Starting in the late 1960s, international currency markets became increasingly volatile. The start of the next decade was marked by oil crises and further fluctuations, leading European leaders to attempt to achieve monetary stability. The objective of the European Economic Community was to achieve economic and monetary union by 1980, for closer economic and political integration. However, in 1979, member states (except the United Kingdom) created the European Monetary System (EMS), in order to achieve exchange rate stability and therefore growth and stability of their economies. Under this new system, member countries have harmonized their monetary policies; Through the use of an exchange rate mechanism (ERM), the currencies of the eight states were only allowed to fluctuate by a certain amount, within a narrow band of 2.25% above or below of the central rate. A new European Currency Unit (ECU) was introduced, consisting of a basket of currencies made up of a weighted average of members' currencies. Each member country was required to contribute reserves to a common fund, to support the system in case a currency became “divergent”. The system was very similar to the European "Snake" which began in 1972. Ireland, although undecided as to whether it was a good idea to break the link to the pound sterling for a time, chose to join to the SME, and therefore to the MCE, from the start. The United Kingdom, on the other hand, was initially hesitant to join and delayed the entry of the pound sterling until 1990, only to exit two years later, on September 16, or "Black Wednesday", following growing unsustainable pressure on its currency. Both governments essentially chose to join the ESM under the impression that the monetary stability it promised, through coordinated actions, presented a disadvantage no matter which option they chose. , they will always experience more volatility than larger economies and must therefore make judicious fiscal policy decisions (Breedon, Pétursson and Rose, 2011). Figure 1 - Source Central bank (http://www.centralbank.ie/polstats /stats/ exrates/Pages/default.aspx)Figure 2 - CSO inflation source (http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/saveselections.asp)Bibliography: http://www. nber.org/chapters /c11295.pdf http://www.margaretthatcher.org/archive/EMS_1978.asp http://www.centralbank.ie/publications/Documents/2003%20Spring%20-%20Signed%20Article%20 -%20The%20Irish %20Pound%20-%20From%20Origins%20to%20EMU.pdf http://news.bbc.co.uk/2/hi/business/2259648.stm http://www.jstor.org .jproxy.nuim. ie/stable/20081498?seq=1&__redirected http://webir.tcd.ie/bitstream/2262/64276/1/25%20apr%2094%20honohan.pdf