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[A] compelling book on the origins of EMU...Using previously secret documentation made available from central banking archives, as well as his own colossal historical insights and experience, James provides a masterful overview of the process of building a common money.
— David Marsh
From Chapter Two: The Origins of the Committee
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 focus of the last chapter, 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.
What was later celebrated as the postwar miracle, the Wirtschaftswunder, or the golden era or the trentes glorieuses, may just have been a naturally occurring period of catch-up. After years of destructive nationalism and wrong-headed and counter-productive economic and financial and monetary policies, European business could at last realize the potential inherent in newly developed technologies. But Europe’s politicians inevitably wanted to take credit for the surprising rate of growth, and tried also to harness it for their purposes.
The impressive growth performance in Europe seemed to reflect favourably on the integration mechanism adopted by the six countries, Belgium, France, Germany, Italy, Luxembourg and the Netherlands, which had in 1957 signed the Treaty of Rome and launched the European Economic Community. This treaty should be seen as part of the great and successful global postwar effort at trade liberalization. The initial effect of the EEC was to promote trade within the EEC, although there was also some diversion of non-EEC trade. Globalization surges almost always provoke some kind of backlash. Initially the EEC provoked as a consequence a series of transatlantic trade spats, especially over agricultural issues, with a “chicken war” of 1962–3, when the U.S. imposed retaliatory tariffs in response to European tariffs on imported chicken. Some European countries also began to fear or resent the intrusion of U.S. based multinational corporations, a feeling powerfully expressed in Jan-Jacques Servan-Schreiber’s The American Challenge (Le défi américain), published in 1967. The early years of the EEC were also dominated by the political rhetoric of France’s wartime leader, Charles de Gaulle, who had returned as Prime Minister and then President of the French Republic in 1958. De Gaulle explained how “the purpose of Europe is to avoid domination by the Americans or Russians [.º.º.] Europe is the means by which France can once again become what she has not been since Waterloo, first in the world.”
The feature of the world economy that was obviously dominated by the United States was the international monetary order. Though forty-five countries had been represented at the Bretton Woods conference of 1944 that established the rules of the monetary system, the negotiations had taken place largely on a bilateral, Anglo-American basis; and in practice the power of the United States was so great that the settlement largely reflected American interests. The major reserve currencies were the dollar and the pound, which still played a significant role not just for Britain’s overseas empire but also for many Latin American countries. The Bretton Woods settlement required current account convertibility, in line with the requirements of Article VIII of the International Monetary Fund’s articles of agreement. But in practice the European countries were so weak that they could not afford such a move until 1958 (by coincidence, the year in which the EEC started to operate). Yet almost immediately the Bretton Woods regime started to operate, it seemed to face serious problems.
List of Figures vii
Foreword Mario Draghi Jaime Caruana ix
Abbreviations Used in Text xiii
Introduction: The Making of a Non-National Currency 1
1 A Napoleonic Prelude 29
2 The Origins of the Committee of Governors 36
3 The Response to Global Monetary Turbulence 62
4 The Snake and Other Animals 89
5 Negotiating the European Monetary System 146
6 The Malaise of the 1980s 181
7 The Delors Committee and the Relaunching of Europe 210
8 Designing a Central Bank 265
9 The EMS Crises 324
Conclusion: The Euro and the Legacy of the Committee of Governors 382
Appendix A Maastricht Treaty Text and Committee of Governors' Draft of the Statute of the European Monetary Institute 403
Appendix B Maastricht Treaty Text and Committee of Governors' Draft of the Statute of the European Central Bank 425
Appendix C Dramatis Personae 463
Appendix D Members of the Committee of Governors 477
Appendix E Committee for the Study of Economic and Monetary Union (Delors Committee), 1988-1989 481
Appendix F Chairmen of the Monetary Committee of the European Community, 1958-1998 483
Appendix G European Commission Presidents and Commissioners for Economics and Finance, 1958- 485
Appendix H Chronology 487
Appendix I Interest Rates and Fiscal Balance 499