Question

Detail the evolution of the European Common market, the European Union, and the euro currency from the end of WWII until the beginning of the Eurozone Crisis.

Answer 1

The European Monetary System (EMS) was a variable exchange rate agreement developed in 1979 to promote closer cooperation between members of the European Community (EC) on monetary policy. The European Economic and Monetary Union (EMU), which developed a common currency called the euro, later replaced the European Monetary System (EMS).

In response to the breakdown of the Bretton Woods Agreement, the European Monetary System (EMS) was established. The Bretton Woods Agreement, established after World War II (WWII), set a flexible fixed foreign exchange rate to stabilize economies. Currencies started to float when it was scrapped in the early 1970s, leading EC leaders to seek a new exchange rate arrangement to replace their customs union.

An exchange rate mechanism (ERM) regulated currency fluctuations. The ERM was responsible for pegging national exchange rates, enabling only minor deviations from the European currency unit (ECU), a composite artificial currency centered on a set of 12 EU member currencies, weighted by the EU production share of each state. The ECU used officially sanctioned accounting methods as a reference currency for exchange rate policy and calculated exchange rates among the currencies of the participating countries.

Meanwhile, attempts have been stepped up to form a common currency and to establish greater economic alliances. Many EC members signed the Treaty of Maastricht in 1993, setting up the European Union (EU). The EU founded the European Monetary Institute one year later, which later became the ECB.

At the end of 1998, many EU nations lowered their interest rates overwhelmingly in order to foster economic growth and prepare for the euro. A single currency, the euro, was established in January 1999 and was used by most EU member states. The formation of the European Economic and Monetary Union (EMU) preceded the European Monetary System (EMS) as the new name for the EU's shared monetary and economic policy.

The European Monetary System (EMS) scheme has explicitly banned bailouts for ailing eurozone economies from the outset. Amid vocal resistance from EU members amid stronger economies, the EMU finally set up rescue steps to provide relief for periphery members who are suffering.