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Making the European Monetary Union

Making the European Monetary Union

Harold James
Mario Draghi
Jaime Caruana
Copyright Date: 2012
Published by: Harvard University Press
Pages: 480
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  • Book Info
    Making the European Monetary Union
    Book Description:

    Europe’s financial crisis cannot be blamed on the Euro, James contends in this probing exploration of the whys, whens, whos, and what-ifs of European monetary union. The current crisis goes deeper, to conundrums that were debated but not resolved at the time of the Euro’s invention. And, Euro or no Euro, these clashes will continue into the future.

    eISBN: 978-0-674-06808-7
    Subjects: Business, Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. List of Figures
    (pp. vii-viii)
  4. Foreword
    (pp. ix-xii)
    Mario Draghi and Jaime Caruana

    Europe an monetary union came to fruition with the creation of the European Central Bank on June 1, 1998, followed by the introduction of the Euro on January 1, 1999. Euro banknotes and coins were issued on January 1, 2002. Behind this achievement lay a unique process of monetary cooperation and unification that was set in motion by the 1957 Treaty of Rome. As this initiative was driven primarily by the political will to give the Common Market a stable monetary anchor and to set Europe on course toward an ever closer integration, it was only natural that the political...

  5. Abbreviations Used in Text
    (pp. xiii-xvi)
  6. Introduction: The Making of a Non-National Currency
    (pp. 1-28)

    This book examines the whys, whens, hows, whos, and what-ifs of the process of making the European monetary union. Why was this innovative, daring, and risk-filled experiment undertaken? How was the process designed, and who did the designing? What were the risks, and were they calculated correctly?

    First, why? The major theme of this book is that the quest for European monetary coordination and then for union was a response to genuine (and still-existing) problems of currency instability and misalignment at the international level. It was not simply—as it has often been represented—a fundamentally political project “to make...

  7. 1 A Napoleonic Prelude
    (pp. 29-35)

    The sixties were a wild decade. Communications improved, fiery musicians drove a culture revolution, reformers wanted to clear away odd relics of the past, the United States was involved in a bloody war of ideologies, and Europeans wanted a new money and began to negotiate over new institutional ways of providing it. Which century? Both the 1860s and 1960s were revolutionary.

    History repeats itself. But in odd ways. In the middle of the nineteenth century, the world was galvanized by the transatlantic cable and the ubiquitous railroad, by Verdi’s and Wagner’s music, by the reforms of Bismarck, Cavour, Gladstone, and...

  8. 2 The Origins of the Committee of Governors
    (pp. 36-61)

    In the 1960s, European economies were growing very quickly, in what proved to be the last phase of the postwar economic miracle. As in the 1860s, the world was transformed by what might be called a globalization boom. In both cases global integration of capital, goods, and labor markets was driven by new technologies of communication and transport. In the 1860s the drivers were the transatlantic telegraph cable and the steamship; in the 1960s, information technology and new approaches to the bulk shipping of commodities. In both cases, the rapid pace of economic change called for institutional adaptation and innovation....

  9. 3 The Response to Global Monetary Turbulence
    (pp. 62-88)

    Global monetary turbulence centered upon the role of the dollar in the fixed-exchange-rate regime. From 1968, when the London gold pool stopped operating and the private gold market was disconnected from an official market at which transactions still occurred at the fixed parities, to 1971, when President Nixon finally “closed the gold window,” the system was in crisis. The dollar was predicted to lose its role in the international system, and France in particular engaged in constant criticism of the dollar order. The older reserve currency, the pound sterling, which still played a significant role (though mostly for countries in...

  10. 4 The Snake and Other Animals
    (pp. 89-145)

    We often judge institutional arrangements by their measurable outcomes: some crude figure such as higher growth rates, or lower inflation rates. By these criteria, the 1970s were a decade of failure and of unsolved problems. Growth collapsed, and inflation soared. Budgets came under strain. Such problems also produced a vigorous institutional activity, a search for solutions. Judged by results, then, the 1970s mark a low point of international cooperation. But the failures were so apparent that a plethora of schemes and plans on monetary and financial issues, on both a global and a European level, were formulated.

    It is appropriate...

