Explaining the September 1992 ERM Crisis

자료: http://aei.pitt.edu/7014/01/sevilla_christina.pdf

Explaining the September 1992 ERM Crisis: The Maastricht Bargain and Domestic Politics in Germany, France, and Britain

By Christina R. Sevilla, Harvard University, Dept. of Government, Cambridge, MA 02138

Presented at the European Community Studies Association,

Fourth Biennial International Conference,

May 11-14, 1995, Charleston, SC.

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In September of 1992, the seemingly inexorable movement of the European exchange rate mechanism from a system of quasi-fixed exchange rates towards monetary union and ultimately a common currency by the end of the decade was abruptly preempted, perhaps indefinitely. Massive speculative pressure on the eve of the French referendum precipitated the worst crisis in the thirteen-year history of the European Monetary System, resulting in the ejection of the sterling and the lira from the ERM, the devaluation of the peseta, the threat of forced devaluation of several other currencies, including the "hard-core" franc, and the abandonment or near-abandonment of unilateral currency pegs to the system by non-ERM countries. Together with political recriminations and blame-laying between Britain and Germany in the aftermath, the crisis represented a tremendous blow to the goals of political and economic integration recently affirmed by EC member governments in the Maastricht Treaty on European Union in December 1991. Nevertheless, conventional wisdom at the time dictated a more sanguine assessment of the prospects for EMU, in the belief that the strains within the ERM were due to the unfortunate confluence of exceptional circumstances -- the shock of German reunification, a debt-driven recession in Britain, and the uncertainties caused by the Danish and French referendums on Maastricht. The situation in 1992 was uniquely unstable, so the argument went, and hence things were bound to improve. German interest rates would come down, the British economy would eventually revive and then the UK government would reconsider the anti-inflationary benefits of ERM membership. The French franc had weathered the September storm, buoyed by an unequivocal Franco-German commitment to its D-Mark parity. Thus, the EC finance ministers emerged emboldened from an emergency meeting on September 28 in Brussels, reaffirming the operating principles of the ERM and rejecting the British chancellor of the exchequer's calls for reform. (중략)

However, the government's commitment to sterling's exchange rate could hardly be considered credible, given the extent of domestic opposition to the "hard option," as well as the history of Britain's participation in the ERM, wherein interest rates had been lowered repeatedly since entry in October 1990, but never raised. The day after sterling was forced from the ERM on September 16, despite massive coordinated central bank intervention and a last-minute interest rate rise to 15%, Peter Norman of the Financial Times observed:

With hindsight, the chancellor may have avoided yesterday's painful moves by raising interest rates earlier and in smaller increments when pressure began to build. This ignores however the politicized nature of UK economic and monetary policymaking, which is a more high-profile activity than in countries where technocrats or independent central banks hold sway. Heightened public interest may reflect the frequent mess the UK has made over economic management since World War II...Concentration of policy in the Treasury makes the chancellor a central political figure, in a way that finance ministers elsewhere are not.83

The acrimonious debate over interest rates and exchange rate policy in Britain stands in sharp contrast to France, where the long-established franc fort policy, which had exacted a high price in terms of chronic unemployment and low growth, was never challenged in the months up to referendum. The lack of a domestic coalition willing to bear costs for the government's policies may have been the decisive factor in the market speculation forcing Britain's exit from the system, as several economic studies suggested that Britain's economic "fundamentals" in September were not so clearly in arrears as those of Italy, which was also forced out of the system after a 7 percent devaluation failed to halt speculation against the lira, and the Spanish peseta, which was devalued 5 percent.84 If economic divergence was not the main reason for speculation against the pound (in addition to stronger currencies such as the French franc, Danish krone, and Irish punt, which also came under attack after Black Wednesday) then one could argue that markets were taking bets against the willingness of EC governments to bear political costs in order to meet their European obligations -- maintaining interest rates at German levels in the short-term, and taking the painful measures necessary to meet the Maastricht criteria in the medium term. (중략)