Kau mann, Hugo M.
A icle
The Deu sche Ma k be ween he Dolla and he Eu opean
Mone a y Sys em
K edi und Kapi al
P o ided in Coope a ion wi h:
Duncke & Humblo , Be lin
Sugges ed Ci a ion: Kau mann, Hugo M. (1985) : The Deu sche Ma k be ween he Dolla and he
Eu opean Mone a y Sys em, K edi und Kapi al, ISSN 0023-4591, Duncke & Humblo , Be lin, Vol.
18, Iss. 1, pp. 29-60,
h ps://doi.o g/10.3790/ccm.18.1.29
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The Deu sche Ma k be ween
he Dolla and he Eu opean Mone a y Sys em
By Hugo M. Kau mann, New Yo k
I. In oduc ion
Economic in e dependence among Wes e n indus ialized coun ies has
inc eased du ing he las h ee decades in bo h he eal and he mone a y
sec o s and so has he in e na ional ansmission o economic dis u bances
and he po en ial o in e -coun y con lic s.
Among he p oblems o in e na ional mone a y ela ions, he mos impo -
an and in e es ing is he iangula in e ac ion be ween he Deu sche-
ma k (DM), he Uni ed S a es dolla , and he Eu opean Mone a y Sys em
(EMS), which o icially began 13 Ma ch 1979. I is his iangula ela ion-
ship which I in end o analyse o de e mine whe he and how de elopmen s
in he Uni ed S a es, Ge many, and he o he EMS pa ne s we e a ec ing
each o he . The i s pa deals wi h gene al and heo e ical ques ions o
exchange a es, in e es a es and hei in e dependence. The second majo
sec ion deals wi h he salien ea u es o he EMS in ac ion and i s ela ion
o he dolla , inasmuch as hey pe ain o ou heme. The conclusion o ms
he hi d pa .
I is gene ally ag eed ha he Eu opean Mone a y Sys em was c ea ed o
emo e Wes e n Eu ope's economies, especially he Eu opean Communi ies'
(EC), om he in luence o he Uni ed S a es, o c ea e h ough he EMS a
"zone o mone a y s abili y," o os e g ea e con e gence o EMS coun-
ies' economic pe o mances, and o b ea he new li e in o he s alled Com-
mon Ma ke in eg a ion p ocess. Du ing he i s h ee-and-one-hal yea s,
he expec a ions se o he new mone a y sys em has ha dly been ul illed,
as he Uni ed S a es, Ge many, and he o he EMS membe coun ies ha e
expe ienced g ea e di e gence and highe a es o in la ion and unemploy-
men as well as slowe g ow h a es. The la e wo a e ce ainly an un-
in ended con e gence.
Some o he in e es ing ques ions o us a e: wha in luence did he EMS
ha e on Ge many's mone a y policy and he exchange a e o he DM - and
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30 Hugo M. Kau mann
ice e sa? Wha ole does he DM play be ween he dolla and he EMS? Is
Ge many o he EMS wha he Uni ed S a es is o Ge many - a pace se e ?
Is he Uni ed S a es s ill he pace se e o Eu ope? ("When he U.S.
sneezes, Eu ope ca ches pneumonia," was he saying a e he Second Wo ld
Wa .) Wha a e he consequences o a s ong dolla o Ge many? Fo he
o he EMS coun ies? Fo he s abili y o he Eu opean Mone a y Sys em?
II. In e dependence, Exchange Ra es, and In e es Ra es
1. In e dependence
Though hey a e poli ically so e eign na ion-s a es, he coun ies o he
indus ialized Wes ha e economically g own p og essi ely mo e in e de-
penden on bo h he eal and he mone a y planes. E en a cu so y look a
he ecen economic pe o mance o he Uni ed S a es, Ge many, and o he
EC coun ies, as well as ha o nonmembe s o he EC - all coun ies in
s ag la ion - makes one wonde whe he Eu ope has a ained he indepen-
dence he EMS seemed o ha e p omised i s ounde s. T ue, he c oss-coun-
y and ans-A lan ic s ag la ion which all ha e expe ienced could be acci-
den al, wi h coun ies inding hemsel es a a simila s age in he economic
cycle o coun y-speci ic easons; bu his is highly unlikely o he pe iod
unde in es iga ion, and i is an in e p e a ion ha has no been sugges ed,
a leas no in isola ion. Al e na i ely, he Uni ed S a es and he Wes e n
Eu opean coun ies - he la e ei he singly o qua membe s o he EC -
could expe ience ecessions owing o ou side o ces impinging on he wo
a eas, e.g., consequences o OPEC oil p icing. The e is a hi d possibili y:
i espec i e o he poin o o igin o he ini ial causes, he economies o he
indus ialized Wes a e s ill linked wi h one ano he despi e he c ea ion o
he EMS and despi e luc ua ing exchange a es and cyclical luc ua ions
a e ansmi ed om one side o he A lan ic o he o he and be ween EMS
coun ies. These al e na i e possibili ies a e no mu ually exclusi e and may
in ac ha e in e ac ed. Coun y-speci ic causes, such as budge a y de ici s,
could ha e been compounded by in luences ansmi ed om ab oad, such
as OPEC uel p icing.
I is my hypo hesis ha he special posi ion o he DM, as he pi o al ele-
men be ween dolla and he o he EMS cu encies, played a c ucial ole in
he ansmission p ocess. I is, howe e , no sugges ed ha a change in, o
special con ols o , he Deu schema k a e jus i ied. Any pi o al cu ency
would ha e become he condui . Special con ols would me ely in oduce
dis o ions, wi h he cu e being wo se han he disease. Ra he , i seems ha
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 31
loa ing has no been ee, no does i gua an ee comple e insula ion om
ou side in luences.
A na ional game any poli ician can play - and many deligh in so doing -
is o a ibu e domes ic woes o o eign in luences. Ano he pas ime o
poli icians and c i ics o cen al bank independence is o poin hei inge s
a cen al banke s, and make hem esponsible o high in la ion o in e es
a es and/o slow g ow h a es, wha e e he case may be. In Eu ope, he
Deu sche Bundesbank (Ge many's cen al bank) and he Uni ed S a es we e
made he culp i o he p esen malaise, and in he Uni ed S a es, he
Fede al Rese e and i s chai man, Paul Volcke , had o bea he b un o
c i icism.
The le els and ola ili y o in e es a es, e en mo e han exchange a e
mo emen s, ha e made headlines he e and ab oad du ing his pe iod o
s ag la ion and a e singled ou as he majo cause o his cu en p o ac ed
and mos se e e ecession since Wo ld Wa II. I an A lan ic in e es - a e
disa mamen could no be nego ia ed, hen he EMS should "de-couple"
i sel om Uni ed S a es in e es a e in luences and coo dina e a educ ion
o in e es a es among EMS membe s. This was he F ench p oposal a he
beginning o 1982.
2. Exchange Ra es, In e es Ra es, and he Eu opean Mone a y Sys em
a) Exchange Ra e De elopmen s Be o e he Es ablishmen o he EMS
Two elemen s s and ou o conside a ion in analysing he posi ion o he
Deu schema k as condui o Uni ed S a es in luence upon he EMS:
exchange a es and in e es a es - no un ela ed a iables, hese.
