European Monetary Integration
The subject of European Monetary Union(EMU) is an important and controversial issue facing the members of the European Union, as the date for monetary union quickly approac hes. While politicians and diplomats meet to go forward with the formal arrangements for a single European currency, at the grass roots level there is still considerable anxiety on the part of average EU citizens. Will convergence bring economic prosperit y, or will the measures required for entry into the EMU fuurther depress the already stagnant job market in much of Europe? These and other difficult questions will have to be addressed as plans for one of the world’s largest regional trading blocs moves ahead
Introduction to the European Monetary System (EMS)
The Exchange Rate Mechanism (ERM)
The European Currency Unit (ECU)
Cooperative Central Banking
Basket of Currencies for the ECU
Institutions involved in European Monetary Integration
History and Timetable of European Monetary Union
Introduction to the European Monetary System
The purpose off the European Monetary System (EMS), which was established in 1979, is to stabilize exchange rates between the currencies of member states in the European Union.
In the past years, the EMS has helped to strengthen cooperation among the countries of Eu
All members of the EU are in the EMS, and most of them are in the Exchange Rate Mechanism (ERM) as well.
The ERM fixes the central rates for each currency.
Since 2 August 1993, currency market rates have been allowed to fluctuate up to a maximum of 15 percent either side of the central rate. If greater fluctuations are imminent, the national central banks are obliged to buy or sell the cu rrencies affected and thus stabilize the exchange rates. If the economic trend so requires, the central rates can be adjusted by means of a unanimous deecision of the EU finance ministers and central bank governors. Obviously, the EMS binds only the ex change rates of the participating countries. The rates with other currencies, such as the dollar or the yen, fluctuate freely on the currency markets.
Within the EMS there is a European Currency Unit (ECU) which serves as a link and unit of account between member currencies. The ECU is not a currency in itself, however, but a “basket” of the currencies of 12 of t
In December 1991 a treaty was concluded in Maastricht by the then 12 EG states pursuant to which a European Economic and Monetary Union is to be completed by 1999 at the latest. Before they can participate in the final stage, states must fulfill strict criteria (stable prices and exchange rates, low interest rates, sound public finances). Participants in the Monetary Union have undertaken to transfer their monetary sovereignty to a politically independent European Central Bank, the foremost objective of which will be to maintain price stability. At the EU summit in Madrid in December 1995, it was resolved that the new European currency be called the “Euro”. The new Eurocash is to replace the nati onal currencies in the year 2002.
European Monetary Union will have numerous advantages. German exporters will no longer be at a disadvantage vis-á-vis their European competitors in the European internal market and in the markets of non-EU states as a result of devaluation of their compet itors’ currencies. Companies will have a reliable ba
Exchange Rate Mechanism (ERM)
The Exchange Rate Mechanism, which forms the core of the EMS, provides a means for stabilizing exchange rates between member states of the ERM.
Each ERM currency has a specified fixed central rate of exchange relative to the ECU basket. Bilateral central rates as well as the current upper and lower fluctuation limits are derived from the ECU central rates. The fluctuation limits also serve as man datory intervention limits. Central banks can however – if they so wish – intervene before bilateral rates reach their intervention points.
When the EMS was established in 1979, all then member states of the EU except the UK joined the ERM. Spain joined the ERM in 1989 and Portugal in 1992; Greece is not yet a member. The UK joined in 1990 but was forced to withdraw from the ERM, along with I ta
The fluctuation margins were ± 2.25 per cent except for the Italian lira, UK pound, Spanish peseta and Portuguese escudo, which were assigned margins of 6 per cent around their central rates. In 1990 the Italian lira was assigned the narrow margins. Following the currency crisis of August 1993, the margins for all ERM currencies were widened to ± 15 per cent. Now, the only exchange rate with margins of ± 2.25 per cent is that between the Deutschemark and the Dutch guilder as per bilateral a greement.
A change of a central rate in the ERM requires preparation of the matter in the EU’s Monetary Committee and negotiations with the finance ministers of the EMS member states and with the EU Commission. The last change in the parity grid took place in March 1995 when the Spanish peseta was devalued by 7 per cent and the Portuguese escudo by 3.5 per cent.
European Currency Unit ECU
Use of the ECU began in 1979. The ECU basket included a specified amount of each EU member currency. The amounts were based on the respective strengths of the economies involved. The composition of the ECU basket was frozen in March 1993 so that the curre ncies of new members, including Finland, are not included. This is, however, of no significance because a central rate for a currency can be defined against both the ECU and each of the other currencies, even though that currency is not included in the ECU basket.
The ECU basket, ie the official ECU, is not a freely traded currency. It is instead a payment and accounting unit for payment transactions between central banks. The ECU will be removed from use when the euro is launched on 1 January 1999.
In addition to the official ECU there is the private ECU created by commercial banks, which is freely exchanged in the various markets. Private ECUs are used on the basis of contracts in which the parties agree that payment is to be made in ECUs.
The values of the official and private ECUs can differ from each other although they generally change in the same direction. The official ECU is the weighted average of the currencies included in the ECU basket whereas the value of t he private ECU is determined by market supply and demand like any other commercially used currency.
Cooperative central bank financing facilities
The cooperative central bank financing facilities are administered by the European Monetary Institute (EMI). There are three of these:
Very Short-Term Financing (VSTF)
Short-Term Monetary Support (STMS)
Medium-Term Financial Assistance (MTFA).
Very Short-Term Financing is the ERM central banks’ mutual intervention financing facility, through which a central bank can automatically obtain loans for supportive selling when the rate approaches a fluctuation limit. The loans are granted by the centr al bank whose currency is approaching its ‘strong’ limit. Loans for interventions well within the fluctuation margins are always subject to approval of the lending central bank.
Short-Term Monetary Support is designed for financing temporary balance of payments deficits; any EMS member state can apply for this type of support.
Medium-Term Financial Assistance can be granted to an EMS state for 2-5 years in case of serious balance of payments problems.
ECU basket weights in September, 1996.
Because of the roundings the sum of the weights does not add up to 100.0.
European Monetary Union(EMU)
The Institutions that make it happen
The following are links to informative articles published on the official European Union Web server : Europa. Most of the formal Institutions of the EU are involved with EMU in one form or another, but the European Commision is in charge of the majority of policy formation on monetary affairs for the Union.
The European Parliament
is the directly-elected democratic expression of the political will of the peoples of the European Union, the largest multinational Parliament in the world.
The Committee on Economic and Monetary Affairs and Industrial Policy
Council of the European Union
is usually known as the Council of Ministers, and has no equivalent anywhere in the world. Here, the Member States legislate for the Union, set its political objectives, coordinate their national policies and resolve differences between themselves and with other institutions.
