The snake in the tunnel broke early, during the 1970s, but it allowed Europe to create the European monetary system as we know it. Why was it created and what did it become? Agent 11Onze Eve Doña explains it.

“The agreement to create the snake in the tunnel was established between 1972 and 1974 as the European exchange rate system,” Eve Doña explains. From the consequences of the Bretton Woods Agreements, which fixed fluctuation margins for the different currencies of the planet with respect to the US dollar, the system was born after the Basel Agreement.

The countries belonging to the European Economic Community (EEC) realised the problems of having flexible exchange rates for the common market and created the snake in the tunnel. In this way, they tried cross rates for their currencies. But what was the result?

“The results of the snake in the tunnel were not encouraging. The imbalances between the European economies led to greater difficulties, which made the snake in the tunnel a failed policy,” the agent argues. Thus, devaluations and revaluations, taking into account the different exits and entrances of the exchange rate stability mechanism, made the snake in the tunnel a system that could not correct this issue. 

For this reason, in 1979 the snake in the tunnel was discarded in order to implement what we know today as the European monetary system. Watch the video below and find out more about the snake in the tunnel.

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