Bretton Woods Case Study

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3 The case of EMU: an history of the main stages 3.1 Post-war situation: Bretton Woods The EMU established with the Treaty on European Union (1991) was the final point of a four-decade-long process, started at the end of the Second World War. The post-war Bretton Woods international monetary system was born from Anglo-American negotiations and it was a compromise between two completely different economic and political situations. On one side, the USA, a strong economy that had sustained and won the war and strongly wished an immediate restoration of international trade. On the other side, UK, whose economy was heavily damaged during the war and which experienced a public debt without precedents. Finally, countries found an ensurement against…show more content…
The experience of “the Snake” was profoundly unstable, as it is proved by the eight realignments that took place and French franc withdrew from the arrangement. There were two main destabilizing factors. The first one was the US dollar weakness. Capital was floating from US to strong European currencies, accentuating the divergence between weak and strong European currencies. The second factor was the first OPEC oil price shocks of 1973-74. As it affected differently each European countries, it elicited different policy responses. The result was divergences in monetary policies and economic consequences. Inflation and balance-of-payments deficit varied considerably from one country to another. In this scenario, the Council was unable to adopt a resolution to move forward to step II of the Werner Plan. In fact, the plan of achieving a monetary union by 1980 was suspended, and instead the need to achieve convergence of macroeconomic policy was stressed. The fixed exchange rate system of the Community (the snake) was reduced to little more than a system in which the Benelux currencies and the Danish krone was attached to the Deutsche mark. 3.4 The European Monetary System The political will to reach a monetary union has been definitely expressed in 1969 and a new proposal to replace “the snake system” was shepherded by President Valèry Giscard d’Estaing of France and Chancellor Helmut Schmidt of Germany. It lead to the creation of the European Monetary System (EMS) in 1979. It was intended as the initial foundation “for the creation of closer monetary cooperation leading to a zone of monetary stability in Europe” . There were three main elements of the EMS: • the European Currency Unit

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