Interests or expectations? : the problem of credibility of exchange rate policy: an international political economy approach. The cases of Italy and the United Kingdom and their departure from the exchange rate mechanism of the European Monetary System

Abstract

An analysis of the extent to which the outcomes of the process of European monetary integration and, particularly, of the development of the debate over the establishment of EMU, have been influenced by domestic politics and by domestic economic interest groups in Italy and in the United Kingdom. From an empirical point of view, the work provides an account of the development of Italian and British socio-economic interest groups towards the issue of European monetary union from the making of the EMS until the establishment of EMU. Argues in favor of the rational behavior of foreign exchange rate commitments within a structural definition of the credibility of exchange rate commitments which links together economic and political science perspectives. Analysis is conducted on the cases of Italy and the UK and their experience in the exchange rate mechanism of the European monetary system. The period considered ranges from the decision of the two countries to peg their currencies in the ERM of the EMS to their departure on September 1992.