Friday, Sept. 16, 2011
THEN September 16, 1992: Known as Black Wednesday, speculators force the British pound sterling out of the European exchange rate mechanism (ERM), which links the currencies of the European Union, valuing everything against the deutsch mark. In 1992 the British economy is in recession and the pound is the weakest currency in the ERM. George Soros and other speculators bet the pound will be devalued. Soros borrows 10 billion pounds from British banks and sells them for German marks. The market is flooded. On Black Wednesday, the U.K. government raises interest rates from 10 percent up to 15 percent, but this move fails to raise the pound from the ERM floor. At the end of the day the currency plunges through the floor and the Bank of England announces it will pull out of the ERM. The ERM is the precursor to the formation of the Euro zone—countries that use the euro as currency—and because of the pull out, the U.K. continues to use the pound. NOW The Euro zone currently has 17 member countries. Greece, a Euro zone member, is threatening to default on its $370 billion debt. Last year, European nations and the International Monetary Fund lent Greece 150 billion euro (over 208 billion dollars), but the country still needs more loans to pay off its creditors. While 17 European countries use the euro, there is no common fiscal union and individual countries now regulate all of their own public finances. If Greece defaults on its debt, it would send shockwaves across Europe and the world, with certain banks in France and Germany being particularly affected. A default would also force Greece to be the first European nation to step out of the Euro zone.