European Commission – Bulletin of the EU
identifies three distinct functions: initiating proposals for legislation, guardian of the Treaties, and the manager and executor of Union policies and of international trade relationships.
Economic and Monetary Policy
• The Union’s Policies
• The Road to Economic and Monetary Union
• Single Currency – Commissions Green Paper
• On the Political Agenda – Next Steps to Integration
• Directorate General II of the European Commision – Economic and Financial Affairs – Official ECU Exchange Rates
• Directorate General XV
• Commission Adopts Single Market Action Plan for Amsterdam European Council
• Communication on the Impact and Effectiveness of the Single Market
Court of Justice
provides the judicial safeguards necessary to ensure that the law is observed in the interpretation and application of the Treaties and, generally in all of the activities of the Union.
Court of Auditors
is the taxpayers’ representative, responsible for checking that the European Union spends its money according to its budgetary rules and regulations and for the purposes for which it is intended.
European Investment Bank
is the European Union’s financing institution, it provides loans for capital investment promoting the Union’s balanced economic development and integration.
Economic and Social Committee (in French)
follows a purely consultative role, but its opinions derive their authority from a membership which is drawn from a broad cross-section of the Union’s social and economic life.
Committee of the Regions
is the European Union’s youngest institution whose birth reflects Member States’ strong desire not only to respect regional and local identities and prerogatives but also to involve them in the development and implementation of EU policie
– The success of the common market calls for convergence of the Member States’ monetary policies, and an internal market in the full sense of the term includes monetary union.
– Monetary integration is a factor for economic cohesion and solidarity between the Member States; for a united Europe, it is an asset in relations with the outside world.
1. First period (1957-1969): absence of a European monetary project
The Rome Treaty laid down only minor provisions for monetary cooperation. The six founding Member States of the Community were participants in the Bretton Woods international monetary system, which was characterised by fixed exchange rates and possibilities of adjustment. The creation of a parallel system was unnecessary.
2. Second period (1969-1979): the first efforts towards integration
The demise of the Bretton Woods system, confirmed by the ending of the dollar’s convertibility into gold on 15 August 1971, was followed by a general floating of the currencies. With the oil crisis of the early 70s, the European currencies came under even greater pressure. In the face of such general monetary instability, the cause of serious economic and social difficulties, the Member States sought to put in place a framework which could provide a minimum of stability, at least at European level, and which could lead to monetary union.
a. Back in 1969, when the international monetary system was threatening to collapse, the Heads of State and Government had already decided at the Hague Summit that the Community should progressively transform itself into an economic and monetary union.
b. In October 1970, the Werner report (drawn up by the then Prime Minister of Luxembourg) proposed:
for the first stage, a reduction of the fluctuation margins between the currencies of the Member States;
for the second stage, the achievement of a complete freedom of capital movements with integration of the financial markets, and particularly of the banking systems;
for the final stage, an irrevocable fixing of exchange rates between the currencies.
c. In 1972 the “snake in the tunnel” narrowed the fluctuation margins between the Community currencies (the snake) in relation to those operating between these currencies and the dollar (the tunnel). To ensure the proper operation of this mechanism, the Member States created in 1973 the European Monetary Cooperation Fund (EMCF) which was authorised to receive part of the national monetary reserves.
d. The results of this mechanism were disappointing. The disruptions provoked by the rise in oil prices caused the economic policies of the Member States in the 70s to react in diverse ways. This led to frequent and sharp fluctuations in exchange rates. There were entrances and exits from the exchange stability mechanism and the snake, originally designed as an agreement of Community scope, was reduced to a zone of monetary stability around the German mark.
e. By the end of 1977, only half of the nine Member States (Germany, Belgium, the Netherlands, Luxembourg and Denmark) remained within the mechanism, the others having allowed their currencies to float freely. The Werner Plan was abandoned the same year.
3. Third period (from 1979): the successful resumption of the integration process
a. Instigated by the German Chancellor Helmut Schmidt and the French President Valéry Giscard d’Estaing, the Brussels Summit of December 1978 decided to set up a European Monetary System (EMS). It aimed to create a zone of monetary stability in Europe by reducing fluctuations between the currencies of the participating countries. It was put into operation in March 1979 (* 5.2.0).
b. The establishment of the internal market led the Community to revive the objective of monetary union. The Hannover European Council (June 1988) pointed out that ‘in adopting the Single Act, the Member States of the Community confirmed the objective of progressive realisation of economic and monetary union’. It entrusted to a committee chaired by Jacques Delors, Commission President, and comprising Frans Andriessen, Commission Vice-President, the Governors of the Central Banks of the twelve Member States and three independent experts, ‘the task of studying and proposing concrete stages leading towards this union’.
c. In April 1989 the report of the Delors Committee envisaged the achievement of EMU in three stages: the objective set for the first stage, between June 1990 and January 1992, was to step up cooperation between central banks; the second stage included the establishment of a European System of Central Banks (ESCB) and the progressive transfer of decision-making on monetary policy to supranational institutions; in the third stage, the national currencies would have their convergence rates irrevocably fixed and would be replaced by the European single currency.
The Madrid European Council of June 1989 adopted the Delors Plan as a basis for its work and decided to implement the first of these stages from 1 July 1990, when capital movements in the Community would be liberalised completely. In December the European Council decided to convene an intergovernmental conference to prepare the amendments to the Rome Treaty in view of EMU.
d. Approved by the European Council of December 1991, the amendments proposed by the intergovernmental conference were incorporated in the Treaty on European Union signed at Maastricht on 7 February 1992. (For the achievement of EMU: * 5.3.0 and 5.4.0) The Treaty’s EMU project was based on the general outlines of the Delors Plan but differed from it on some significant points. In particular the second stage did not begin until 1 January 1994 and did not include the transfer of responsibilities for monetary policy to a supranational body but simply the strengthening of cooperation between central banks, replacing the former Committee of Governors with the European Monetary Institute which would be responsible, with the Commission, for the technical preparation of EMU. Establishment of the ESCB was deferred to the third stage.
e. In December 1995 the European Council in Madrid named the single currency the euro, and set 1 January 1999 as the date for the start of the third stage. It also adopted the scenario for introduction of the euro (* 5.3.0).
f. The European Council in Amsterdam in June 1997 adopted the Stability and growth pact, designed to ensure budgetary discipline during the third stage (* 5.3.0).
g. The same European Council adopted the principles and fundamental elements of a new exchange-rate mechanism to regulate relationships between the euro and the currencies of those Union Member States which would not be taking part in monetary union (* 5.2.0).
h. In accordance with the Treaty of Maastricht (* 5.3.0) the European Council in Brussels decided on 2 May 1988, following the recommendation of the Commission and the Economic and Financial Affairs Council (“Ecofin”) and Parliament’s opinion, that 11 countries — Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain — would take part in the third stage of EMU.
i. On the 1st January 1999 the 11 countries chosen joined the European Monetary Union. Greece has subsequently applied for membership and was admitted. It will officially join the EMU on 1 January 2001.
