ABSTRACT
This contemporary conflict between Germany and the U.S. and the broader EU reminds us that the more things change, the more they seem to remain the same. It doesn’t take all that much imagination to see that Trump and Merkel are engaged in the same dispute that brought down the Bretton Woods System in the early 1970s. This is somewhat surprising because abandoning Bretton Woods was supposed to provide domestic economic autonomy and relegate such conflicts to the past. Shifting to floating exchange rates was supposed to provide domestic autonomy in two ways. First, governments hoped that a system of floating exchange rates would allow macroeconomic policies to pursue distinct objectives. Any current-account imbalances that emerged would be eliminated automatically through these exchange-rate movements.
