Substance and semantics in ERM II

When the Maastricht treaty was drafted, ten of the twelve members of the EU adhered to the Exchange Rate Mechanism (ERM I) of the European Monetary System1. Under that regime, each member had to keep its exchange rate within a narrow band by buying its currency in the foreign exchange market to keep it from depreciating by more than 2.25% vis-a-vis the strongest currency. Furthermore, the strong-currency country had to sell its currency in the foreign exchange market or, alternatively, lend

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