The Launching of the EMS: An Analysis of Change in Foreign Economic Policy

Abstract

Foreign exchange markets are subject to changing international regimes. When and why regimes change is a legitimate focus of political study. This is particularly so as shifts in foreign exchange markets modify relative prices in and between national economies. Authorities presiding over foreign exchange markets are answerable to their national policy communities and to their national electorates. They also operate within an international state system. Applying John S. Odell's framework to an analysis of the launch of the European Monetary System (EMS) in April 1978 by Chancellor Schmidt and President Giscard d'Estaing, it is argued that a market perspective alone would have failed to predict the establishment of the EMS. An analysis of the principal actors and their ideas; of the power political constellation; and of the domestic context in the Federal Republic and in France, contributes most to explaining expost the shift towards a European managed exchange rate regime. In this case, the neoclassical market perspective provided erroneous, inadequate and subsidiary explanations. The article suggests that foreign exchange policy and therefore global financial markets belong firmly in the realm of international and comparative political studies. They are too important to be left to economists alone.