The snake within a tunnel

In May 1972, the EEC agreed to allow its currencies to fluctuate a maximum of 2.25 percent against one another, while permitting a 4.5 percent fluctuation against other currencies. This system became known as a "snake within a tunnel." The "snake" was the narrower band of 2.25 percent permitted among the EEC countries and the "tunnel" was the wider band of 4.5 percent allowed by the Smithsonian Agreement.

The UK, Ireland, and Denmark joined the EEC in 1973. This was followed by a series of international monetary crises, such as the devaluation of the US dollar in February. In mid-March, the values of all major currencies were permitted to fluctuate according to market forces. Thus, the tunnel was gone in March 1973, but EEC countries had tried to maintain the snake. Some of these attempts were short-lived. For instance, France, after withdrawing from the snake and rejoining it several times, finally abandoned the snake in March 1976. Many causes of conflict between domestic economic goals and exchange stability intensified domestic pressures on many other participating countries to abandon the snake. The number of participating countries in the snake fell to six by late 1978: the German mark, the Dutch guilder, the Norwegian krone, the Belgian franc, the Danish krone, and the Luxembourg franc. The three main initial members of the snake — the UK, France, and Italy — had abandoned it some years earlier.

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