This process came to an end with the ERM crisis in 1992-3, when it ceased to be credible for countries entering a recession to follow German interest rate rises. At the same time, devaluing repeatedly was becoming incompatible with the deep Single Market that countries were trying to build.
Indeed, the prevailing view on devaluations was captured well by Nobel laureate Robert Mundell, who developed his theory of optimal currency areas in the belief that, “I could not see why countries that were in the process of forming a common market should saddle themselves with a new barrier to trade in the form of uncertainty about exchange rates”.5 Exchange rate flexibility would have undermined the Single Market in two ways.