General aspects of European Monetary Integration
The Monetary, Economic and Statistics Department (MESD) plays an important role in fulfilling the tasks of the European Monetary Institute (EMI). In particular, my Department is responsible for economic and statistical aspects of preparatory work for Stage Three. However, I will adopt a slightly different focus, and concentrate on topics related to the remaining work of the Department.
More specifically, the aim of my remarks is, first, to give some historical background information on the process of European monetary integration, and then to consider three general economic aspects of European monetary integration in which MESD plays an active part. These are policy co-ordination in Stage Two, the issue of convergence and the EMI’s role in the process and, finally, consideration of some of the economic issues raised by the plan for EMU. I shall conclude with a personal view of prospects for EMU.
History and timetable of EMU
Establishment of the European Economic Community (EEC) with Germany, France, Italy and the Benelux countries.
Creation of the European Community (EC).
Establishment of the “currency snake”.
The United Kingdom, Ireland and Denmark join the EC.
Establishment of the European Monetary System (EMS).
Greece joins the EC.
Spain and Portugal join the EC.
The “Single European Act” provides for the creation of the Single European Market from 1993 and establishes the goal of a Monetary Union.
Start of stage one of European Monetary Union (EMU) with the full liberalization of capital movements.
Conclusion of the “Maastricht Treaty” on European Union (EU), establishment of the timetable for Monetary Union.
The United Kingdom and Italy leave the exchange rate mechanism following currency turmoil in the EMS.
Start of the Single Market permitting the free movement of people, goods, capital and services.
Start of stage two of EMU. The European Monetary Institute (EMI) is established.
Austria, Sweden and Finland join the EU; “euro” will be the name of the single European currency.
Decision on EMU participants, confirmation of the starting date; establishment of the ECB.
Start of the Monetary Union with the fixing of exchange rates; the ECB assumes responsibility for monetary policy and operates in euro; start of the currency changeover in the financial sector.
Euro notes and coins replace the national currencies.
Monetary integration in Europe: some past and present experiences
Speech by Eugenio Domingo Solans, Member of the Governing Council and of the Executive Board of the European Central Bank, at the Madrid Seminar of the Eurosystem and Latin American Central Banks, Madrid, 24 May 2002.
It is my pleasure to address you as keynote speaker this lunchtime during the Seminar of the Eurosystem and Latin American Central Banks.
“Europe will be built through concrete achievements”, wrote Robert Schuman in his Declaration of 9 May 1950, the starting point of the European integration process. A few years later, another great European, Jacques Rueff, was even more specific: “L’Europe se fera par la monnaie ou ne se fera pas”, he prophesied. Half a century later, the success of the euro cash changeover, the most complex logistical operation ever undertaken in times of peace, as it was said, marks the functional culmination of European monetary integration.
I say “functional culmination of European monetary integration” because geographical culmination is still to come. If, as I hope and expect, we are successful in integrating the pre-in European Union countries and the accession countries, the euro area will become the most important economic region in the world by far.
One conclusion we can draw from the European experience is that full monetary integration is the final result of a long process of previous economic co-operation, harmonisation and co-ordination in many areas including exchange rate co-ordination itself: the customs union, the single market for goods, services and production factors, etc. In particular, nominal, sustainable and durable macroeconomic convergence is a precondition for monetary integration. Allow me to underline the ideas of sustainability and durability when I refer to nominal convergence as a precondition for monetary integration, in accordance with Article 109 J and Article 1 of Protocol No. 6 of the Maastricht Treaty. When stressing this point, I, of course, have the future accession to the European Union of new central and eastern European countries in mind.
As I mentioned before, some degree of exchange rate co-ordination is also one step that must be taken when building economic integration in order to eventually achieve full monetary integration. Past experiences in Europe of the “Snake” (1972-78) resulting from the Werner Report (1970) and the exchange rate mechanism (ERM) of the European Monetary System (EMS) (since 1979) are clear examples of appropriate monetary co-ordination made along the road towards achieving greater goals in the process of economic and monetary integration.
In this vein and for the enlargement process it is worth mentioning that one of the nominal Maastricht convergence criteria to be fulfilled in order to join the euro area is the observance of the nominal fluctuation margins provided for by the ERM of the EMS (what we now call the ERM II) for a period of at least two years, without devaluation against the currency of any other member state.
I have not forgotten that many exchange rate realignments occurred in the ERM, especially in the 90s, when – and partly because – the free circulation of capital became a reality. Actually, I was one of the four members of the Executive Commission of the Banco de España when the last realignment of the exchange rate of the peseta took place in March 1995. The existence of these ERM realignments is a clear evidence of the impossibility of pegging exchange rates without complying with certain economic preconditions, as I said before. Moreover, the ERM realignments, decided in Brussels after complex and demanding procedures in an environment of “peer pressure”, were in themselves the confirmation of the existence of a firm commitment to exchange rate stability in the context of the European single market. This is certainly a crucial point in any process of regional economic integration. Only by avoiding excessive exchange rate volatility and, of course, competitive devaluations can a common market function smoothly and without major distortions. At the same time, ERM realignments were evidence of the capacity of the system to accommodate external shocks via the exchange rate. The ERM was a good shock absorber and struck a good balance between commitment and flexibility. It was a key factor for the success of European monetary integration.
Once full monetary integration is complete, or even before, it is worth considering under which conditions the situation is sustainable. In other words, it is worth discussing the “one-size-fits-all” issue. Indeed, this is probably the crucial policy debate in the context of the “optimum currency areas” framework. Above, I have touched upon the nominal convergence aspect. Let me now concentrate on three aspects of this vast analytical and policy debate, of which the first two are from the common wisdom in this field and the third is a rather personal strong view on this matter.
One size does indeed fit all, provided that three key conditions are fulfilled: the degree of synchronisation of the cycles of the regional economies is high enough; output and production factor markets are flexible enough to absorb asymmetric regional shocks; and the responses of the economic policy are appropriate. Allow me to elaborate on this.
The first condition – synchronisation of the cycles – has to do with two main factors: the sectoral composition of regional economies within monetary union and the degree of economic policy interaction. The second condition – flexibility – concerns mainly supply side aspects. The third condition – appropriate responses of the economic policy – opens a wide range of issues (budget co-ordination, common market policy, etc.) out of which I will only touch one: the style or approach of monetary policy.
