The problem for the EMS turned out to be not so much the inflationists as the hard-money proponents. The main such proponent was the Bundesbank. The currencies of the EMS member countries kept falling relative to the mark—that is, the Bundesbank regularly printed less money than everyone else. In a system like the EMS, this forced the other central banks to orient their monetary policy toward the Bundesbank and, consequently, reduced inflationary appetites.
The reasons for the Bundesbank’s behavior lie in the most recent German history. The foundation of the “German miracle,” which lifted the country from the ruins in the late 1940s, was the strong mark, a balanced budget policy, and strict financial discipline. The German liberal tradition, which seemed forever interrupted by Hitler, was restored in the person of Ludwig Erhard—the “father” of German economic reforms. Erhard was a student of Franz Oppenheimer, one of the authors of the “military” theory of the origin of the state and a predecessor of what is now called “anarcho-capitalism.” Erhard himself was far from anarchism, but being a student of such an economist, he could not have had illusions about how, for what purpose, and why the state functions. This allowed him to set priorities correctly, and those priorities became financial discipline and a hard currency—that is, what best serves to keep the state naturally within bounds and, consequently, creates conditions for economic growth. Let us also not forget that the Germans experienced two daring hyperinflations—one in the 1920s and one after World War II—which greatly weakened their appetite for pro-inflationary political rhetoric.
In general, after some time the practice of the EMS showed that there were no problems with the Bundesbank, since the Bundesbank itself is the problem. All subsequent events in our history are connected with attempts to minimize the role of this institution and its “incorrect” policy.
It should be said that “crushing the mark” was begun by the Germans themselves. Thus, Chancellor Kohl is credited with a sinister role in this process; it is believed that he sacrificed the hard mark by insisting on favorable exchange rates for Eastern marks to Western marks during German reunification. However, the main step on the path to subjugating the Bundesbank was the introduction of the euro.