on the morning of 15 September 1978, they had signed a bilateral agreement to create the European Monetary System (EMS)--the Euro's precursor

So, when in 1971 Europe was jettisoned from the dollar zone, and exchange rates between its currencies started bobbing up and down, some of them falling as violently as others were rising, the European Union had real trouble managing the heavy industry cartel and the common agricultural policy that were its core. Without stable steel, coal and agricultural prices across France, Germany, Belgium, the Netherlands and Italy, cartel-like price fixing was impossible. [...]

[...] nations in deficit could not sustain fixed exchange rates with the rest, especially in times of crisis. To remain within Europe's monetary snake, a country with a trade deficit, France for example, urgently needed to attract foreign money to finance its net imports. Foreign money is attracted by high interest rates and deterred by any prospect that the state will not be able to pay its bills or repay its creditors. In other words, to stay in the snake Paris had to make borrowing dearer and simultaneously reduce public spending. But dearer money would reduce investment by French business, which would in turn depress employment and private incomes. [...]

The only way the Franc's Deutsche Mark value could be kept constant was, indeed, for the Bundesbank to keep doing the one thing it detested: incessantly buy francs using freshly printed Deutsche Marks. Were these marks to remain stashed in the vaults of the French central bank--or anywhere else for that matter--the Bundesbank would not have minded much. Only these banknotes did not stay under lock and key, but were steadily repatriated back to Germany, as the French used them to buy more Volkswagens and speculators converted their francs into marks convinced that at some point the Bundesbank would let the franc slide, netting them a substantial windfall. And why would the Bundesbank let the franc slide? Because the repatriated Deutsche Marks were increasing the quantity of money circulating in Germany, pushing prices up and causing inflation in a nation that despised rising prices with all its heart, nation that trusted the Bundesbank to prevent this from happening.

[...] combining high returns to financial capital (requiring high interest rates) with high profit rates for American businesses (requiring low interest rates) was never going to be easy, and Volcker knew this. It was a combination that could only come about if another way of providing that profit could be found. And one way to do that would be to reduce wages. [...]

High interest rates are wonderful for those living on unearned income, so-called rentiers, but not so good for manufacturers, who see their investment costs skyrocket and the purchasing power of their customers plummet.

Workers were financialized, too, forced to take increasing risks in the housing market and with their pensions. A new mantra--'There is no alternative' or TINA--was born

[...] if 'the weak suffer what they must', their very capacity, let alone willingness, to reproduce the power of the strong declines precipitiously.

[...] unlike in the late 1960s, German inflation was less of at threat with Volcker on the loose. The American vacuum cleaner, powered by Volcker's high interest rates, could now be counted upon to suck the fresh Deutsche Marks in, preventing them from making their way immediately from France back into Germany. [...]

[...] The more US deficits grew, the greater the global Minotaur's appetite for Europe and Asia's capital. Its truly global significance was due to its role in recycling national circuits (profits, savings, surplus money) through the international circuits that Wall Street had established. It kept the gleaming German factories busy. It gobbled up everything produced in Japan and later in China. And, to complete the circle, the foreign (or American) owners of these distant factories sent their profits, their cash, to Wall Street--a modern tribute to the global Minotaur.

Financialization, as we now call this process, was the critical by-product of maintaining and enhancing US dominance on the back of increasing trade imbalances and in the interest of financing America's ever-expanding twin deficits.