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1978 will probably turn out to be one of the most momentous years in the post‐war history of international monetary affairs. It was the year in which the leaders of the European Economic Community (EEC) made the first positive steps towards the establishment of a European Monetary System (EMS). It was also the year in which members of the International Monetary Fund (IMF) adopted the Second Amendment to the Fund's Articles of Agreement.

We examine the stability of exchange rates among the members of the European Monetary System (EMS), using the Johansen‐Juselius multivariate cointegration (systems) analysis. The direct implication from cointegration theory is that exchange rate stability vis a vis EMS member countries has been achieved. This allows us to study the speed of convergence of different currencies towards the equilibrium path.

The international linkages between money stocks (and inflation rates) has received much attention. Focuses on the advantages and disadvantages of fixed and flexible exchange rate regimes. Fixed rate systems require credible commitments to the rules of the game by the central banks involved. Credible commitment can be achieved through cooperative (symmetric) or coercive (asymmetric) regimes. Did the USA (Germany) dominate other developed (European) countries during the Bretton Woods (European Monetary) system? Examines the linkages, if any, between the USA (German) money stock and money stocks in other developed (European) countries, using the cointegration and error‐correction methodology. Finds evidence that USA (German) money stock did affect other (European) countries′ money stocks during fixed exchange rates. Finds, also, reverse causality which raises serious questions about either the dominance of the USA (Germany) within the Bretton Woods (European Monetary) system, or the usefulness of causality tests is answering such questions.

In late July 1993, the European Monetary System threatened to unravel. The Exchange Rate Mechanism (ERM), which ties European Community members′ currencies together, faced the possibility of collapse as the French franc and other currencies pushed perilously close to the permissible bounds of fluctuation despite massive intervention by central banks. Similar conditions had forced the British pound sterling and Italian lira out of the ERM in September 1992. The short‐term resolution of the crisis was the decision to widen the permissible bounds of fluctuation. Examines the events leading to the ERM crisis, and the implications of the crisis and its resolution on the future of European economic integration are also examined. Finally, discusses the likely future of European economic and monetary union given the current economic and political climate of member countries.

Some recent research has reported results more favourable to long‐run purchasing‐power parity (PPP) for exchange rates within the European Monetary System (EMS) than for those outside it. This is inconsistent with the predictions of theories that regard the EMS as a means of acquiring anti‐inflation credibility for the governments of relatively high‐inflation countries. Results of tests on a wide range of intra‐EMS exchange rates suggest a tendency to under‐adjust for cumulative price differentials, and that the DM‐FF rate is atypical in its adherence to long‐run PPP.

The paper tests for long‐run monetary policy convergence and short‐run policy interactions in seven ERM countries over the 1979‐1992 period using the approach of multivariate cointegration and Granger‐causality tests. The authors provide evidence for very little monetary policy convergence, even during the more stable 1987‐92 period. Tests for short‐run monetary policy interactions show that, in agreement with some other studies, Germany is not the leader country in the system as it appears to accommodate shocks in other member countries. The tests show also that full monetary policy convergence applied among Germany, Belgium and The Netherlands in the 1987‐92 period implies that these countries could be the first to join a European monetary union should a two‐speed approach to monetary union become a reality.

Reviews the attempts to introduce greater exchange rate stability into the European Union, culminating in the 1992 crisis in the Exchange Rate Mechanism, and the UK’s withdrawal. Outlines the Maastricht Treaty proposals for monetary union by 1999. Finally, reviews the arguments for and against UK adoption of the single currency, drawing, where possible, on the limited empirical evidence.

In this chapter, the historical and theoretical evolution of the policy framework in Europe is presented. It begins from the early steps guided by the general principles of the Keynesian theory in open economies, goes through its revision after the 1970s and the fall of the Bretton Woods agreements, the creation of the European monetary system, and ends with a presentation of the theoretical underpinning that brought to the model on which the European monetary union was built on. The evolution of the economic theory is pieced together, in the light of the main historical and political facts that occurred. A first insight about the flaws of the Eurozone policy framework is provided.

This chapter focuses on the main challenges of teaching and learning European Union (EU) issues, bearing in mind that the future of the EU is far from being granted, the shock of Brexit, and the new technological innovations. The purpose is to design a methodology for teaching EU using knowledge management and design thinking procedures. Knowledge management refers to information selection, acquisition, integration, analysis and sharing knowledge that takes place in an environment dominated by social networks in which technological links play a major role. The design thinking procedures, as a collaborative methodology, create groups of students in the classroom. Each group should represent an EU member state. Once groups are created, the teacher must give them a task that may include a problem that the EU has had to solve during its history. Then, individual groups must be asked to design a solution. A consensus among all participating groups on the proposed solution should be reached. To design a solution, based on a mind map, groups should be working inside and outside the classroom using technological tools and interacting through social media. At the end of this process, students must play a Kahoot to fix and clarify the key concepts of each lesson. This process must be repeated for all the chapters of the EU syllabus. The syllabus is made up of key issues of the EU. Students should be taken to discover how EU affects their lives and to wonder how they would be without the EU.