The Crisis of the European Monetary System
The loss of control over monetary policy would not be fatal during normal times. But in times of crisis, the actual and desired monetary policies may diverge too much. That is exactly what happened in 1989- 1993, and is divergence almost destroyed the European Monetary System and eventually led to monetary union.
Faced with rising German interest rates, other nations in the Em Shad to miss their interest rates 10 prevent their currencies from depreciating against the Carmen mark and moving outside the prescribed range, Mann countries found themselves with overvalued exchange rates, These interest along with a world wide recession and a sharp decline in output from the collapsing communist bloc, pushed Europe, outside of Germany. into ever-deeper recession.
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