first policy statements in favor of creating a single currency
approved by the Heads of State or Governments of the Member States
of the EEC
Werner Report outlines a three-stage process for creating the
EMU by 1980
'Snake' formed - an exchange rate system linking the currencies
of the Member States. The 'Snake' floundered on a series of international
economic disturbances: the collapse of the Bretton Woods exchange
rate system and the ensuing currency turbulance; divergent economic
policy responses to the emergence of 'stagflation' by the governments
of the Member States; and the oil price increases of 1973 and
Monetary System (EMS) developed. On the initiative of the French
President, Valery Giscard d'Estaing and the German Chancellor,
Helmut Schmidt, a second attempt is made to achieve currency stability
within the EEC. The EMS was a more developed version of the 'Snake'.
The EMS had three principal components:
European Currency Unit (ecu) - a new European currency,
where each unit was a weighted average of all EMS currencies.
The ecu was only used for transactions between central banks
in the EMS.
Rate Mechanism (ERM) - each participating currency was fixed
against the ecu and allowed to float within a margin of
2.25% of the fixed rate.
facility - the central banks of ERM Member States had access
to credit with the EC, with which to support their currency
should it threaten to move beyond the 2.25% margins. In
addition, the central banks of all ERM Member States were
obliged to cooperate in supporting any currency that threatened
to move outside the 2.25% margins.
the EEC Member States in 1979, only the UK opted to remain
outside of the ERM.
Member States' exchange rates become much more stable in the 1980s
under the ERM. Between 1980-1985, exchange rate fluctuations were
half the level they had been between 1975-1979, and between 1986-1989,
the level of fluctuations were halved again.
Delors Report, like the Werner Report before it, proposed a three-stage
process to Monetary Union, due to culminate in the abolition of
national currencies in the year 2002 (see 'What
is the timeline for the EMU?').