Concerning economic policy interaction, I would like to mention three relevant points based on the European experience. First, the fact that Member States regard their economic policies as a matter of common concern, co-ordinate them within the framework of the broad economic policy guidelines, accept that their economic performances are subject to multilateral surveillance and are prepared to accept recommendations from the Council. Second, let me underline the importance of the Stability and Growth Pact as a valid institutional arrangement to avoid too divergent fiscal policy stances in a monetary union. If, as is the case in the European Union, the central budget is relatively small, the need for a stability pact in the area of public finances is vital. The third point I would like to make is the need to avoid ex ante co-ordination between finance ministers and central bankers so as not to confuse their respective roles, mandates and responsibilities and eventually hamper central bank independence. We, as central bankers, know ex ante, on a statutory basis, what our function is and, therefore, we do not need to sit down to discuss with others if, when or how much. Exchanging information and views between ministers and central bankers is certainly necessary, as is explaining ex post the central bank’s reaction function and assessing together the ex post results of economic policy, but not ex ante co-ordination.
Concerning market flexibility and the absorption of asymmetric shocks, let me stress again the importance of the Stability and Growth Pact as an institutional arrangement able to deal within a certain margin with different regional situations. Is the present margin wide enough? I think it is, considering the intensity of the possible shocks to be absorbed, the current mobility of the production factors and the current flexibility of the markets. Nevertheless, in order to be in a safer position, the case in Europe for a supply side policy or market policy oriented towards more input mobility, more dynamism, more flexibility and more adaptability also seems clear to ensure that “one size fits all”.
I will now turn to the link between the “one-size-fits-all” issue and the style of monetary policy and more specifically the non-activist approach of the Eurosystem monetary policy – one basic element which characterises it.
Monetary policy cannot fine-tune economic activity either in time or in space, i.e. it cannot fine tune economic cycles or discriminate between regional effects. Although monetary policy could have short-term effects – especially via expectations or via the exchange rate channels – as well as regional effects – due to differences in sectoral composition across regions – from a mere positivist angle it would be unwise to try to exploit them, taking into account the complexity and uncertainty of the developments involved and the limited knowledge we have on the transmission mechanisms of monetary policy. Monetary policy should have a medium-term orientation aimed at providing monetary stability and, by doing so, it also contributes to creating the best monetary conditions for a balanced economy in macroeconomic terms and also for sustainable economic growth and job creation.
These remarks are, in my view, sufficient arguments in favour of a non-activist monetary policy, because not being active in terms of frequency of monetary policy changes means that we avoid missing the right moment to act and not being sensitive to regional differences means that monetary policy can meet the monetary requirements of the area as a whole. Not being activist means that we do not, as we bluntly say in Spanish, “dar palos de ciego”, lash out wildly. Moreover, not being activist also permits a better degree of interaction with other global or regional economic policies, in line with the idea of the non-ex ante co-ordination I mentioned before. Not being activist is also the logical outcome of having a flexible monetary policy strategy based on judgement, instead of a mechanical strategy based on rules. When considering the Eurosystem’s monetary policy style we should bear in mind that gradualism should not be confused with activism and that non-activism is not incompatible with decisive and firm decisions.
The medium-term orientation of monetary policy and the resulting monetary conditions are intended to be valid for the whole geographical area and are actually suitable for all regions, as is the case with the air conditioning of this room which is supposed to suit everybody. Fresh air as opposed to air from an oxygen tank: this is my preferred metaphor to compare the non-activist monetary policy of the Eurosystem to an activist approach. There are, of course, other metaphors that we can use to depict the lack of activism of the Eurosystem’s monetary policy, as opposed to an activist monetary policy: framework rather than action, chassis and shock absorber rather than engine, quietly watching a TV programme rather than zapping or, more appropriately for lunch time, traditional cooking rather than using a microwave oven.
In my opinion, there are always good reasons to advocate a non-activist monetary policy for the reasons I have attempted to explain above, irrespective of the geographical size of the area to be covered and independently of the size of the monetary policy jurisdiction. Nevertheless, the larger and more diverse the monetary policy area is and the more complex and uncertain the economic developments that occur in it are, the more convenient it is to follow a non-activist monetary policy approach. If so, this could be a point worth mentioning in any policy debate on optimal currency areas.
The aim of my speech has been to present some views and to share with you some experiences related to European monetary integration. Perhaps you will find some of our European experiences worth considering in terms of Latin American regional integration. Nevertheless, let me say – although maybe I should have said this before – that historical experiences are not “tradable goods”, i.e. they cannot easily be exported to nor imported from other regions. Unfortunately, each economic region must try to find its own way towards economic integration, suffer its own setbacks and enjoy its own successes, as we are experiencing now with the introduction of the euro cash.
As an exception which would confirm the rule of not transferring experiences, let me conclude by mentioning four ingredients of European monetary integration which I think should exist in any regional monetary process, if it is considered that this should be the final goal of an economic integration process. First, political vision and will; second, patience; third, pragmatism; and, fourth, a core idea able to give direction and consistency to all decisions and actions. Political vision and will because economic integration and, of course, exchange rate stability, as well as monetary integration, will, above all always be political commitments beyond their technical implications. Patience because economic integration does indeed take time. As for pragmatism, let me mention that the sequence often followed by European integration has been: need – function – institution. In a process of regional economic integration, the need for monetary integration will appear sooner rather than later; this need will require the development of the function and, in order for it to be performed, an institution will need to be set up. Without prejudice to impressive top-down approaches for economic integration, I strongly recommend this pragmatic bottom-up approach of need – function – institution. Finally, in the case of European monetary integration, the core idea – “la idea fuerza” as we would say in Spanish – is stability – price stability – as a pre-condition for sustainable long-term growth on which our institutional, functional and legal framework of monetary integration has been built.
Understanding the European Monetary Integration: An Alternative Explanation
The creation of EMU is more often than not, viewed in the statist framework of intergovernmental bargaining, where transnational and supranational actors and other economic and ideational factors are either ignored or their significance is underestimated. There is a tendency to view these factors as sort of secondary and loosely related reasons that stood behind the process of monetary integration.
The whole project to establish monetary union stretched over more than a decade-long period. It was launched in 1988 and only in January 2002, it would be fully implemented. The essential work on the monetary union, however, was carried out between 1988-1989. The establishment of the Delors Committee in 1988 and its report issued few months later “set the EMU ball rolling”.
This study will gather disperse and a relatively scarce literature on the role of the non-state actors (transnational, supranational) and other non-political factors (economic and ideational elements) in the process leading to EMU. Subsequently, the analysis will evaluate the role and significance of all the earlier-mentioned factors in the establishment of the monetary union. The argument will follow that the decisions of 1988-1989, which subsequently led to the establishment of EMU, cannot be fully understood unless one takes into consideration the interplay of economic and ideational factors and the involvement of transnational sectoral groups, and supranational actors. A mélange of different factors (economic, ideational, transnational and supranational) will require to establish an analytical “patchwork”, which, as it will be argued, can provide a plausible account for a complex process of policy-making in connection with a decision to proceed with the monetary integration in Europe. This “patchwork” scheme will allow a simultaneous depiction of different settings of influence and the roles played by various actors and factors, which had impact on launching and designing EMU.
