Editing European Monetary System (section)

== Criticism ==
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Michael J Artis (1987) assessed the credibility of the EMS, stating that the EMS had low credibility during the first eight years of its history. Artis also states that the system demonstrated its resilience despite working relatively non-smoothly. He also remarked that EMS was supposed to have improved the stability of the intra-EMS bilateral exchange rates but that the improvement was less marked for effective rates when compared to nominal rates and stability weakened with the passage of time.<ref name="Artis-1987" />

Another criticism was laid by Paul De Grauwe (1987) about the credibility of the EMS policy. In 1979, when EMS entered into force, GDP growth rate, investment growth rate, the stability of exchange rate, and interest rates declined dramatically. In 1980, there was a rise in unemployment after EMS implementation. Both the average EMS unemployment rate and the inflation differential had a significant effect on EMS credibility. Macroeconomically, small EMS countries experienced larger declines in investment, whereas before the EMS they had experienced relatively faster growth rates.<ref name="van den Bempt-1987" />

The EMS did not achieve long-term stability in real exchange rates. This is significant because real exchange rates are more important than nominal exchange rates when it comes to investment, output, export, and import decisions. The EMS only succeeded in reducing short-term changes in bilateral exchange rates and nominal exchange rates. Indeed, inflation rates continued to differ widely among EEC countries.<ref name="van den Bempt-1987" /> For example, Germany experienced an inflation rate of 3 percent while Italy's inflation rate reached 13 percent.<ref name="Trezise-1979" />

Both nominal and real interest rates increased substantially after 1979 and EMS provided little benefit to its members in terms of monetary and financial stability.{{Explain|date=January 2021}} Furthermore, there was not enough cooperation among the member states to fully realize the potential benefits of the EMS.<ref name="van den Bempt-1987" /> The smaller EMS economies such as Belgium, Denmark, and Ireland possessed short-term credibility but lack of long-term credibility. On the other hand, Germany and the Netherlands had the most long-term credibility, due to their low inflation records.<ref name="Trezise-1979">{{Cite book|last=Trezise |first=Philip H. |title=The European Monetary System : its promise and prospects : papers prepared for a conference held at the Brookings Institution in April 1979 |date=1979 |publisher=Brookings Institution |oclc=652283164}}</ref>

Additionally, Axel A. Weber (1991) claims that the EMS was a de facto Deutsche Mark zone. Moreover, it was often called “tying one's hands” because the policy adopted a fixed exchange rate which had short-run effects.{{Explain|date=January 2021}} The German central bank independently chose its monetary policy whilst all remaining EMS member countries' hands were tied on monetary policy and they were simply forced to target their exchange rates to the German mark.<ref name="Weber-1991" /><ref>{{Cite journal|last=Fels|first=Joachim|date=1987|title=The european monetary system 1979–1987: Why has it worked?|journal=Intereconomics|volume=22|issue=5|pages=216–222|doi=10.1007/bf02933531|hdl=10419/140093|s2cid=153431119|issn=0020-5346|hdl-access=free}}</ref>