Du ing he pe iod o he B e on Woods sys em wi h i s in e mi en ly
pegged-exchange a es, con lic s be ween goals o in e nal equilib ium -
p ice s abili y, a sa is ac o y and sus ainable g ow h a e, and low
unemploymen - and ex e nal equilib ium - main enance o a ainmen o
balance o paymen s equilib ium - plagued many coun ies, including he
Uni ed S a es and Ge many. Unde he pegged- a e sys em, in e nal dis u -
bances we e easily ansmi ed among open economies. Mo eo e , policies
designed o educe in e nal (ex e nal) agg a a ed ex e nal (in e nal) dis-
equilib ia. I was, hus, na u al o look o an al e na i e in e na ional
mone a y sys em, one ha would elimina e hese dilemmas and would pe -
mi a coun y o pu sue i s domes ic economic goals unimpeded by ex e nal,
i.e., balance o paymen s, con ain s.
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32 Hugo M. Kau mann
In he la e 1960s and he 1970s, na ions a emp ed o ex ica e hemsel es
om he aga ies o he dolla s anda d, as he Uni ed S a es looded he
wo ld money ma ke wi h i s cu ency. As long as pegging o exchange a es
exis ed, domes ic money supply - unless s e ilized by mone a y policy - was
la gely de e mined by in- and ou lows o o eign exchange. I onically, he
sea ch o a new in e na ional mone a y a angemen in ensi ied du ing he
1970s - a pe iod o gene alized exchange a e loa ing.
The o e iding pu pose o o ming he Eu opean Mone a y Sys em was a
desi e o educe exchange a e luc ua ions among he membe s o he Eu o-
pean Communi ies. Join luc ua ions agains he U.S. dolla and o he
hi d cu encies we e conside ed o lesse impo ance.
The oad o some o m o Eu opean mone a y in eg a ion and hus, indi-
ec ly, o e ec i e ope a ion o he EMS, s a ed in he la e 1960s, bu i was
slow in coming. One o he main impedimen s du ing he nego ia ions was
he i be ween he "mone a is " and he "economis " app oach o mone-
a y in eg a ion as a p ocess and he ul ima e goal o o ming an Eu opean
Economic and Mone a y Union. The wo diame ically opposed app oaches
p o ided di e en heo e ical analyses o he economic and poli ical p oces-
ses, wi h he o me , he mone a is app oach, being based on economic
de e minism and neo unc ionalism; ha is, begin wi h ixi y o exchange
a es, and he ex e nal con ain s will o ce he membe s o he pegged- a e
sys em o ha monize and coo dina e o he economic policies as well. The
"economis " hough , in con as , was ha he so-called disciplining e ec
o a pegged- a e sys em canno be elied upon and will no wo k, unless
policy coo dina ion and ha moniza ion p eceded he pegging o exchange
a es. Then, exchange a e luc ua ions would pe o ce become smalle and
pegging easible.
In addi ion o hese qui e di e en analyses o he p ocesses leading up o
exchange- a e uni ica ion, based on heo e ical easoning, hey also o e ed
di e en philosophies ega ding economic policy - in e en ionism s.
eliance on ma ke o ces. O he wo majo ini ia o s o he EMS, F ance
and Ge many, he o me had ew inhibi ions abou e e ing o adminis a-
i e in e en ions - which i ne e comple ely abandoned and o which i
had a la ge and ained bu eauc acy - and in e e ence wi h ma ke o ces,
beyond he me e smoo hing o exchange a e luc ua ions h ough in e en-
ions in exchange ma ke s. Ge many, on he o he hand, gene ally ejec ed
- pa ly o his o ical easons - exchange con ol as a sui able weapon o
achie e mone a y union.
F om 1972 onwa d o he o ma ion o he EMS in Ma ch 1979, in he
absence o a o mal ag eemen abou a new in e na ional mone a y sys em,
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 33
Ge many, oge he wi h o he Common Ma ke coun ies, o med he Eu o-
pean na ow ma gins a angemen , he "snake," and had, as "économie
dominan e," a de e mining and an i-in la iona y in luence on he membe s
o he "snake." The coun ies wi h simila goals o Ge many's, elec ed he
"s ong-cu ency op ion" by pegging hei cu encies o he Deu schema k
- he eby c ea ing a de ac o DM cu ency a ea. Fo he coun ies belonging
o and s aying wi h he DM cu ency a ea, i mean ha a imes hey had o
pu sue policies unde dilemma condi ions - as was o be expec ed unde
ixed o pegged exchange a es. Wha was he gain in joining he DM bloc?
The membe s hoped o escape he highin la ion a es o he nonmembe s -
especially a e he i s and second oil shocks. The a e ma h o he
second oil shock was somewha di e en since he EMS had by hen
been es ablished.
b) Exchange Ra es and he Eu opean Mone a y Sys em
The inal impe us uni ing he Eu opeans o he EC - wi h he no able
excep ion o England - o es ablishing a o mal cu ency a angemen , he
Eu opean Mone a y Sys em - came du ing he Uni ed S a es' "benign" - o
was i "malign"? - neglec o he dolla exchange a e in 1978. Exchange
a e pegging unde he EMS ules was expec ed o gene a e a "zone o
mone a y s abili y" o he pa icipan s by se ing hem apa om he
exchange a e de elopmen s o o he cu encies. By c ea ing a Eu opean
cu ency bloc, he EMS was o ee Eu ope om dolla hegemony - wi hou ,
howe e , subs i u ing a Deu schema k hegemony in i s s ead. A symme ic
adjus men mechanism wi hin he EMS, h ough he in oduc ion o a Eu o-
pean Cu ency Uni and a Di e gence Indica o - an ea ly wa ning sys em,
as i we e - we e supposed o assu e ha no cu ency wi hin he sys em
would become a key cu ency, and ha he asymme y o he de unc B e -
on Woods sys em would no be ein oduced in o he new pegged-
exchange- a e a angemen .
Since he e m "exchange a e s abili y" was no u he de ined, i was
in e p e ed as e e ing o nominal, bila e al exchange a es. While his
de ini ion may simpli y ma e s g ea ly, i lea es many ques ions open, o
bila e al and nominal exchange a es a e bu one se o a mul i ude o
exchange a es - and no he only meaning ul ones. In a-EMS eal and
nominal exchange a e ela ions a e impo an o in a-EC o in a-EMS
ade and capi al mo emen s, espec i ely, and o EMS pe o mance and
s abili y. Real exchange a e mo emen s de e mine a coun y's compe i i e
posi ion, while he p o i abili y o capi al mo emen s is ela ed o nominal
3 K edi und Kapi al 1/1985
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34 Hugo M. Kau mann
exchange a e changes. Wha coun s mos o a coun y's economic pe o -
mance in he o eign ade sec o , howe e , is i s exchange a e is-à- is a
weigh ed a e age o i s impo an ading pa ne s, i.e., i s e ec i e
exchange a e.