A structure of this essay will be as follows. First, various explanations for launching the monetary integration and for the way this integration proceeded will be presented and subsequent critical evaluations, which will discount the rationale of these approaches, will follow. Then, a new analytical framework of analysis will be presented and the claim will be made that this analytical scheme can provide a plausible, alternative account for the process of the European monetary integration. In the later parts of the paper each factor; transnational, supranational, economic and ideational will be elaborated upon against the process leading to the monetary union. Here, the extent of the relevance and importance of each of these factors for the monetary integration will be emphasized. Finally, the paper, in the conclusion, will briefly recapitulate the main claims of this study.
A critical overview of recurring accounts of the monetary integration
In this section, the study will present the main lines of argumentation used by different scholars in order to explain the EMU phenomena. At the same time, a critical evaluation of each of the explanations will hint at the fact that the author intends to provide his own alternative explanation of the monetary integration.
Politics of geopolitics: monetary integration and the German unification
EMU is seen as a grand political design closely related to geopolitics of the changes, which had taken place in Europe between 1989 and 1990. Ultimate “accelerator towards monetary union.was the political desire of the French government to fold the newly enlarged German state into a tighter European structure” (my emphasis). Thus, it was German unification, which was the most important factor in explaining the agreement to push for EMU. Even if we accept that German unification did contributed to the monetary integration, we are still left with a puzzle about the timing of these two processes. By the time of the collapse of the Berlin wall in November 1989, the Delors Committee had finished its work, publicly presented the Committee’s proposals on the structure of the future monetary union and suggested first two (out of three) implementation stages for EMU. The European leaders during the Madrid European Council held in June 1989 accepted the main proposals of the Delors Report. They endorsed the launch of the first stage of EMU and agreed for the proposition to convene an Intergovernmental Conference, which would consider changes to the Treaty in order to move beyond the first stage of monetary integration. These important events and specific conclusions related to launching the EMU project were taken at least five months before any rumors about the trembling wall and a probable German unification entered the salons of the policy-makers and possibly influenced their decisions. German unification may have been important for EMU in the later stages, however, one needs to realize that the machine which pushed forward the work on the monetary union was already put firmly in motion before any geopolitical changes had taken place.
Intergovernmental bargaining as a plausible explanation for a drive to monetary union?
The process of monetary integration can be also understood in terms of intergovernmental negotiations, where the states, whose preferences have been already determined as a result of earlier bargaining carried out on the domestic level, retain the control over the policy-making process within the EU. The EMU program, seen through the intergovernmental lenses was designed, determined and controlled by the states and their representatives in the Council. The EMU initiative was undertaken because the interests of the governments (particularly those of the biggest and most important states such as Germany and France), shaped by the domestic economic groups, have, for different economic or political reasons, gradually converged and culminated in the endorsement of EMU. This, in turn, led the states to agree to the establishment of the Delors Committee and subsequently to the acceptance of its proposals. Although powerful as it may seem, intergovernmental explanation of the monetary integration seems to rely too much on the importance of states’ bargaining while at the same time neglecting the involvement of other actors. There is no clear evidence to suggest that the interests of the member-states were already neatly converged when the EMU process was taking off in 1988. On the contrary, the states were strongly divided over the possible content of EMU and over how the process of monetary integration should proceed. Not only were the Danes and British opposed to the establishment of an independent European central bank but also the French were wary about this idea. Germans, on the other hand, were hesitant about the possibility of losing control over their own well-working national monetary institution for its, still vaguely defined, European counterpart. The existence of political divisions and a lack of interests’ convergence were the reasons why the Delors Committee was established in the first place. Thus, the work of the Delors Committee and the impact of its report cannot be downgraded to a mere by-product of the states’ bargaining and negotiations. The Delors report became a sort of pivotal point around which the conflicting interests of the states could finally meet and converge.
It is not the author’s intention to argue that intergovernmental bargaining among the EC member-states over the issue of monetary integration was irrelevant. What needs to be recognized, however, is the fact that the member-states entered formal negotiations over specific issues of the monetary integration in the later stage. Other non-state actors such as the central bankers and the Commission President with a narrow group of his advisors decided the agenda of the EU monetary integration, opting for specific solutions to the controversial problems. Everything happened before the states became formally engaged in bargaining policies in the Council. And when they finally “entered the game”, they followed the proposals made by the Delors Committee.
Importance of interest groups in the monetary integration
Some authors argue that the domestic distributional effects of EMU based on the maintenance of stable interest rates pushed certain domestic interest groups to support the monetary integration. On the other hand, others are more skeptical about the interest groups’ involvement in and support for EMU because “it is difficult to find interest groups with a substantial economic interest” in monetary integration.
Both opinions, one about the significant role of the interest groups in the process leading to the monetary union and the other, about the indifference of these groups toward the monetary integration, viewed the economic interest groups as being confined to the borders of the national states. Thus, the studies focus on the domestic interest groups. While starting from a national level of analysis, these studies attempt to establish or to deny the existence of certain “corridors”, through which domestic interest groups may have influenced the national governments. However, because in each member-state “records of the preference and tactics of business groups and the deliberations of national executives remain incomplete” as far as the policies of monetary integration are concerned, the disagreements about the role of interest groups continue. A focus directed only at the domestic interest groups presents an oversimplified picture of the economic interest groups’ involvement in the process of monetary integration. The issue, which is neglected here, is connected with the work of the transnational interest groups. These groups had better opportunities than their national counterparts to determine the EMU process because the process itself was conducted within the EU framework, not in the national capitals, involving, next to the state representatives working in the Council, other non-state actors, among others, the Commission. Therefore, one should examine the national economic groups, which by the nature of their international interests were keen to established European-wide associations and through these transnational associations conduct lobbying for the common market and the monetary union. The support of the transnational economic interest groups for EMU may not have been decisive in determining specific design of the monetary integration. However, these groups, contrary to their domestic equivalents, managed to establish formal and informal ways of contacts with a supranational institution such as the Commission. They were also vocal enough to show to more skeptical national policy-makers that the Commission was receiving full backing of the major international businesses in its push for monetary integration.
Monetary integration and a sectoral interest of bankers
Banks belong to the already discussed subject of interest groups. However, the direct (formal) involvement of the bankers in the process of monetary integration deserves separate consideration. Both arguments for and against the banking sector’s support for EMU are present in the literature on the monetary integration. Eichengreen and Frieden argue that international banks had an important impact on the development of the European monetary integration. Østrup, however, shows that the banks had no interest in supporting EMU because they were about to lose more than gain from monetary integration.
