The European Monetary System

Abstract

The adjustment of the foreign exchange rates of the Community’s two major members in 1969 had a traumatic effect on the Community. Initially it generated the belief that the Common Agricultural Policy, its alleged corner-stone, had been fundamentally compromised; in fact, the subsequent invention of the tortuous system of Monetary Compensatory Amounts was to prove that this fear was not entirely justified. More generally, however, it very definitely undermined the implicit assumption that the exchange-rate stability enjoyed by the Community since its formation would continue indefinitely. The potential gains from integration in the areas of production and trade based on a large single market were clearly being jeopardised by this instability in the monetary sector.