The political economy of EMS - article ; n°5 ; vol.30, pg 866-894

Revue économique - Année 1979 - Volume 30 - Numéro 5 - Pages 866-894
The political economy of E.M.S.
The economic issues underlying Britain's decision not to join the EMS at its inception are analysed. Technical difficulties were the most important factor in the short term. Britain had been following a successful policy of stabilising the effective rate whilst the Dollar and Deutschemark diverged.
Opposition to the parity grid system reflected the fear of a bias toward devaluation and/or deflation within Europe.
Most economists stress the likely conflict between domestic policy objectives and EMS. Sortie focussed on the implied loss of monetary control and adjudtment costs. Others pointed to the likely loss of competitiveness and squeeze on profits. The crucial issues are difficult to resolve empirically.
In the U.K. EMS tended to be seen as a move towards Monetary Union. Longer term issues are analysed in terms of the regional analogy. A country could face a « regional » type problem if it became uncompetitive. Costs of monetary union seem small if a country is already, in effect, a region of a larger area. Alternatively if real wages and competitiveness are unaffected by the exchange rate (as assumed by international monetarist there may be little loss. The costs may be large if neither of these spécial cases applies. For a low productivity country the costs may be balanced from integration if it is initially competitive and can remain so.
A final section summarises the posotion of the U.K. vis a vis EMS and compares it with other European countries.
A l'inverse, si les salaires réels et la compétitivité ne sont pas affectés par le taux de change (comme le présument les monétaristes internationaux), la perte pourrait n'être que minime. Les coûts pourraient être élevés en dehors de ces cas particuliers. Pour un pays à basse productivité, les coûts pourraient être équilibrés grâce à l'intégration si ce pays est initialement compétitif et peut le devenir. Le dernier paragraphe résume la position de la Grande-Bretagne vis-à-vis du SME et la compare à celle des autres pays européens.
29 pages
Source : Persée ; Ministère de la jeunesse, de l’éducation nationale et de la recherche, Direction de l’enseignement supérieur, Sous-direction des bibliothèques et de la documentation.