The reasoning effectively governing the UK's abstention from the EMS has changed over time. Reservations were based initially on fears for UK competitiveness and subsequently on a desire to exercise monetary autonomy in a counter-inflationary `medium-term financial strategy'. Difficulties with that strategy led to an interest both in policies to reduce exchange rate variability and in the EMS as an arrangement which could simultaneously serve this objective and provide a framework for controlling inflation. Commitment to an exchange rate reached its zenith in the 1987-8 episode of `DM shadowing'. This episode revealed an early example of the `excess credibility' problem. It suggests that if the UK were to participate fully in the EMS it might need to be prepared to make more active use of fiscal policy as a counter-inflationary instrument.
