ABSTRACT
The "new" European Monetary System (EMS), that is the post-1987 EMS, was too rigid relative to the weak commitment to a united Europe. Rational speculators, knowing the incentives, would force the hands of the monetary authorities and thus expose the excessive rigidities of the EMS. Michele Fratianni and Jurgen von Hagen find that there is a trade-off between exchange rate uncertainty among EMS currencies and uncertainty between member and non-member countries of the EMS. There are three sides to European integration: economic union, monetary union, and political unification. The European Community launched the "Single European Market" project in 1985 with the explicit objective that the promotion of an economic union would raise economic performance among the 12 member states. The Maastricht Treaty prescribes that the European Central Bank will be independent of national governments and Community institutions and that its primary objective will be price stability.
