The European Monetary System (EMS) has attracted great attention as a framework for policy coordination ever since it was conceived in 1978. Disillusioned by the prospects for global monetary reform and by the performance of the floating exchange-rate system, the EMS founding fathers wanted to restore, within as large a part as was possible of the European Communities, a system of ‘fixed but adjustable’ exchange rates. Such a system would protect the large intra-European trade flows against the sharp shifts in competitiveness which were seen as quite possible in its absence. It would also contain divergence of national inflation rates among participants and permit lower and more stable inflation throughout. It was seen, finally, as a stabilising complement to the expansionary fiscal programme to facilitate global economic adjustment which the Europeans – and Germany in particular – had undertaken at the Bonn Summit in July 1978.

This vision of the evolution of ‘a zone of monetary stability’ had a strong element of damage limitation in it. Yet it was rightly regarded as highly ambitious at the time because it brought back into European management the currencies of some countries – France and Italy in particular – which had stayed apart from earlier efforts; the system had subsequently evolved well beyond its original intentions, despite the absence of any institutional step. The exchange-rate mechanism has become tighter, monetary policy coordination is now closer, and capital mobility higher than was the case in the early years of the EMS.

Since the system was on the drawing board ten years ago it has inspired a massive literature.