Both views seem to treat the banking sector as a monolithic whole and this, in turn, brings such extreme opinions. It is true that the commercial and industrial banks were about to lose from the monetary integration due to the reasons, mentioned by Østrup. However, another group of bankers: the governors of the central banks were generally about to gain the most from monetary union. And these gains should be calculated in political rather than economic terms. The central bankers, as Kapstein argued while referring to the multilateral cooperation to regulate international banking system, are “a group of bureaucrats (who are very much interested) in an effort to maintain if not enhance their positional power in their domestic political structures”. EMU gave the governors of the EC central banks opportunity to strengthen their domestic position undermined by a rapid globalization of the flow of capital and, in some instances, by a lack of independence from the political establishment. The governors saw to raise their influence over the monetary policies by building a federal structure of EMU, based on independent “European System of Central Banks”, which would consists of a Central European Bank and the existing national central banks.
Economic factors in the process of monetary integration
The literature, which favors political aspects in determining the monetary integration, does it by denying the significance of economic factors. In this context, the economic factors are somehow narrowed down to mean economic benefits. Thus, Eichengreen and Frieden claim that:
neither economic theory nor economic evidence provides a clear case for or against monetary unification. The direct economic benefits of monetary unification are likely to be relatively small, and may or may not be dominated by the costs. The absence of a clear economic justification for EMU leads us to conclude that events in Europe are being driven mainly by political factors.
The concept and understanding of the economic factors should, however, go beyond the notion of economic benefits. Thus, the monetary union was made possible not because of the future economic benefits, which were, as the above authors noted, dubious, but by the presence of a favorable economic climate, which contributed to the conviction about the feasibility and desirability of the monetary integration. The macroeconomic indicators related to trade, inflation and budget deficit showed a growing convergence in monetary policies of the EC member states. Additionally, the conclusion of the negotiations on the single market in 1986 and the 1988 decision to fully liberalize the capital movements for most of the Community members by June 1990 further influenced the belief about the necessity of the monetary union in the wake of a full economic integration. And although, the economic factors cannot be, by any means, considered as constituting a decisive force in pushing for monetary integration, they should not be, however, easily dismissed or their impact underestimated.
The analytical framework of the interactions of the four: economic, ideational, supranational and transnational factors, is presented in figure 1. Based on this analytical structure, the study will argue that the transnational sectoral groups established the access to the EU institutions and started communicating directly with the EU officials and indirectly with the national policy makers, working in the Council of Ministers. The central banks’ governors gained formal access to the EMU machinery by the sheer fact of their presence in the Delors Committee. Their position of influence was exceptional in the sense that no other interest (sectoral) groups were institutionalized within the EU structures during the EMU negotiations. During almost one year of the Delors Committee’s work, the governors of the central banks became part of the established EU institutional structure. By the virtue of their new position, the governors had greater opportunity than any other group, (which had to operate outside the EU institutional framework) in determining what kind of monetary integration would be the most appropriate and what policies and institutions would be the most effective in the future monetary union. The Chief Executive Officers (CEOs) of the largest export-oriented companies grouped in the Association of the Monetary Union of Europe (AMUE) had direct (informal) contacts with the President of the European Commission and supported him in the EMU project. In turn, Jacque Delors, the President of the Commission, became very much committed to the idea of monetary union and saw it as the means for greater European economic and political integration. In general, transnational groups: big businesses and governors of the central banks as well as the supranational actor such as the President of the Commission were on the same side of the “pro EMU fence”. They were (in a direct or indirect way) setting the agenda for the future monetary integration, which would be acceptable to politicians and more importantly, which would create solid fundaments for the effectively working monetary union. However, transnational and supranational actors would achieve little and the monetary integration would run astray as it did earlier, if it had not been for the ideational and economic factors, which considerably influenced the decisions of the policy-makers. The existence of a favorable economic climate connected with greater integration in terms of capital markets and growing interdependence in relation with the EC trade relations, pushed for the agreement to re-launch the EMU program at the end of 1980s. At the same time, the new monetary ideas, based on stabilization of currencies, balanced money supply (“sound-money“) and the fight with inflation were at the end of the 1980s endorsed by the political and economic elites and also by and large by the electorate. A presence of the ideational consensus over the national monetary policies pushed the European policy-makers to accept certain institutional solutions and the policy-choices, which were proposed by the Delors Committee. Thus, the economic and ideation factors provided the “window of opportunity” for the transnational sectoral groups and a supranational actor not only to articulate their preferences but also to have them accepted by the governments.
Transnational actors and supranational “President”: big business, Jacques Delors as the President of the Commission and the community of the governors of the EC central banks
In 1986, the former President of France and former Chancellor of Germany: Valéry Giscard d’Estaing and Helmut Schmidt established an interest group the Committee for the Monetary Union of Europe (CMUE). The CMUE, including also other politicians, central and private bankers and economic experts, embarked on the active promotion of and lobbying for the establishment of European Monetary Union. In 1988, the CMUE published surveys, which showed big business support for the introduction of the monetary union and presented its proposals about EMU, including the proposition to create an independent European Central Bank. Connected with the CMUE activities was the establishment of the Association of the Monetary Union of Europe (AMUE), composed of the CEOs from the largest transnational corporations such as Fiat, Philips, Siemens, Total-CFP, Rhône-Poulenc, banks like Société Générale de Belgique and Paribas or employer organizations such as Italian Confindustria. In 1990, AMUE had over 200 companies as active members. AMUE may not have had a direct access to the state policy-makers in the Council, but it did keep a close contact with the Commission President Jacques Delors. During the joint press conference with AMUE in February 1988, Delors openly acknowledged “very important” support of AMUE in connection with EMU and added that the “company managers not only follow us, but often precede us”. The AMUE links with the leader of the Commission cannot be overlooked, in the situation when the 1988 Delors Report on EMU bear largely the marks of the Commission President and when, in turn, the 1988 Delors Report had a direct and decisive impact on the establishment of the EMU. The influence of AMUE should be also considered from a broader perspective. In this context, Apeldoorn noted that the AMUE members were also connected with the European Round Table of Industrialists (ERT) and thus, they constituted “the same elite of European transnational capital”, which pushed simultaneously for Economic and Monetary Unions.
