In the summer of 1992, the hedge fund manager George Soros, considered the possibility that the European Exchange Rate Mechanism (ERM) will break. Designed to pave the way for full EMU, ERM was a system of fixed exchange rates linking the twelve members of the European Union, including the UK, France, Germany and Italy. However, the impact of the reunification of Germany after 1989 created a significant strain on the system. In addition, financial deregulation and the growth of cross-border flows of "hot money" has increased the probability that the speculative attack on one or more currencies ERM can succeed. Soros had to decide which currency to bet against. Italian lira? British Pound? French franc? Or all three? The result can determine the success or failure of the project on the single European currency. "Hide
by Niall Ferguson, Jonathan Schlefer Source: Harvard Business School 25 pages. Publication Date: 08 January 2009. Prod. #: 709026-PDF-ENG
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