Exchange a e beha io is a mul i ace ed phenomenon: i s , bila e al
exchange a e de elopmen s may be signi ican ly di e en om mul ila -
e al, e ec i e exchange a e changes - nominal and eal. Fo ins ance, he
O ganiza ion o Economic Coope a ion and De elopmen (OECD) calcu-
la ed a bila e al DM-dolla dep ecia ion o some 15 pe cen be ween he end
o 1979 and May 1982, whe eas he DM's e ec i e exchange a e was abou
he same a he beginning and he end o his pe iod.1
Ano he aspec o he mul i a iousness o DM exchange a e mo emen s
is ha he DM, like o he cu encies, mo es agains o he EMS cu encies
and agains hose o nonmembe s o he EMS, and hese mo emen s may be
a he dispa a e. To complica e ma e s u he , wi hin he EMS i sel , di -
e ences o exchange a e beha io a e obse able among membe s o he
old "snake" and he "mini-snake." The Du ch guilde , e.g., in gene al mo ed
wi h he Deu schema k; bu his was no an unal e ing ela ionship. The
Belgian anc, a membe o he "snake" and he "mini-snake", like he
Du ch guilde and he Deu schema k, had managed o ie i sel o he s ong
cu ency, e en hough his equen ly c ea ed o agg a a ed domes ic imba-
lances. Finally, he Belgian anc had o ake he plunge, cu i sel loose om
he Deu schema k, and had o be de alued on 22 Feb ua y 1982 - o he
i s ime in hi y- h ee yea s.
c) The Deu schema k as Pi o al Cu ency
Al hough he echnical and ins i u ional a angemen s o he EMS we e
designed o o e come he asymme ies expe ienced unde he B e on
Woods sys em, i was una oidable ha one cu ency in he EMS - he
Deu schema k - would become p imus in e pa es. Ge many's and he
Deu schema k's s a us was an ou g ow h o wo majo elemen s: one was
Ge many's eme gence in he 1950s as he main ading pa ne o he o ig-
inal EC coun ies and also o some non-EC coun ies, such as Aus ia and
Swi ze land. The o he elemen was Ge many's success in a aining in la-
ion a es which we e ei he e y low in absolu e e ms o a leas in ela ion
o mos o i s main ading pa ne s. Thus, Ge many was o become he
1 O ganiza ion o Economic Coope a ion and De elopmen (OECD), Economic
Ou look, 31 (July 1982), p. 62.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 35
cen e o g a i y o a la ge economic a ea, and wi h i was laid he ounda-
ion and con inua ion o a de ac o DM cu ency a ea. Nex o he dolla , he
DM had eme ged as he second mos impo an ese e cu ency and also an
in es men cu ency. I also se es as in e en ion cu ency.
O e much o he B e on Woods and pos -B e on Woods pe iods, he
dolla and he Deu schema k ha e mo ed in opposi e di ec ions. This
beha io became e en mo e p onounced as he Deu schema k became an
al e na i e o he dolla o in es men and in e en ion pu poses - a end
which, as long as he DM was e y s ong, ecei ed a mixed blessing by he
Deu sche Bundesbank2 and i s hen P esiden , D . O ma Emminge . As he
DM weakened and Ge many an la ge cu en accoun de ici s, he Bundes-
bank's - and i s new P esiden , Ka l-O o PôhVs - a i ude owa d he DM's
p ominen posi ion changed; he a ac i eness o he DM as in e na ional
ese e and in es men cu ency was emphasized in an a emp o inance
he cu en accoun de ici s wi h capi al impo s.
The Deu schema k's pi o al ole anscends i s in luence on he EMS and
a ec s non-EMS cu encies as well. EMS ules allow o mal associa ion o
non-EC coun ies - an a enue, which has no been pu sued ye . Aus ia and
Swi ze land, bo h ha ing close ade ies wi h he EC, howe e , ha e
a ached hei cu encies o he EMS in o mally. Aus ia seeks o main ain
a cons an eal e ec i e exchange a e wi h he DM, while Swi ze land has
"adop ed an in e en ion ma gin a ound he Deu schema k, which e ec-
i ely means a unila e al ac o associa ion wi h he EMS."3
Wi h he eme gence o he Deu schema k as a ese e and in es men cu -
ency, and wi h he DM's eme gence as he pi o al cu ency wi hin he EMS,
he DM was exposed mo e han o he EMS cu encies o in e na ional cap-
i al mo emen s. DM exchange a e mo emen s ha e become mo e sensi i e
o de elopmen s in Ge many's and o he coun ies' cu en accoun s,
2
See e.g., Deu sche Bundesbank, Mona sbe ich e (MB), Sep embe 1979, p. 40.
3 Michael Eme son, "Expe ience unde he EMS and P ospec s o Fu he P og-
ess owa ds EMU," in M. T. Sumne and G. Zis, eds., Eu opean Mone a y Union -
P og ess and P ospec s. New Yo k: S . Ma in's P ess, 1982, p. 25. The exchange a e
ela ionship be ween he Swiss anc and he Deu schema k is no unal e ing, how-
e e , as he a e o he wo cu encies demons a ed du ing 1981 and 1982: un il ea ly
May 1981, he Swiss anc dep ecia ed agains he dolla , as did he Deu schema k.
When he discoun and lomba d a es we e aised in Swi ze land on 11 May, 1981, he
Swiss anc app ecia ed agains o he Eu opean cu encies - capi al lowed in o
Swi ze land, also in connec ion wi h he ou come o he F ench elec ions. Be ween
ea ly Ma ch and he end o June, he Swiss anc app ecia ed is-à- is he
Deu schema k. Subsequen ly, he Swiss anc, oge he wi h EMS cu encies,
declined agains he dolla . See e.g., Bank o In e na ional Se lemen s (BIS), Fi y-
second Annual Repo . Basel, June 1982, p. 145.
3*
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36 Hugo M. Kau mann
in e es and in la ion a es, and exchange a e expec a ions. The ela i e
weigh o hese ou ac o s in in luencing exchange a e mo emen s has
a ied o e ime: cu en accoun s ha e ou weigh ed he o he a iables,
only o be eplaced in impo ance by in e es a e di e en ials o one o he
o he wo a iables.
d) The Ge man-Uni ed S a es-EMS T iangula Rela ionship
Because o he in e na ional impo ance o he Deu schema k, he
exchange a e policy o he Fede al Rese e, he U.S. cen al bank, was
gea ed o, and i s e ec i eness was judged by, dolla -DM exchange a e
mo emen s. This special ela ionship was no ed bo h when he dolla was
weak in he p e-EMS e a, as well as a e 1979, when he dolla ebounded
and he DM weakened. Simila ly, i he Bundesbank in e ened in o eign
exchange ma ke s o a ec he DM exchange a e is-à- is cu encies
agains which he DM was loa ing wi hou limi s
(i.
e., non-EMS cu encies)
i chose o in luence he DM-dolla a e, le ing c oss a es de e mine he
DM a es o he o he cu encies.4
When he Fede al Rese e ocused on he dolla -Deu schema k ela ion-
ship in i s exchange a e policy, Eu opean cen al banks had o decide o
hemsel es whe he and how hey in ended o eac o i s policy. This p o-
ided e ile soil o po en ial and ac ual policy con lic s be ween he Bun-
desbank and he Fede al Rese e, on he one hand, and be ween he Bundes-
bank and EMS pa ne cen al banks. One o he mo e equen con lic s
occu ed in 1981, when he Bundesbank eac ed o he ex eme
Deu schema k weakness ha had de eloped. Con lic s can easily a ise when
he Ge man policy make s a ach highe p io i y han do o he EMS
pa ne s o elimina e ex e nal de ici s, which had been one o he unde lying
causes o DM weakness. I has been co ec ly s a ed ha "The du abili y o
any mone a y a angemen ... depends in pa upon whe he he decisions
made by he Bundesbank and he FED abou his key exchange- a e ela-
ionship a e accep able o pa ne cen al banks and go e nmen s."5 A oi-
dance o in a-EMS con lic s p esupposes accep ance o Ge man hegemony,
4 Because he dolla and he Deu schema k a e much mo e a ec ed han o he cu -
encies by decisions o p i a e and o icial in es o s, he ixing o a dolla -DM
exchange a e would be a he p oblema ical. See e.g., Leonha d Gleske, „Ohne
Schü zenhil e d oh die Geldpoli ik übe o de zu we den," Deu sche Bundesbank,
Auszüge aus P essea ikeln (AP), 39; 28. Ap il 1981, p. 82.