Jacques Delors, as a supranational actor, was from the beginning attracted to monetary policy due to his commitment to deeper economic and political integration. But, what was particularly important, was his professional background that made him the right person in the right time and in the right place. Delors was not only familiar with the EU machinery but above all he was a “finance” man. His professional career had been closely connected with the monetary issues while he was a chairman of the European Parliament’s Committee on Economic and Monetary Affairs in the years 1979-1981 and the French Finance Minister between 1981-1983. While bringing back the idea of EMU, Delors managed successfully to convince the Council leaders to set the Committee on EMU that would be composed of Central Bank governors and three distinguished economic experts. The aim of keeping politicians at a distance until the EMU agenda would be already set and very difficult to change, was achieved. Delors’ influence on the Report on EMU was more than significant. Jean-Paul Mingasson, the Director General of the Commission’s Budget Directorate, while referring to the Delors Committee report noted: “Delors spent a huge amount of time on the dossier. he always knew where he wanted to go”. And he added “Delors corrected all the sentences. there wasn’t a phrase in the final paper, which he didn’t author”.
The impact of the Commission President, Jacques Delors, cannot be considered separately from the roles played by other transnational players: the central bank governors. The presidents of central banks became transnational actors characterized by “distinct, even unique professionalism”. Their “transnationalism” was based on the idea that no longer was it possible to exercise narrowly defined territorial control over national monetary systems, particularly in the era of globalization and increasing liberalization of capital flows. Thus, “a central banking culture (has transcended) national boundaries”. The role of central bank governors in the creation of EMU is important not only because, by the virtue of their functions, they often exercised effective influence on the decisions of their own national political representatives. But, what is even more significant, from the end of the 1980s, the governors of the national central banks were provided with the access to all the European leaders by being formally institutionalized into the structure of the European Union in the Delors Committee. Thus, the governors took a central position in the EMU policy-making machinery.
While working in the Delors Committee, the bankers agreed that EMU required strong institutionalization in the form of an independent European-wide central bank based on the “German model”. Thus, the opinion prevailed that monetary policy if it was to be effective, should be implemented by the independent European Central Bank (ECB) supported by the European System of Central Banks, whose political and economic independence was also necessary. Additionally, the group agreed that in order for the monetary policy to be implemented successfully, its main objective should be set on the principle of price stability. The bankers and economic experts opted for a single currency and rejected the European Monetary System (EMS) parallel currency, ECU. Finally, Delors Committee proposed a three-stage process that would lead to EMU, avoiding, however, setting any specific timetable, apart from a deadline for the start of the first stage. Decisions, taken by the EC central banks’ governors from the authoritative and impartial positions, although enjoying the support of some of the EC countries, were also criticized by the others. However, it was difficult for the policy-makers, if possible at all, to challenge the governors’ proposal. The governments, during the Madrid Council of June 1989, eventually accepted all the above propositions, although the “German model” raised certain controversies. Thus, the Delors report became the framework, within which later intergovernmental negotiations related to the monetary union were carried out.
There is no doubt that the recommendations issued by the Delors’ group had a high authoritative value. The group was composed of persons, who enjoyed high esteem in the professional community and whose expertise and knowledge on monetary issues were widely recognized in their own countries and internationally. Even though the Delors Committee was not responsible for the final decision to go ahead with EMU, (which was decided by the governments) it did, however, establish the methods of how EMU could be practically achieved. The central bankers successfully elevated EMU to the equal status of the Single Market program. They convinced decision-makers about the necessity of EMU to be included into a Treaty, and in the form, which would not be different from their initial proposals presented in the Delors report. Even more importantly, the Delors group managed to convince the policy-makers to accept, not only the principle according to which EMU should work: price stability, but also to endorse a specific institutional framework composed of independent monetary institutions, in which EMU could be realized. This was an important step on the road to EMU. 18 years earlier, the Werner group, which was composed of national politicians and experts but not the central banks’ governors, failed to recognize the necessity of the independent and autonomous monetary institutions for the establishment of EMU. This could have been one of the main reasons why the previous attempts to proceed with monetary integration had ended previously in failure. In general, transnational actors such as governors of central banks turned out to be remarkably influential over the process of launching EMU, over the kind of institutions, which the future EMU was to be set on and over the monetary policies, these institutions would eventually pursue.
Economic interdependence of the EC economies as the factor encouraging monetary integration
In the background of the debate on monetary integration, was the economic performance and economic integration within the EC area. For sure, the economic crisis did not serve well the prospect of monetary union, which was particularly visible during the 1970s. Each time the economic crisis emerged, the countries were, generally, unable to maintain stable currency exchange rates, and were either abandoning or postponing their commitments to proceed with the monetary integration. However, with the increasing trade and fiscal integration and a relatively stable macroeconomic performance, states were usually back on the track that led to the monetary union. In general, a growing economic interdependence between the EC states, connected with the trade and fiscal integration, served as a positive stimulus to proceed with the project of the monetary union.
Growing intra-EC trade relations had an important impact on the greater states’ willingness to accept the monetary union. On the one hand, an increase in the volume of the intra-EC trade of the EC member-states in contrast to their trade performance with the outside world, was the factor that was encouraging two most important EC players: Germany and France to successfully conclude negotiations on EMU. And, on the other hand, deteriorating trade volume within the EC area and a growing importance of the outside trade was, if not directly discouraging then, at least providing these two countries with fewer incentives to proceed with EMU. By looking at the EC trade growth, one can distinguished two phases of a sluggish trade performance, which also matched the bumps on the uneasy road to monetary integration. For example, between 1970-1985 the intra-EC trade for France and Germany grew generally only a little bit faster than the outside trade. Particularly in the years 1974-1977, the intra-EC trade was stagnant and the same occurred in the years 1981-1983. Looking at the progress in terms of preparation and negotiation of the possible monetary integration, it is evident that during these two periods, the governments’ interest in the monetary union, if not completely waned, was, at least, severely limited. This, in turn, brought about negative consequences for the monetary integration, which had been postponed indefinitely; to better times. At the same time, a rapid growth of the intra-EC trade in the 1960s and in the late 1980s matched increasing interest in the establishment of the monetary union. In general, a growing trade dependency of the EC member-states constituted a sound basis for the successful launch of the European monetary integration at the end of the 1980s (figure 2 shows a steady growth in the intra-EC trade relations from the end of 1950s till the mid 1990s).
Figure 2: Percent of all exports to other EC/EU member states
Source: David Cameron, Economic and Monetary Union: Underlying Imperatives and Third-Stage Dilemmas, Journal of European Public Policy, vol.4, no.3, (September 1997):460.
Increasing trade within the EC borders was not the only economic factor, which created favorable economic climate for the EMU initiative. Inflation cohesion among the EC states is an “important further element”, which determined monetary integration. During the 1970s, the non-cohesion in the inflation rates between the EC countries jumped from the average of 5% to more than 15% and it fluctuated within the 5%-15% range until the second half of the 1980s, when it stabilized and dropped below 5% (see also figure 3). During this time, the EC states, which embarked on the neoliberal economic policies, tightened public spending (between 1983-1986, the EC member states’ budget deficits dropped to average of 2% of GDP) and increased the interest rates in order to contain domestic inflation and in the long-time, to facilitate economic growth. This was a positive move, which prepared the solid ground for re-launching EMU.
