ABSTRACT
With an end, in August 1993, of the "New European Monetary System" (EMS), the attempt to maintain narrow exchange rate bands around fixed parities without the protection of capital controls, the European Union's (EU) strategy for European Monetary Union (EMU) devised in the Maastricht Treaty, finally proved to be a failure. It had rested on three basic elements: a master-plan, featuring a timetable for the beginning of EMU; numerical entry criteria for participation in EMU and the gradual tightening of the exchange rate constraint in the Exchange Rate Mechanism (ERM) of the EMS; and the assumption that European voters would accept a scheme conceived by their governments, despite the large degree of uncertainty about the final shape of EMU
That the Maastricht master plan was risky and fragile had been pointed out by economists soon after the publication of the Delors Report and the Maastricht Treaty. A year later, one may state with relief that the widespread fear of very unstable exchange rate movements (Thygesen 1994) or a return to competitive devaluations in Europe (Eichengreen and Wyplosz 1993a) was unfounded. Exchange rate volatility has remained surprisingly small in Europe. That the European public was unwilling to go along with a master-plan leading to some uncertain end became clear in the bumpy process of ratification of the treaty.
