The recession from which the United States is just emerging, and in which much of the rest of the industrialized world is still mired, differs from many others preceding it. In part this is so here because some of the classic nostrums appear ineffective. For some time, interest rates in the United States have been at their lowest level in decades. Yet the low interest rates do not appear to be producing the usual effect of spurring capital investment and economic growth as rapidly as might be expected.

One reason that they have not produced the usual rate of growth has been the existence of substantially higher rates in Europe. Given the normal tendency of capital to seek higher rates of return, some funds otherwise available for investment here have sought higher rates of return in Europe. Thus, to some extent at least, the growth of the United States' economy is .controlled by events in Europe and its monetary policy. The roiling currency markets of September 1992 are additional evidence of this phenomenon. Perhaps one good effect of that currency crisis was the attention it focused on the interdependence of the global financial system. The little understood, in the United States, the European Monetary System ("EMS") and the European Rate Mechanism ("ERM") are now matters of great interest because of the effect they have on the value of the dollar and the United States economy. This article discusses the working of the ERM as part of the EMS and describes their relationship to European Community law and institutions.

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