Making the European Monetary Union

Europe’s financial crisis cannot be blamed on the Euro, Harold James contends in this probing exploration of the whys, whens, whos, and what-ifs of European monetary union. The current crisis goes deeper, to a series of problems that were debated but not resolved at the time of the Euro’s invention. Since the 1960s, Europeans had been looking for a way to address two conundrums simultaneously: the dollar’s privileged position in the international monetary system, and Germany’s persistent current account surpluses in Europe. The Euro was created under a politically independent central bank to meet the primary goal of price stability. But while the monetary side of union was clearly conceived, other prerequisites of stability were beyond the reach of technocratic central bankers. Issues such as fiscal rules and Europe-wide banking supervision and regulation were thoroughly discussed during planning in the late 1980s and 1990s, but remained in the hands of member states. That omission proved to be a cause of crisis decades later. Here is an account that helps readers understand the European monetary crisis in depth, by tracing behind-the-scenes negotiations using an array of sources unavailable until now, notably from the European Community’s Committee of Central Bank Governors and the Delors Committee of 1988–89, which set out the plan for how Europe could reach its goal of monetary union. As this foundational study makes clear, it was the constant friction between politicians and technocrats that shaped the Euro. And, Euro or no Euro, this clash will continue into the future.

Foreword [Mario Draghi and Jaime Caruana] Abbreviations Used in Text Introduction: The Making of a Non-National Currency 1. A Napoleonic Prelude 2. The Origins of the Committee of Governors 3. The Response to Global Monetary Turbulence 4. The Snake and Other Animals 5. Negotiating the European Monetary System 6. The Malaise of the 1980s 7. The Delors Committee and the Relaunching of Europe 8. Designing a Central Bank 9. The EMS Crises Conclusion: The Euro and the Legacy of the Committee of Governors Appendix A: Maastricht Treaty Text and Committee of Governors’ Draft of the Statute of the European Monetary Institute Appendix B: Maastricht Treaty Text and Committee of Governors’ Draft of the Statute of the European Central Bank Appendix C: Dramatis Personae Appendix D: Members of the Committee of Governors Appendix E: Committee for the Study of Economic and Monetary Union (Delors Committee), 1988–1989 Appendix F: Chairmen of the Monetary Committee of the European Community, 1958–1998 Appendix G: European Commission Presidents and Commissioners for Economics and Finance, 1958– Appendix H: Chronology Appendix I: Interest Rates and Fiscal Balance Notes Acknowledgments Index