Not only did sterling – still the main trading partner currency – strengthen as a result of North Sea Oil and the anti-inflation policies of the Thatcher Government, but the ERM itself failed to live up to its branding as a zone of monetary stability. In particular, with its many realignments, the ERM lacked a “nominal anchor” which would ensure price stability.
This allowed less disciplined member states frequent opportunities to offset wage competitiveness drift with adjustments to the peg. Devaluations of the Irish pound against the DM – core currency of the ERM – were thus more frequent than had been envisaged, occurring about once a year in the first eight years of the system.