A blend of theoretical and policy-oriented analysis, this book provides a comprehensive assessment of the causes and implications of the 1992–3 crisis of the exchange rate mechanism of the European monetary system. Cogent factual presentation - including new details on the crisis - original theoretical analysis, and an interpretation rooted in the theory, make this treatment essential reading to understand the process toward economic and political integration in Europe. The authors first sketch the history of monetary cooperation in Europe from Bretton Woods to Maastricht. A step-by-step account of the 1992–3 events follows, including a discussion of the extent to which financial markets anticipated the crisis. A survey of the literature on the subject introduces the authors' center-periphery model of currency crisis. The authors argue that the vulnerability of Europe to financial crisis was - and still is - the result of the lack of concern with the systemic dimensions of monetary policy-making.
• Most rigorous study of Europe's major financial crisis of the 1990s, eagerly awaited by academics and practitioners • Author Buiter is world-renowned macroeconomic theorist and international economist • Will have foreword by Helmut Schlessinger, former head of Germany's largest bank
1. Introduction; 2. Exchange rate stability in Europe: a historical perspective; 3. The unfolding of the 1992–3 ERM crisis; 4. Financial markets and ERM credibility; 5. Modelling currency crisis; 6. A center-periphery model; 7. Unilateral pegs and escape clauses: the role of domestic credibility; 8. Policy coordination and currency crisis; 9. What causes the system to crumble; 10. Rebuilding the system: what next?