Monetary Policy and the EMS
There exists no clear-cut argument either in favour of or against UK membership in the exchange mechanism of the EMS. The arguments that it will entail the UK in further losses of sovereignty and freedom of independent action in monetary policy are ranged against the view that membership will enhance the credibility of the government’s anti-inflationary stance and allow the economy to enjoy the benefits of lower interest rates, closer to those of Germany. In 1989 the Chancellor of the Exchequer, Nigel Lawson, favoured entry while Prime Minister Margaret Thatcher’s camp did not. Meanwhile, as the arguments in the UK go backwards and forwards, in Europe as a whole the movement towards integration proceeds. For monetary policy and exchange rates this means increasing the coordination of monetary policies, reducing the variation in exchange rates, and removing controls on transactions associated with capital movements. Further ahead is foreseen more complete monetary union with a single currency and a European central bank.
KeywordsExchange Rate Interest Rate Monetary Policy Central Bank Fiscal Policy
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