5 Da id T. Llewellyn, "Eu opean Mone a y A angemen s and he In e na ional
Mone a y Sys em," Sumne and Zis, eds., Eu opean Mone a y Union, op. ci ., p. 142.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 43
Fo emos among he economic easons in Ge many was he sudden and
se e e de e io a ion in i s cu en accoun , which had u ned nega i e o
he i s ime in ou een yea s. Some igu es a e needed o sugges he mag-
ni ude o he cu en accoun changes ha ook place. Du ing he pe iod,
which las ed om 1975 h ough 1977, he cu en accoun su plus amoun ed
o nea ly DM 10 billion each yea , and i nea ly doubled he ea e in 1978,
o o e DM 18 billion, bu declined in o de ici o nea ly DM 11 billion in
1979, a swing o o e DM 29 billion.
Ge many's cu en accoun de e io a ion esul ed om Ge many's expan-
siona y policies o 1978, which coincided wi h he e ec o he second oil
shock, and OPEC did no , no was i expec ed o, inc ease in he nea u u e
hei o de s om Ge many as in 1974.
A abou he same ime, he e ec o he eal DM e alua ion, ha occu -
ed om 1976 - 1979, had wo ked i sel h ough he sys em, wi h inc eased
impo and educed expo g ow h, i s in olume, hen la e in alue e ms.
As he e ms o ade e ec s o exchange a e changes had empo a ily ou -
weighed he co ec i e in luence on eal lows, he so-called J-cu e
phenomenon had masked he unde lying ade de elopmen s. The Bundes-
bank es ima es ha he Deu schema k's 6V2 pe cen nominal app ecia ion
in 1978 amoun ed o a 3V2 pe cen imp o emen in i s e ms o ade and
had been he only eason o he inc ease in Ge many's ade balance
su plus by DM 3 billion o DM 49 billion.12 On a olume basis, i.e., wi h con-
s an , 1977 p ices, Ge many's ade su plus would ha e sh unk by
DM 6 billion.
The weakness o he Deu schema k was no only he esul o he magni-
ude o he swing in Ge many's cu en accoun om su plus o de ici , bu
also he p i a e as well as o icial expec a ion ha Ge many would no soon
be able o e e se i s cu en accoun de ici , and ha o he nea - e m,
hings would ge much wo se be o e hey imp o ed - he J-cu e wo king in
he opposi e di ec ion as Ge many's e ms o ade de e io a ed wi h he
decline in he DM's exchange a e. Indeed he cu en accoun de ici
de e io a ed o nea ly DM 30 billion o 1980, while o 1981, a yea o
an icipa ed in e na ional s ag la ion, only a mode a e imp o emen o a
possible de ici o DM 22 - 25 billion was o ecas by he Fede al Go e n-
men .13 The ac ual imp o emen , howe e , was much bigge - a dec ease o
12 Deu sche Bundesbank, Annual Repo (AR) 1978, p. 20. The ade su plus was
calcula ed on an .o.b. basis o bo h impo s and expo s. I expo s had been calcu-
la ed on an
. o. b.
and impo s on a
c. i. .
basis, he ade su plus would ha e amoun ed
o DM41 billion.
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44 Hugo M. Kau mann
a de ici o abou DM 17 billion. This imp o emen , in conjunc ion wi h
mone a y policy, helped he Deu schema k o app ecia e la e - a leas
wi hin he Eu opean Mone a y Sys em.
O he con ibu o y elemen s o he DM weakness we e he in e es a e
di e en ials, eal and especially nominal, a o ing o he cu encies o he
Eu opean Mone a y Sys em and he dolla . Capi al expo s om Ge many
o coun ies wi h highe nominal in e es a es added o DM exchange a e
p essu es ha had de eloped a e he de e io a ion in he cu en accoun .
Nominal in e es a e di e en ials wi hin he EMS became mo e impo an
han eal in e es a e di e en ials - as long as exchange a e s abili y
wi hin he sys em was easonably assu ed. As long as exchange a es a e no
changing, he e u n on asse s is calculable om in e es a e o di idend
income and exchange a e isk is negligible; u he mo e, in e es a e
income is no educed by de alua ions.
EMS coun ies which had in la ion a es esembling hose in he Uni ed
S a es also had nominal in e es a es mo e in ha mony wi h hose p e ail-
ing in he U. S. han hose in Ge many. Thus, capi al was a ac ed o o he
coun ies in sea ch o highe yields.14
Rein o cing he causes o DM weakness was i s ole as al e na i e in e na-
ional ese e and in es men cu ency, ende ing he DM mo e ulne able
han o he EMS cu encies o in e es a e induced capi al mo emen s. Ge -
many's pa ne ship in he EMS did no shield he Deu schema k om expo-
su e and a ac i eness as al e na i e in e na ional ese e cu ency. I may
ha e been expec ed ha he c ea ion o he EMS would dis ibu e mo e
equally among he a ious EMS cu encies hei a ac i eness o se ing
as dolla o pound s e ling subs i u es in in e na ional ansac ions.15
Ini ially, he Bundesbank accep ed, e en welcomed, high Uni ed S a es
in e es a es as a p ice ha had o be paid o " esolu e an i-in la iona y
mone a y policy ... in he bes in e es o all coun ies, e en i ... his policy
13 „Jah esbe ich 1981 de Bundes egie ung. Auszüge aus den ü 1981 anges eb-
en wi scha s- und inanzpoli ischen Zielen." Deu sche Bundesbank, AP 14; 17 Feb-
ua y, 1981, p. 3.
14 This de elopmen p o ides u he p oo , i i we e needed, ha con e gence o
economic pe o mance and policies among EMS membe coun ies should no only be
among he goals o he EMS bu is a p e equisi e o i s smoo h unc ioning, i.e.,
exchange a e s abili y.
15 This is one o he easons why a join dolla policy by EMS coun ies would no
be able o o es all o educe ensions wi hin he EMS. See Leonha d Gleske,
„Pe spek i en de deu schen und de in e na ionalen Wäh ungsen wicklung."
Deu sche Bundesbank, AP, 5; 13 Janua y, 1981, p. 2.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 45
led o excep ionally high le els o in e es a es and ma ked shi s in
exchange a es wi h which we s ill ha e o li e oday."16
Nominal in e es a e di e en ials and changes in in e es a e di e en-
ials we e, howe e , no always good p edic o s o capi al and exchange a e
mo emen s be ween coun ies whose exchange a es we e pe mi ed o luc-
ua e. E en massi e in e en ions in o eign exchange ma ke s, bo h when
he dolla weakened agains he DM and when i s eng hened, we e unable
o s em he end o exchange a e mo emen s, as long as expec a ions o
u he dep ecia ions o app ecia ions p e ailed. Be ween 1977 and he la -
e pa o 1979, a widening in e es a e di e en ial in a o o he dolla
did no p e en a s eady de e io a ion o he dolla exchange a e is-à- is
he DM.
