Q. Discuss the effects of the reunification of eastern and western Germany in 1990 on both Germany and its neighboring European countries.

Answer: Germany rumbles high interest rates to fight inflation. Other European countries Italy, France and UK in recession trying to match the High German interest rates to hold their currencies fixed against Germany's thus pushing their economies into deep recession. Other European countries struggle to continue the fixed exchange rate in order not to lose the trustworthiness they had built up since 1985. The policy divergence between Germany and the other European countries led to a series of fierce speculative attacks on the EMS exchange parities starting in September 1992. By August 1993 the EMS was compulsory to retreat to very wide (+- 10 percent) bands which were kept in compel until the introduction of the euro in 1993.