March 24 - March 24, 2009 POLI 243: Intl Econ Relations

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March 24, 2009 POLI 243: Int’l Econ Relations Germany’s Role in the European Monetary Union The Motives for Union *Keep in mind that we are moving into a discussion about monetary relations – the theme of today is about applying Mundell-Fleming conditions (when states make a choice on monetary policy they are looking at a mix of 3 diff policies; exchange rate regime, dom monetary policy autonomy, capital flows – we are discussing how these policies were discussed and what solution was reached) The Roots of Monetary Union - Werner Report (1969) o Bretton-Woods (fixed exchange rates) began to come under attack in 1960s; the Werner report presented the idea that having a single market for trade (having capital and labour, etc. flow across border) meant that having a single currency would be the most efficient solution If you want dom monetary autonomy then you need capital controls (separate foreign exchange rate vs. Interest rate); but capital controls were being taken away at this time, and since the various countries didn’t share domestic monetary policies (U.S. = inflationary policies) the exchange rates were changing (which goes against Bretton-Woods) o Thus, they concluded that having a single monetary policy is the best solution - Bretton Woods collapses (1971-1973) o ’71 is Nixon shocks (U.S. will no longer match its dollar with gold); after this they attempt to negotiate until 1973 but at this point the pressures between the US dollar and the Deutschmark was unbearable
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March 24 - March 24, 2009 POLI 243: Intl Econ Relations

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