The European Union


The managed exchange rate system deals with trade rate between countries. Managed rates assume that one country sets the monetary policy, takes the exchange rate that is given, and assumes the other country will go along with that rate. The other country then tries to reduce inflation by setting their own exchange rate. The managed exchange rate system slows down exchange-rate movement through the foreign trade market intervention. The whole purpose behind the European Union is to maintain peace between the European counties, and to integrate them. The founding gentlemen of the EMS wanted to restore the integration of the European Communities. In 1949, the Council of Europe was founder to promote political and social unity in Europe. Later in 1952, the European Coal and Steel Community was started to 'allay fears of a 'military-industrial complex' fuelling renascent German nationalism' (Artis & Lee 5). Economic integration and unity was brought to a head in March of 1957 when the European Economic Community and the European Atomic Energy Community were formed. These two treaties were used to help stabilize and form the ECU. All three of these organizations/treaties were essential to forming what is today called the European Union. The European Union/European Monetary System failed for three basic reasons in the early 1990's. First of all, it failed because it was inefficient due to the low-inflation system and the recession in that time period. The recession elaborated on the conflicts between the member countries of the European Union. Second, it is not sufficiently competitive at the current rate of exchange. Third, the real interest rate of the world would need to decline drastically in order for the EU to work. Also in the early 1990's there were 'smaller expectations of devaluations' (DeGrauwe 131). The current European Union has been a result of recent treaties. The first treaty that was signed in February 1992 helped the unification of Europe be that much...