In 1976, European nations were trying to make sense of different national currencies within the Union. The financial institutions created the European Rate Mechanism (ERM). The ERM tied exchange rates to each other, forcing central banks to artificially maintain the value among European currencies to avoid strong fluctuations in the value of money among member states.
The exchange rate mechanism was based solely on Germany’s economic model more than anything else; It’s pertinent to point out that the Italians also had similar problems prior to black Wednesday.
Nigel Lawson, the chancellor, at the time was shadowing the Deutsche mark, a preparation for joining the ERM, once he found out that Margaret Thatcher was taking advice from the late Professor Alan Walters, he ( Nigel Lawson) resigned. This led to John Major to being promoted to the Chancellor of the exchequer, whereupon he convinced the late baroness to join the ERM.
In a cruelly tragic fashion, his chickens came home to roost on the 16th of September 1992, given that it was he, who took Britain into the exchange rate mechanism, a decision, which ruined the conservatives reputation for economic competence and paved the way for Tony Blair’s labour party to win the 1997 election.