Germans Declare War

IIPM-Publications

IIPM-Bangalore ! IIPM-Chennai ! IIPM-New Delhi ! IIPM-Mumbai ! IIPM-Pune ! IIPM-Hyderabad ! IIPM-Ahemdabad

The crisis could have very well shattered the great European dream – the euro. The Exchange Rate Me chanism (ERM) crisis of the early nineties posed a serious threat towards the unification of Europe and establishment of European Monetary Union. Under the ERM mechanism, the deutschemark (currency of Germany) became the most dominant currency amongst the members. Countries started holding the German currency and used the deutschemark to intervene in foreign currency markets to stabilise their own currencies. The Germans, after reunify cation, experienced a period of overheating as consumer spending went through the roof and the Bundesbank (central bank of Germany) took some contractionary measures. Bundesbank’s heedlessness – by maintaining high interest rates – meant other countries had to increase their interest rates in order to prevent currencies from crashing. At the same time, raising interest rates meant recession. The situation assumed crisis proportions as countries pulled out of the ERM club.

For Complete IIPM-Article, Click on IIPM-Editorial Link

Source IIPM-Editorial,2006