In he ea ly mon hs o 1979, howe e , sho ly a e he Oc obe 1978
announcemen o U. S. an i-in la ion policy, he dolla ose abou i e pe -
cen , despi e a na owing o he in e es a e di e en ial in a o o he
Uni ed S a es. This was possible and las ed only as long as an i-in la ion
measu es we e belie ed o ake hold. When he opposi e became e iden , he
dolla esumed i s decline agains he Deu schema k - despi e a widening o
in e es a e di e en ials in a o o he dolla . Exchange a e mo emen s
pa alleling in e es a e di e en ials mo emen s - as hey did be ween 1974
and 1976 and as expec ed on an a p io i basis - came only a e ea ly 1980,
when he second U. S. an i-in la ion p og am had been ins i u ed and he
Fede al Rese e had adop ed a policy con olling mone a y agg ega es o
b ing in la ion unde con ol, i espec i e o whe e in e es a es would be
headed in he sho un.
Simila was he case o Ge many in 1980, when he imp o emen in i s el-
a i e in e es a e posi ion was accompanied by an app ecia ion o he DM
du ing he second qua e . The o eign exchange ma ke s mus ha e asses-
sed ha he DM would no s ay undamen ally weak in he medium un,
e en hough in he sho un he balance o paymen s was expec ed o wo -
sen be o e an imp o emen would se in. I he expec a ions o he medium
un had been o he wise, he na owing and e en he e e sal o in e es a e
di e en ials17 would no ha e aided he Deu schema k exchange a e - as i
did no help he dolla du ing he pe iod om 1977 h ough 1979.
In eal e ms, he Deu schema k declined in he i s hal o 1980 by abou
h ee pe cen ,18 a de elopmen which was welcomed as assis ing he balance
16 Deu sche Bundesbank, AR 1980, p. 45.
17 Du ing May and June, 1980, he in e es a e di e en ial was in a o o Ge -
many.
18 On wholesale p ice basis.
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46 Hugo M. Kau mann
o paymen s adjus men p ocess, inc easing Ge many's in e na ional com-
pe i i eness. Bu a he same ime i also aised he possibili y o di ec and
indi ec impo a ion o in la ion. To lessen he la e e ec , he Bundesbank
in e ened in he dolla ma ke du ing DM weakness, and in he EMS, he
DM was suppo ed by EMS pa ne s when i eached he lowe in e en ion
poin . Because o he linkage be ween he dolla , he DM, and EMS cu en-
cies, less in e en ion in he dolla ma ke would ha e caused a la ge
decline o he DM agains he dolla and wi h i he need, o ins i u ional
easons, o g ea e EMS suppo ope a ions o he Deu schema k.
Because o Ge many's wo sened balance o paymen s si ua ion, he Bun-
desbank elaxed i s es ic ions agains capi al impo s and, oge he wi h
he Fede al go e nmen , ac i ely sough o encou age he inancing o i s
cu en accoun de ici s h ough capi al impo s. Fo he en i e i s hal o
1980, capi al ou lows e en exceeded he cu en accoun de ici , as hey did
du ing he inal qua e o ha yea . Only du ing he hi d qua e o 1980
was Ge many able o inance i s cu en accoun de ici wi h capi al
impo s. Bu ha was ha dly a "s able" si ua ion, since sho e m capi al
impo s o abou DM 9V2 billion by a ou weighed long e m capi al impo
o DM 1 billion.
Wi h enewed p essu e on he DM exchange a e in Oc obe 1980, he
Uni ed S a es au ho i ies acqui ed DM as pa o smoo hing ope a ions in
he DM-dolla ma ke . Requi ed in e en ions we e unde aken in he EMS
as he DM eached he lowe in e en ion ma gin, especially is-à- is he
F ench anc and he Du ch guilde . These in e en ions accoun ed o he
bulk o he Bundesbank's Oc obe ese e losses.19 Fo he en i e ou h
qua e o 1980, hal o Ge many's o eign exchange ese e losses we e
caused by compulso y DM in e en ions wi hin he EMS. The Bundesbank
a ailed i sel o he " e y sho e m inancing acili y" o he Eu opean
Mone a y Coope a ion Fund.
The decline o he DM in he all o 1980 was he esul o nominal in e es
a e di e en ials un a o able o Ge many, combined wi h la ge de ici s in
i s cu en accoun . Thus a si ua ion a ose whe eby he coun y wi h he
19 Deu sche Bundesbank, MB No embe 1980, p. 11. O cou se, no all in e en ions
show up as o eign exchange ese e changes. Howe e , all DM in e en ions wi hin
he EMS a in e en ion poin s a e e lec ed in he Bundesbank's ECU posi ion. See
Deu sche Bundesbank, MB Decembe 1980, p. 40, oo no e 3. The Bundesbank
objec ed o he insinua ion o ha ing in e ened in he o eign exchange ma ke o
p e en changes in he DM's exchange a e. I asse ed ha only 20 pe cen o i s
in e en ion ansac ions we e no compulso y. See Deu sche Bundesbank, MB
Decembe 1980, p. 40.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 47
be e p ice pe o mance - Ge many - and he e o e lowe nominal in e es
a es could no a ac su icien capi al o inance i s cu en accoun
de ici and los o eign exchange ese es o coun ies wi h much highe
in la ion a es, such as F ance, which had an in la ion a e wice ha o
Ge many, bu whose cu en accoun , hough also nega i e, was be e han
Ge many's. Capi al lows om low- o high-in la ion coun ies could con-
inue as long as he isk o de alua ion ( e alua ion) o he high (low) in la-
ion coun ies' cu encies we e judged low o he nea e m, because o
us o he s abili y o EMS cu ency ela ions. Unde hese condi ions,
nominal yield di e en ials c ucially in luenced capi al lows.
Whe eas he DM eco e ed wi hin he EMS a e he educ ion o in e es
a es in F ance and managed o s ay abo e he loo be ween Oc obe 1980
and he beginning o Feb ua y 1981, he DM decline agains he dolla con-
inued unaba ed: he DM had become any hing bu a candida e o e alu-
a ion wi hin he EMS o app ecia ion agains he dolla in he nea e m.
F om he end o Sep embe 1980 o he i s week o Feb ua y 1981, he
DM umbled
15 V2
pe cen agains he dolla ,
13 V2
pe cen agains he
pound, and 19 pe cen agains he yen.20 On a ade-weigh ed a e age, he
DM a ed less badly, declining by abou ou pe cen o e he same ime
span. This was he esul o ela i ely s able exchange a e ela ions wi hin
he EMS, wi h whose pa ne s Ge many conduc ed o e 40 pe cen o i s
ade. Ge many's EMS membe ship impa ed s abili y o Ge many, a leas
in his ins ance, and agains Ge many's o iginal expec a ions.
(ii) How (no ) o deal wi h he DM Weakness
When he DM weakened, bo h EMS membe s and he Bundesbank - in
conjunc ion wi h he Ge man go e nmen - engaged in ope a ions o keep
he DM wi hin EMS ma gins. They did so, despi e ecommenda ions by he
Scien i ic Council a he Fede al Economics Minis y, some economic
esea ch ins i u es and sec o s o he economy ha Ge many should esol e
i s unemploymen and balance o paymen s p oblems by de aluing he
Deu schema k.21 The ins i u es easoned ha such an ac would soon a ac
20 Fo he pe iod since he Uni ed S a es had changed i s policy cou se (end-1979)
o mid-Feb ua y 1981, when he Bundesbank changed i s own policy cou se, he
DM had plunged 23 pe cen agains he dolla , 24 and 33 pe cen agains he pound
s e ling and he yen, espec i ely. See Deu sche Bundesbank, MB Ma ch 1981, p. 6.
