It was priced based on the prevailing price, whereas the actual value fluctuated depending on the economic state and interest rates in the various countries. Th

It was priced based on the prevailing price, whereas the actual value fluctuated depending on the economic state and interest rates in the various countries. The UK wasn't the only country which had this problem; the allowed margin of variation had to be massively expanded shortly afterwards to keep a bunch of other European states in the ERM. Also, the fact that the ERM was structured in a way that effectively benefited Germany over the other members was probably a major contributing factor. Remember, this was right after the fall of the Berlin Wall and German reunification which had huge economic consequences - East German industry was basicsllly wiped out and a huge amount of money was spent on rebuilding its infrastructure to West German standards. Germany got to set its interest rates in a way that minimised the impacts to them, and everyone else was dragged along.