The accomplishment, in the early 1990s, of the central goal set down in the Treaty of Rome – a European common market, implying free trade and free capital movement – called for enhanced, and eventually fixed, exchange rate stability across member countries.
This is because exchange rate volatility, coupled with systematic devaluation of a group of currencies against other currencies, would have eventually impaired the very functioning of the common market, a theme to which I will return later. Indeed, the whole history of European monetary cooperation between the collapse of Bretton Woods and the early 1990s is marked by attempts to maintain fixed exchange rates.