21 The o he , mo e ex eme, ecommenda ions we e o igno e ex e nal aspec s o
economic policy en i ely and o conduc economic policy wi h a iew o in e nal issues
only - o e en o d op ou o he EMS a angemen , a leas o he ime being.
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48 Hugo M. Kau mann
capi al in expec a ion o an imp o emen in he DM exchange a e. Co -
ec ly, he Fede al Go e nmen and he Bundesbank ejec ed hei ecom-
menda ion and he easoning behind i : i s , he social cos s in ol ed in
changing p ice ela ions be ween adeables and non- adeables in a
de alua ion which p o es o be "unnecessa y" could be a oided. A de alu-
a ion was conside ed unnecessa y because o he subs an ially be e p ice
pe o mance in Ge many han in o he majo ading pa ne s, which would
soon be e lec ed in an imp o ed balance o paymen s posi ion o Ge many.
Secondly, such a empo a y de alua ion as he p oponen s o he
exchange a e change en isioned, was unnecessa y since he Eu opean
Mone a y Sys em, as a "zone o mone a y s abili y" was designed o assis
coun ies in empo a y di icul ies wi h e y sho e m inancing acili y
and medium e m assis ance o a oid exchange a e changes i cu encies
a e no undamen ally unde - o o e alued.
Fu he mo e, he "s able bu adjus able" exchange a e sys em was mean
o impa in e nal p ice s abili y, wa ding o he possibili y o impo ed
in la ion h ough highe o eign p ices, calcula ed in domes ic cu ency.22
The Bundesbank es ima ed ha wo- hi ds o he 11 pe cen inc ease in
impo p ices - calcula ed in DM - be ween Sep embe 1980 and Ap il 1981,
was caused by he DM dep ecia ion, p ima ily he dep ecia ion agains he
dolla .23 He e, oo, he dolla -DM ela ionship is impo an , since one- hi d
o all Ge man impo s a e calcula ed in dolla s.24
This kind o impo ed in la ion has he po en ial o se in mo ion a icious
ci cle o inc easing p ices, ollowed by dep ecia ing cu ency, which in u n
will lead o ano he ound o p ice inc eases and dep ecia ion, e c. Fo Ge -
many, being p ice-s abili y-conscious, a de alua ion o he Deu schema k
would ha e o be accompanied by de la iona y policies in o de o p e en
a icious ci cle om being se in mo ion - no exac ly conduci e o he
p omo ion o ull employmen .
Ano he eason why a de alua ion o he DM would no ha e been ad is-
able o , o ha ma e , easily accep ed by he o he EMS pa ne s, who a e
in ol ed in exchange a e change delibe a ions, was ha Ge many, like Bel-
22 The Bundesbank e en emphasized he alue o he EMS in his pa icula
ins ance o helping Ge many in i s igh agains in la ion by making a de alua ion o
he Deu schema k unnecessa y. See Deu sche Bundesbank, AR 1981, p. 79.
23 Deu sche Bundesbank, MB June 1981, p. 6. In i s Sep embe 1981 MB, p. 6, he
Bundesbank es ima es ha h ee- ou h o he p ice inc ease o impo s can be
explained by he DM decline agains he dolla .
24 Deu sche Bundesbank, MB, June 1981, p. 31.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 49
gium, when i de alued i s anc in 1982, would ha e been suspec ed o
a emp ing o engage in "compe i i e de alua ion." This suspicion would
ha e been mo e applicable in he case o Ge many han in o he ins ances,
since Ge many's p ice beha io in he EMS was be e han o he coun ies',
so ha , e en wi h a cons an nominal DM exchange a e, Ge many's eal
exchange a e was dep ecia ing and i s in e na ional compe i i eness
imp o ing. Bu o e ase any suspicion ha one de alua ion migh be insu -
icien and migh , he e o e, ha e o be epea ed, a subs an ial de alua ion
would be called o which, as we ha e seen, would ha e been nei he desi -
able no accep able.
The impo ance o an o e alued cu ency in he igh agains in la ion
was amply demons a ed no only in Ge many's case a e he i s oil shock;
i was also expe ienced by Japan and Swi ze land - bo h coun ies which
managed o educe hei in la ion a es apidly wi hou g ea sac i ice in
e ms o educed g oss na ional ou pu . One may ecall ha Ge many and
some o he coun ies we e, he e o e, accused o ha ing engaged in a delib-
e a e exchange- a e-app ecia ion policy du ing he mid-se en ies. Since no
all coun ies can engage in a success ul cu ency-o e alua ion policy - i ,
indeed hey did - a sou ce o po en ial con lic be ween coun ies in ex e nal
economic policy is gi en. This ex e nal dilemma is added o he in e nal one
- which may exis in any case - such as he con lic be ween mone a y and
exchange a e policy. I is no sugges ed, on he o he hand, ha o e alu-
a ion (unde alua ion) pe se is desi able o igh in la ion (unde employ-
men ), since in he longe un he cos s o exchange a es, which a e a ou
o line, may ou weigh he bene i s, by ansmi ing he w ong signals o he
economies.
Finally, and ce ainly no he leas impo an , conside a ion was ha , in
he ligh o he p ominen posi ion o he DM as a ese e and in es men
cu ency, he p oposal o de alue he DM o encou age capi al in low
seemed almos pe e se. I any hing, a de alua ion would ha e led o a cap-
i al ligh ou o Ge many and om he DM. The basis o DM ese e cu -
ency s a us was he expec ed s abili y o he cu ency's na ional and in e -
na ional pu chasing powe . The demand o he DM as an in es men eh-
icle was, a leas pa ly, encou aged by i s endency o app ecia e is-à- is
o he cu encies, wi h o al e u n on in es men consis ing o in e es a e
yield plus capi al (i.e., also cu ency) app ecia ion. To egain in e na ional
con idence a e a de alua ion would ha e been di icul and no a ainable
in he sho un.
A o e as e o wha could ha e esul ed om a DM de alua ion could be
seen in he inc eased capi al low ou o he Fede al Republic o Ge many
4 K edi und Kapi al 1/1985
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50 Hugo M. Kau mann
when he DM came unde hea y selling p essu e du ing he i s mon h and
a hal o 1981.
