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The EMS Crisis of the 1990s
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The EMS Crisis of the 1990s

Parallels with the Present Crisis?

Daniel Gros
CEPS, 2014
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Editorial Rating

7

Qualities

  • Analytical
  • Eye Opening
  • Background

Recommendation

While its dramatic crisis is long past, the euro zone has yet to return to healthy growth. It’s enough to make you feel nostalgic for the days of the deutsche mark, the lira and the peseta. Yet the 1990s European Monetary System (EMS) crisis offers interesting parallels with current issues and points to valuable lessons for EU policy makers today. getAbstract recommends this thoughtful reminder of how the more things change, the more they stay the same.

Take-Aways

  • The 2010 euro crisis parallels the European Monetary System (EMS) debacle of the 1990s in that market perceptions of risk can become self-fulfilling.
  • Beginning in 1992, speculators who questioned some EMS members’ commitment to price stability demanded higher interest rates in compensation, which threatened inflation in those countries.
  • Beginning in 2010, investors who doubted some euro-zone members’ fiscal sustainability sought higher interest rates in compensation, which threatened default in those countries.

About the Author

Daniel Gros is the director of the Centre for European Policy Studies in Brussels.

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