  11. 5 Negotiating the European Monetary System
    (pp. 146-180)

    Can European integration be simply a creation of political will, or are there bureaucratic or technocratic conditions that dictate the trajectory of development? The year 1978 was one of high-level decisions, but the long-term results were rather meager. The new settlement extended the limited cooperation mechanism of the Snake, and was originally intended to be accompanied by much more far-reaching institutional reform, including a European Monetary Fund. The reform debate was accompanied by an intensive discussion of fiscal issues, and in particular of the extent to which the membership of poorer countries (notably Ireland and Italy) would necessitate longterm fiscal...

  12. 6 The Malaise of the 1980s
    (pp. 181-209)

    The first half of the 1980s appears as a monetary interlude or a period of transition. In some countries, notably the United States, Germany, and Switzerland, better monetary policy resolved the inflationary problems of the previous decade. There were thus good examples for European countries to follow, but there was little cooperation. Summit meetings at both the world and the European level were fractious and largely unproductive. International policy in specific national settings was generally improving, but international coordination was just marking time. Countries with a good policy regime inevitably feared that better cooperation might lead to an erosion of...

  13. 7 The Delors Committee and the Relaunching of Europe
    (pp. 210-264)

    The Delors Committee—on which all the EC central bank governors sat in a personal capacity—occupies a prominent place in the demonology of those looking for conspiracies in committees. It was the decisive group that prepared the blueprint for Europe’s transition to monetary union. Between September 1988 and April 1989, it developed a stage mechanism for the implementation of a union. The meetings occurred before the collapse of Communism in eastern Europe and the disintegration of the German Democratic Republic. Those geopolitical events created a new fear in France and other European countries about the extent of the new...

  14. 8 Designing a Central Bank
    (pp. 265-323)

    The 1990s saw the emergence of a new philosophy of central banking, in which independence of central banks from the political process became a core component of the culture of monetary stability. Europe played a pivotal role in the formulation of the new philosophy, largely because designing a new central bank outside the framework of the nation-state raised new conceptual issues. In every country, there was a continual and natural tension between governments’ wish to control and manipulate monetary policy for the sake of short-term growth and short-term political advantage, and the logical prerequisites for longterm monetary stability. If stable...

  15. 9 The EMS Crises
    (pp. 324-381)

    The road from the Delors Committee and the Maastricht Treaty to monetary union was quite rough. Five years of stability after 1987, when the last realignment had taken place and the EMS was apparently strengthened by the Basel-Nyborg Agreement, were followed by a dramatic shock. Suddenly everything seemed to fall apart. In 1992–1993 the European monetary order appeared fundamentally endangered by a series of dramatic exchange crises that began in peripheral countries, Italy and the United Kingdom, and then affected nonmembers of the EC in Scandinavia as well as new members of the EMS, Spain and Portugal. France, pursuing...

  16. Conclusion: The Euro and the Legacy of the Committee of Governors
    (pp. 382-400)

    In 1999 the Euro came into existence after the irrevocable locking of exchange rates among eleven currencies. In January 2002, with great rapidity, new notes and coins replaced the old national currencies. At the least, these steps represent an amazing logistical achievement. The new money was also stable in respect of inflation and inflation expectations.

    But questions remained. The fundamental problem of European Monetary Union lies in its incompleteness or lopsidedness. There was a much better preparation for the monetary side of monetary union than for the fiscal concomitants that should have underpinned its stability (and prevented the threat of...

  17. Appendix A: Maastricht Treaty Text and Committee of Governors’ Draft of the Statute of the European Monetary Institute
    (pp. 403-424)
  18. Appendix B: Maastricht Treaty Text and Committee of Governors’ Draft of the Statute of the European Central Bank
    (pp. 425-462)
  19. Appendix C: Dramatis Personae
    (pp. 463-476)
  20. Appendix D: Members of the Committee of Governors
    (pp. 477-480)
  21. Appendix E: Committee for the Study of Economic and Monetary Union (Delors Committee), 1988–1989
    (pp. 481-482)
  22. Appendix F: Chairmen of the Monetary Committee of the European Community, 1958–1998
    (pp. 483-484)
  23. Appendix G: European Commission Presidents and Commissioners for Economics and Finance, 1958–
    (pp. 485-486)
  24. Appendix H: Chronology
    (pp. 487-498)
  25. Appendix I: Interest Rates and Fiscal Balance
    (pp. 499-504)
  26. Notes
    (pp. 505-556)
  27. Acknowledgments
    (pp. 557-558)
  28. Index
    (pp. 559-567)