When Germany increased fiscal spending and raised interest rates in the early 1990s,

Question

Quizplus · Accepted Answer

When Germany increased its fiscal spending and raised interest rates in the early 1990s, it caused an increase in demand for the Deutsche Mark, which put pressure on other countries in the European Exchange Rate Mechanism (ERM) to raise their interest rates to keep their currencies at their ERM par values. This led to a recession and currency crisis in other countries, such as France and Italy, and ultimately resulted in the devaluation of some countries' currencies. However, it did not directly affect economic growth throughout Europe, and the success in supporting East Germany is a separate issue.

When Germany Increased Fiscal Spending and Raised Interest Rates in the Early