Ins ead o he p oposed de alua ion, Ge many empo a ily ied o
inance i s cu en accoun de ici s h ough capi al impo s, which p o ed
e y di icul unde he gi en ci cums ances: he compa a i ely low in e es
a es in Ge many and he absence o any easonable expec a ions ha he
DM migh be e alued in he nea u u e, made DM in es men s una ac-
i e, while a he same ime i encou aged DM bo owings. Consequen ly,
e en wi hou a dange o a DM de alua ion, Ge man in e es a es had o be
aised o dec ease he un a o able in e es a e di e en ial. I is, hus,
highly ques ionable whe he , a e a de alua ion o he DM a e e sal o
capi al lows would ha e ma e ialised, wi hou a u he inc ease in Ge -
many's in e es a es. A e a de alua ion, especially i i would ha e been
judged insu icien o sho - un e e sal, a DM app ecia ion could ha e
been achie ed only wi h inc easing Ge man in e es a es o inc easing
in e es a e di e en ials in a o o Ge many. Because upwa d p essu e on
exchange a es combined wi h declining in e es a es o in e es a e di e-
en ials a o able o he coun y wi h he app ecia ing cu ency, is an indi-
ca ion o a shi o asse p e e ence in a o o he app ecia ing cu ency.25
The imbalance in cu en and capi al accoun s, combined wi h un a o a-
ble in e es a e di e en ials, pu hea y p essu e on he DM exchange a e,
Bundesbank o eign exchange ese es, and, ul ima ely, on Bundesbank
mone a y policy. In i s e o o a oid wha i conside ed an unnecessa y DM
de alua ion and o ul ill i s obliga ions o s aying wi hin he pe missible
EMS exchange a e ma gins, he Bundesbank in e ened in he o eign
exchange ma ke s and was assis ed in i s unde aking by o he cen al
banks. The e a e wo kinds o in e en ions by he Bundesbank: hose
wi hin he EMS, which a e equi ed by EMS egula ions, and hose agains
he U. S. dolla , which a e no compulso y. The Bundesbank seemed no o
ha e pu sued a dolla policy in o de o es ablish a p ede e mined dolla -
DM exchange a e, since his could ha e been accomplished only i he Bun-
desbank had accep ed he liquidi y e ec s o such a policy in he Ge man
economy.26
25 See also Edwin M. T uman and Je ey R. Sha e , "In e na ional Po olio Dis-
u bances and Domes ic Mone a y Policy," in The In e na ional Mone a y Sys em
unde Flexible Exchange Ra es - Global, Regional, and Na ional. Essays in Hono o
Robe T i in. Richa d N. Coope e al., eds. Camb idge, MA: Ballinge Publishing
Company, 1982, p. 142.
26 Leonha d Gleske, Membe o he Di ec o a e o he Deu sche Bundesbank,
„Ohne Schü zenhil e d oh die Geldpoli ik übe o de zu we den." Deu sche Bun-
desbank, AP 39; 28 Ap il 1981, p. 2.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 51
To educe dolla luc ua ions agains he EMS and o educe he upwa d
p essu e on in e es a es in he Eu opean Communi y and no ably in low-
in la ion Ge many du ing 1980 and un il Feb ua y 1981, he e was EMS
in e en ion in he dolla ma ke , pa icula ly be ween No embe 1979 and
Ap il 1980, and again be ween Decembe 1980 and June 1981.27 The EMS
cen al banks we e ini ially assis ed in hei endea o by he Fede al
Rese e, which also in e ened un il he end o 1980. Ea ly in 1981, he U. S.
had decided no longe o ake an ac i e pa in pa in o eign exchange
ma ke in e en ions - only o co ec diso de ly ma ke s.28 The policy o a
imes hea y in e en ions in o eign exchange ma ke s, in oduced unde
he Ca e Adminis a ion in 1978, when he dolla was ex emely weak,
was hus discon inued unde he Reagan Adminis a ion. Wi h his decision,
he bu den o o eign exchange ma ke in e en ion was shi ed in o he
Eu opean and o he non-U.S. cen al banks. The decision by he U.S. no
longe o in e ene in he o eign exchange ma ke may i sel ha e con-
ibu ed o he s eng h o he dolla - no in isola ion, o be su e, bu in con-
junc ion wi h con idence in U.S. an i-in la ion policy - because a ce ain
"psychological ba ie o exagge a ed mo emen s in he dolla a e was
emo ed."29 The absence o U.S. o eign exchange ma ke in e en ion also
con ibu ed o he magni ude o daily luc ua ions and o he p onounced
sho - e m luc ua ions o exchange a es which in e ac ed wi h longe e m
ends, whe eas he sho e e m mo emen s o exchange a es esponded o
cons an ly changing in e es a e di e en ials.
27 Commission o he Eu opean Communi ies, Annual Economic Re iew 1981 -
1982. SEC (81) 1532/2, B ussels, 14 Oc obe 1981, pp. 5.2 - 5.3. Such EMS cen al
bank join in e en ion mus be ha monized and may a imes be awkwa d and lead
o con lic s, especially when cen al banks ha e di e en no ions abou he "co ec "
o "desi able" dolla p ice o hei cu encies o ECU mo emen agains he dolla .
28 Acco ding o a T easu y spokesman, U. S. au ho i ies desis ed om ma ke in e -
en ions since Janua y 1981 - "excep o a ela i ely small amoun " a he ime o
he assassina ion a emp on P esiden Reagan. See Fede al Rese e Bank o Chicago,
In e na ional Le e , No. 447, May 8, 1981, p. 2. A e he June 1982 ealignmen ,
o eign exchange ma ke s we e in u moil, and o educe p essu e on he dolla and o
es o e o de ly condi ions in he o eign exchange ma ke s, he Fede al Rese e
bough $ 21 million wo h o DM and $ 9 million wo h o yen on 14 June. The New
Yo k Times, 16 Sep embe 1982. And be ween Augus and Oc obe 1982, he Fede al
Rese e had in e ened ou imes o s em he ise o he dolla . The Wall S ee Jou -
nal, 10 Decembe 1982. The U.S. announced in Decembe ha i would discon inue
i s policy o non-in e en ion in he o eign exchange ma ke s.
29 Deu sche Bundesbank, AR 1981, p. 69.
4*
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52 Hugo M. Kau mann
(iii) Tu na ound o he DM - EMS e sus Dolla Mo emen s
Finally, ea ly in 1981, he si ua ion o he DM had become so p eca ious
is-à- is he dolla and EMS cu encies, ha in mid-Feb ua y 1981, he
Bundesbank became con inced ha a signal had o be gi en ega ding Bun-
desbank in en ions o assis Ge many in educing and ul ima ely elimina -
ing i s ex e nal disequilib ium, e en i i mean ini ially agg a a ing i s
in e nal disequilib ium wi h espec o economic g ow h and employmen .
Accele a ing in la ion in Ge many ga e he inal jus i ica ion o he Bun-
desbank's new policy mo es. In e es a es we e aised, and he egula lom-
ba d a e, which a ha ime s ood a nine pe cen was eplaced, o he ime
being, by a special lomba d a e, ini ially se a 12 pe cen , bu o be de e -
mined daily as condi ions equi ed. O his s ipula ion, howe e , he Bun-
desbank made no use.30
The pe iod om he beginning o 1981 o Oc obe 1982 can con enien ly
be di ided in o h ee majo phases which we e, in u n, supe imposed upon
mino phases.31 In 1981 alone, he dolla -Deu schema k ela ionship unde -
wen ou episodes o dolla app ecia ion o a leas six pe cen and a mos
26 pe cen . These episodes o app ecia ion we e ollowed by pe iods o dol-
la decline agains he DM o a leas i e pe cen and a mos 15 pe cen .
The ma ke seems o ha e ega ded in e en ions o smoo h dolla luc ua-
ions as less con incing, in he absence o Fede al Rese e ansac ions.32
The wo yea span om 1981 h ough 1982 was also he pe iod in which
exchange a es wi hin he EMS we e al e ed ou imes, o which h ee we e
mul ila e al ealignmen s. So i con as s sha ply wi h he pe iod be ween
30 No embe 1979 and 9 Ma ch 1981, du ing which no exchange a e
changes had o be unde aken - a pe iod which, no su p isingly coincided
wi h Deu schema k weakness wi hin he EMS and agains he U. S. dolla .
