European Monetary System arrangement by which most nations of the European Union (EU) linked their currencies to prevent large fluctuations relative to one another. It was organized in 1979 to stabilize foreign exchange and counter inflation among members. Periodic adjustments raised the values of strong currencies and lowered those of weaker ones, but after 1986 changes in national interest rates were used to keep the currencies within a narrow range. In the early 1990s the European Monetary System was strained by the differing economic policies and conditions of its members, especially the newly reunified Germany, and Britain permanently withdrew from the system. In 1994 the European Monetary Institute was created as transitional step in establishing the European Central Bank (ECB) and a common currency. The ECB, which was established in 1998, is responsible for setting a single monetary policy and interest rate for the adopting nations, in conjunction with their national central banks. Late in 1998, Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain cut their interest rates to a nearly uniformly low level in an effort to promote growth and to prepare the way for a unified currency. At the beginning of 1999, the same EU members adopted a single currency, the euro, for foreign exchange and electronic payments. (Greece, which did not meet the economic conditions required until 2000, subsequently also adopted...
European Monetary System arrangement by which most nations of the European Union (EU) linked their currencies to prevent large fluctuations relative to one another. It was organized in 1979 to stabilize foreign exchange and counter inflation among members. Periodic adjustments raised the values of strong currencies and lowered those of weaker ones, but after 1986 changes in national interest rates were used to keep the currencies within a narrow range. In the early 1990s the European Monetary System was strained by the differing economic policies and conditions of its members, especially the newly reunified Germany, and Britain permanently withdrew from the system. In 1994 the European Monetary Institute was created as transitional step in establishing the European Central Bank (ECB) and a common currency. The ECB, which was established in 1998, is responsible for setting a single monetary policy and interest rate for the adopting nations, in conjunction with their national central banks. Late in 1998, Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain cut their interest rates to a nearly uniformly low level in an effort to promote growth and to prepare the way for a unified currency. At the beginning of 1999, the same EU members adopted a single currency, the euro, for foreign exchange and electronic payments. (Greece, which did not meet the economic conditions required until 2000, subsequently also adopted...
