In the summer of 1992, hedge fund manager George Soros has been considering the possibility that the European Exchange Rate Mechanism (ERM) would break. Designed to pave the way for large-scale European Monetary Union, the ERM was a system of fixed exchange rates linking twelve members of the European Union, including Britain, France, Germany and Italy. However, the impact of German unification after 1989 had created considerable tension within the system. In addition, financial DeReG … Read more »

In the summer of 1992, hedge fund manager George Soros has been considering the possibility that the European Exchange Rate Mechanism (ERM) would break. Designed to pave the way for large-scale European Monetary Union, the ERM was a system of fixed exchange rates linking twelve members of the European Union, including Britain, France, Germany and Italy. However, the impact of German unification after 1989 had created considerable tension within the system. In addition, the deregulation of financial markets and the growth of cross-border flows of increased “hot” money is the probability that a speculative attack on one or more ERM currencies could succeed. Soros had to decide which bet currencies. The Italian Lira? The British pound? The French franc? Or all three? The outcome could determine the success or failure of the project for a single European currency.
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from
Niall Ferguson,
Jonathan Schlefer
Source: Harvard Business School
25 pages.
Release Date: 8 January 2009. Prod #: 709026-PDF-ENG
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