The i s majo phase in 1981 las ed ill ea ly Augus , wi h he DM - and
he Swiss anc - dep ecia ing agains he dolla . Bu du ing his phase,
30 Deu sche Bundesbank, MB July 1981, p. 6. The a ailabili y and cos o special
lomba d c edi we e o be de e mined daily, "no ably in he ligh o exchange ma ke
de elopmen s." C . OECD, Economic Ou look 29 (July 1981), p. 27., oo no e 3. Ye ,
he disa ay in inancial ma ke s caused by his special lomba d acili y o ced he
Bundesbank o keep he a e cons an . See The Wall S ee Jou nal, 9 Oc obe , 1981.
To p e en he new policy measu es and he balance o paymen s de ici om c ea ing
a liquidi y c isis in Ge many's banking sys em, he Bundesbank added ese es, o e -
compensa ing by DM 5 billion he DM 40 billion liquidi y educing e ec o he
balance o paymen s de ici . Deu sche Bundesbank, MB Ma ch 1981, p. 8.
31 Bank o In e na ional Se lemen s, Fi y-second Annual Repo , 1982, pp. 142 -
147.
32 Deu sche Bundesbank, AR 1981, pp. 73 - 74.
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The DM be ween he Dolla and he Eu opean Mone a y Sys em 59
agg ega es, le ing nominal in e es a es ind hei ma ke -de e mined
le els, o he coun ies, especially hose o he Eu opean Mone a y Sys em,
no ably Ge many, we e o ced o shi hei emphasis somewha o in e es
a e de elopmen s, despi e hei a owed goal o a aining a p esen mone-
a y g ow h a ge .
Zusammen assung
Die Deu sche Ma k zwischen Dolla und Eu opäischem Wäh ungssys em
Die Wi scha s e lech ung de wes lichen Lände ha zugenommen und ebenso
die in e na ionale Übe agung wi scha liche S ö ungen. Dies wiede um ha die
Suche nach al e na i en in e na ionalen Wi scha ss uk u en beleb , die einzelnen
Lände n ode Lände g uppen eine besse e Kon olle übe ih e Zukun e möglichen
wü den. Die Ein üh ung des Eu opäischen Wäh ungssys ems (EWS) wa ein solche
Ve such, de im Mä z 1979 begann.
Die mi einande e koppel en Ziele des EWS bes anden da in, zum einen den Mi -
gliede n de Eu opäischen Wi scha sgemeinscha wiede eine g öße e wi scha -
liche Unabhängigkei gegenübe den Ve einig en S aa en zu e scha en und zum
ande en die es ges ell en Nach eile de lexiblen Wechselku se du ch die G ündung
eine „Zone mone ä e S abili ä " zu e minde n. Keines de beiden Ziele wu de
e eich . Die bloße Bildung eines Wäh ungsblocks konn e die Abkoppelung Eu opas
on de Geldpoli ik de Ve einig en S aa en nich bewi ken. Die D-Ma k und
Deu schlands wi scha liche En wicklung bilden ein wich iges Bindeglied in de lau-
enden T ansmission de Wi kungen ame ikanische Geldpoli ik au die Mi glieds-
lände de Eu opäischen Wi scha sgemeinscha .
Diese enge Ve bindung om US-Dolla übe die D-Ma k zum EWS wi d in diesem
Au sa z un e such . Da sie mal s ä ke , mal schwäche is , e suche ich, die F age zu
bean wo en, welche Bedingungen geeigne wä en, eine gewisse eu opäische Abkop-
pelung on den Ve einig en S aa en z.B. in bezug au die Zinsbewegungen zu e ei-
chen sowie eine g öße e S abili ä inne halb des EWS.
Summa y
The Deu sche Ma k be ween
The Dolla and he Eu opean Mone a y Sys em
Economic in e dependence among Wes e n coun ies has inc eased and so has he
in e na ional ansmission o economic dis u bances. This in u n has p omo ed he
sea ch o al e na i e in e na ional economic s uc u es ha would gi e coun ies o
a g oup o coun ies g ea e con ol o e hei des iny. One such a emp was he c e-
a ion o he Eu opean Mone a y Sys em (EMS) which became ope able in Ma ch 1979.
The win goals o he EMS we e o e u n o he membe s o he Eu opean Economic
Communi y g ea e economic policy independence om he Uni ed S a es and educe
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60 Hugo M. Kau mann
he pe cei ed disad an ages o he lexible exchange a e a angemen , by c ea ing a
"zone o mone a y s abili y". Nei he goal was achie ed. A Eu opean decoupling om
Uni ed S a es mone a y policy was no a ainable by me ely c ea ing a cu ency bloc.
The Deu schema k and Ge many's economic pe o mance a e impo an links in he
ansmission p ocess o he e ec s o Uni ed S a es mone a y policy upon membe s o
he Eu opean Economic Communi y.
I is his link om he U.S. dolla o he EMS ia he Deu schema k, which his
a icle in es iga es. Since his link is s onge a imes, weake a o he imes, I
a emp ed o answe he ques ion o which condi ions a e p opi ious o some Eu o-
pean decoupling, say, o in e es a e mo emen s om hose in he Uni ed S a es, and
o g ea e s abili y in he EMS.
Résumé
Le ma c allemand en e le dolla e le sys ème moné ai e eu opéen
L'in e dépendance économique en e les pays occiden aux a augmen é e , pa an ,
la ansmission in e na ionale de pe u ba ions économiques. Ceci, à son ou ,
a poussé à eche che des s uc u es économiques in e na ionales al e na i es qui
donne aien à des pays ou à un g oupe de pays un plus g and con ôle de leu des in.
La c éa ion du sys ème moné ai e eu opéen, qui es en é en igueu en ma s 1979,
comp e pa mi une de ces en a i es.
Le sys ème moné ai e eu opéen isai , d'une pa , à end e aux memb es de la
Communau é Economique Eu opéenne une plus g ande indépendance économique
pa appo aux E a s-Unis e , d'au e pa , à édui e les désa an ages pe çus du
sys ème des aux de change lexibles, en c éan une «zone de s abili é moné ai e».
Aucun des deux objec i s n'a é é éalisé. Une indépendance de l'Eu ope is-à- is de la
poli ique moné ai e des E a s-Unis ne pou ai pas ê e éalisée simplemen en
c éan un bloc moné ai e. Le ma c allemand e la pe o mance économique de
l'Allemagne son un lien impo an dans le p ocessus de ansmission des e e s de la
poli ique moné ai e des E a s-Unis su les memb es de la Communau é Economique
Eu opéenne.
C'es p écisémen ce lien du dolla amé icain a ec le sys ème moné ai e eu opéen
pa le uchemen du ma c allemand que ce a icle examine. Ce lien é an plus o à
ce ains momen s e plus aible à d'au es, j'essaie de épond e à la ques ion sui an e:
quelles son les condi ions a o ables pou une ce aine indépendance eu opéenne,
pa exemple, des mou emen s des aux d'in é ê s pa appo à ceux des E a s-Unis
e pou une plus g ande s abili é au sein du sys ème moné ai e eu opéen.
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