The European Monetary System and the Franc-Mark Asymmetry

What purpose does the European Monetary System serve? Who benefits from it? Is it a Deutschmark zone? Or could one argue that, despite the asymmetrical positions of France and Germany, the System does serve a certain collective interest? An attempt to answer these questions reveals a basic paradox in the System: the operation of the EMS tends to undermine its own raison d'etre. In its present form, the EMS relies on superior monetary discipline in Germany, but this breeds monetary discipline elsewhere and therefore lessens the need of other members to lean on Germany for this advantage. The EMS will therefore need to evolve if it is to remain viable. The lines of possible evolution include a movement towards monetary union. The consequences for fiscal policy are particularly important.