This was fundamentally unsound, mainly due to the fact that Britain's inflation rate was many times that of Germany's. The underlying problems inherent in the pound's inclusion into the ERM was compounded by significant economic strain resulting from Germany's reunification. This, in turn, put pressure on the Deutschmark as the core currency for the ERM. The drive for European unification also hit bumps along the road during the passage of the Maastricht Treaty , which was meant to bring about the euro.
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Spotting the writing on the wall, Britain upped its interest rates to the teens in an effort to attract more people to the pound. However, speculators such as George Soros began to heavily short the currency. While this was a difficult decision to undertake, the pound came back stronger as the British economy strengthened once inflation levels were controlled and high interest rates were reduced.

Office for National Statistics. The European Commission. Federal Reserve Bank of St. Accessed Sept. The Institute of Economic Affairs.
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