-run measures of real exchange rate volatility (such as the variance of monthly or quarterly movements) need to be supplemented by longer-run measures that take into account the persistence and mean-reverting tendencies in such movements. Empirical studies have shown that short-run real exchange rate volatility is much smaller under the EMS than under floating rates (Artis and Taylor, 1988;Cobham, 1989;Macdonald and Zis, 1989;Ungerer et al, 1986). However, this need not prevent a steady but persistent trend in intra-EMS real exchange rates which might ultimately engender serious misaligmnent.…”