Figure 3: Average annual inflation rates in the European Community (excluding Greece and Portugal).
Source: McNamara (1998):160.
Since the creation of the European Economic Communities at the end of 1950s, there was a gradual move towards stronger fiscal integration between the EC states. As a result of increasing economic (including capital) liberalization and growing volumes of capital transactions, once new financial instruments (swaps, futures, options) became available, the exchange rates were frequently and violently fluctuating on the European financial markets. Additionally, the European leaders in the 1986 SEA agreed that the capital movement would be fully liberalized by the mid 1990s. It meant that significant amount of capital could now move freely and uncontrolled between the EC countries, particularly between those, which had significant divergent economies. In the circumstances of greater fiscal interdependence, a free transfer of capital was likely to create greater fluctuations in terms of relative value of currencies and to make exchange rates very unstable. In order to find a long-term solution to this problem, “the creation of a single currency (was) eventually if not immediately.required”.
The difficulties in the monetary integration raised when the European economy was slowing down or going through crisis. Monetary union was finally agreed upon in certain moment of time (in 1988-1989), when the economic situation was, generally, favorable for the EC countries to make such an arrangement. Thus, the economic issues although may not have been decisive in the push for the monetary integration, they did constitute a necessary “background” for it. EMU was more likely than not to be achieved, when the EC states experienced a relatively stable economic growth (short of the economic crisis) and were proceeding with further economic integration within the EC.
Importance of the ideational determinants in the establishment of EMU
Certain economic ideas played an important, if not decisive, role in launching EMU and in choosing the institutional design of the future monetary union. Economic ideas were crucial for policy-makers to reach a common understanding about the need to accept what the Delors Committee proposed. In this sense, certain ideas helped to determine the choices and solutions the policy-makers made, particularly when there is uncertainty over which choices are the most appropriate. In other words, some ideas should be viewed as specific “road maps”, which served the policy-makers as a guideline leading to the establishment of EMU. The ideas showed what should be viewed as right and wrong about certain policy-choice, and provided a “new social vision (while suggesting) what economic policy (would) steer a nation toward increased wealth”. Thus, the ideas served as useful “taking-off” ground, from which a general and stable consensus over certain important issues related to the EMU project could emerge.
Examining prevailing principled ideas allows us to find a plausible explanation for certain policy choices that were made by a collectivity of actors. This analysis serves as an opportunity to assess the importance of ideas in influencing the policy makers and their decision to accept the Delors report and to go ahead with launching EMU based on the establishment of the independent monetary institutions with prefixed monetary policy objectives.
In the 1980s there was emerging consensus over the issues that in the 1960s and the 1970s raised strong disagreements and heated debates. A broad consensus emerged over the need for a price stability, which became essential for maintaining international and domestic credibility and reputation of a given monetary policy. In order to keep the prices stable, the monetary institutions as well as government ministries started paying closer attention to the idea of “sound money” or what stood behind it: a commitment to the balanced money supply. “Sound money”, the idea connected with pursuing a price stability, first was voiced in the academic circles associated with classical monetary economists, among others, Milton Friedman. Soon, however, the concept of ”sound money” was accepted by the policy-makers, who faced with the failure of Keynesian economic policies, were looking for new ways (ideas) on how to manage the economy.
The acceptance of monetarist ideas meant that monetary policies had to be carried out by the institutions enjoying high degree of independence from any political pressure. This pressure was likely to be exercised by politicians, who used discretionary powers to manipulate the money supply in order to maximize their short–term political/election gains. Therefore, the central banks and their independence were seen as crucial elements, indispensable for maintaining “price stability”.
The new ideas of “sound money”, “price stability” and the call for the independence of the central banks from any political influence became very powerful shared understandings among major policy-making actors. The above ideas were “institutionalized into the standard operating procedures” of key political and financial institutions and were internalized into the “worldviews” of the actors (policy-makers and governors of central bankers), responsible for managing the monetary and fiscal policies.
The existence of the prevailing (monetarist) ideas about the necessity for “sound money”, “price stability” and political independence of the monetary institutions, such as central banks, played a significant role in strengthening the meaning of certain provisions of the Delors report. The existence of the monetarist-oriented “principled beliefs” made easier for the central bankers to argue for and at the end to convince policy-makers about the necessity of certain solutions. If it had not been for the monetarist ideas, the governments would have been unlikely to accept the Delors Committee proposals connected with the independence of the ECB or its main objective that of maintaining price-stability. The importance of the new economic ideas lays in the success of re-launching EMU and is also connected with the fact that ideas were largely missing, when the previous failed attempts to establish monetary union, took place. A very plausible explanation for the previous failures would be that only in 1988, did the national elite develop “similar.set of macroeconomic preferences for low price inflation, stable exchange rates and sound budgetary finances”. Earlier, neoliberal economic ideational convictions were largely unheard of and not present in the debate about monetary integration. This may partly explain why the initiatives reviving the monetary union starting from the 1960s and 1970s turned out to be unsuccessful and relatively short lived and why in the end of the 1980s, one can see a breakthrough in the process of monetary integration.
However, without the presence of other (material) actors, which strongly supported (for different reasons) the monetary integration and without the direct involvement of the governors of central banks having more or less determined preferences about the monetary union, the ideational factors would remain merely as freely floating ideas. The institutionalization of the ideas took place via the interest groups and other supranational and transnational actors, whose preferences determined the EMU structures and its future policies. Therefore, the ideas, although being even viewed as indispensable for the process of monetary integration, were only one among many factors, which contributed to the launch and the design of EMU.
Different forces played important role in the monetary integration. This paper claimed that the European monetary integration was not driven merely by the political actors such as the EC member states, but also by their supranational and transnational counterparts. Moreover, the EMU process was shaped by the economic as well as ideation factors that played a significant role in enabling political actors to go ahead with the monetary integration. Each of the analyzed four factors cannot separately account for the emergence of EMU. However, as a whole they constitute a powerful set of interdependent variables, which provide a plausible explanation of the process leading to the monetary union.
This study wanted to go a step further in the analysis of EMU, beyond the prevailing view of the monetary integration seen as a political process determined within the intergovernmental framework based on a hard bargaining between the states. It is not to say that the states were somehow not important in the process leading to EMU. Politicians played an important role because their power was to make binding rules and based on these rules EMU came into existence. However, the non-political factors, including transnational and supranational actors working in certain ideational and economic settings, made, in the first place, the whole EMU project possible and workable.