Westfälische Wilhelms-Universität Münster Institut für Politikwissenschaft Standardkurs: Government and Politics of the European Union Dozent: Dr. Jörg Waldmann Referent: Merlin Scholz Matrikelnr.: 333437
A first Spill Over – The European Monetary System
1. Historic Background • The implementation of the European Monetary System (EMS) in 1979 was e.g. effected by the following historic developments: • Failure of the Bretton Woods system o The post-war monetary system Bretton Woods regulated the Western world’s economic system from 1944 to 1973 o It implied the creation of the World Bank and the International Monetary Fund o Functions: an asymmetric system of exchange rates with the US Dollar and its relation to gold (35$/ounce) in its centre while the US currency was flexible each IMF member country hat to maintain its currency within a band of +/-1 percent around the defined parities o Idea of this first supranational exchange system: less nationalism, more international cooperation o Crisis and collapse: in 1971 President Nixon stops the Bretton Woods system • The Oil Shock in 1973 o Oil embargo by several oil exporting countries on the Yom-Kippur-War o Oil price increased from 3 to more than 5 US dollars per barrel (70%) • Implementation and failure of the Werner Plan o The Werner Plan was drawn up in 1969 and chaired by Pierre Werner († 2002), former Prime Minister of Luxemburg o Targets: long term: European economic and monetary union until 1980 o Tools/functions: imposing limits on how far EC currencies would be permitted to float against each other (snake) in order to establish a European zone of economic stability o Failure: the mechanics of the Werner plan, however, still based on the US dollar. Thus, the oil crisis and the collapse of Bretton Woods also led to the failure of the Werner plan 2. The European Monetary System a. 2.1 Main “actors” • Roy Jenkins († 2003) o President of the Commission from 1977 to 81 o Former politician in the British Labour Party o Lecture about the need of a European monetary union at Florence University in 1977 o However, the member states of the community showed little interest in Jenkins' ideas • Helmut Schmidt o German Chancellor from 1974 to 1982 o supported Jenkins’ in order to strengthen the German D-Mark
Valéry Giscard d’Estaing o French President from 1974 to 1981 o Was an important supporter of the EMS “Franco-German axis” (Urwin) 2.2 Ideas/Targets • Creating monetary and financial stability • Fighting inflation • Establishing a monetary identity among the Community (later) 2.3 Tools/Functions • European Currency Unit (ECU) o The “heart” of the EMS o Artificial currency whose value was based on a basket of European currencies (each weighted according to the size of the national economies D-Mark as the strong anchor currency) o Exchange rates between members were set in ecus Exchange Rate Mechanism (ERM) o System of fixed but adjustable exchange rates o Most currencies could not fluctuate more than +/- 2.25 percent from an agreed ecu-parity (exceptions possible, e.g. the Italian Lira) o If a currency threatened to move outside, central banks would intervene by buying or selling currencies The EMS was implemented in 1979 by the European Council Participants from the beginning: Germany, Benelux-countries, Denmark, France, Ireland, Italy; Waiting until 1991 GB was the only Community member not to join in 1979 2.4 Critics/Scepticism • Similarity to the failed Werner plan • Limitation of economic freedom (especially GB) 3. Further Development of the EMS • The EMS existed until 1999 (implementation of the Euro) • Crisis in the 1980ies o Stability was in danger o New member states: Spain, Portugal, GB • Delors report o In 1988 Jacques Delors, former President of the European Commission proposed a new plan for a monetary union basing his ideas on the EMS o Three-stage progress: 1. more currencies would join the EMS 2. the band of fluctuation within the EMS would be narrowed 3. the ECU would become a real currency Delors report was the basis for the Maastricht Treaty in 1991 4. Evaluation/Conclusion • If the Delors report is the basis for the European monetary union and the EMS is the basis for the Delors report, the EMS can be regarded itself as the basis of the monetary union and even for the European Union as a whole •
5. References • Apel, Emmanuel (1998): European Monetary Integration. 1958-2002. New York. • Bache, Ian/George, Stephen (2006): Politics in the European Union. 2nd Edition. Oxford/New York. • Collignon, Stefan (1994): Das Europäische Währungssystem im Übergang. Erfahrungen mit dem EWS und politischen Optionen. Eine Studie im Auftrag des Europäischen Parlaments. Wiesbaden • Dinan, Desmond (2005): Ever Closer Union. An Introduction to European Integration. 3rd Edition. Basingstoke. • Papadia/Francesco/Saccomanni, Fabrizio (1994): From the Werner Plan to the Maastricht Treaty: Europe’s stubborn quest for monetary union. In: Steinherr, Alfred (Editor): 30 Years of European Monetary Integration. From the Werner Plan to EMU. Pp. 57-69. New York • Tietmeyer, Hans (1994): On the architecture of EMU. In: Steinherr, Alfred (Editor): 30 Years of European Monetary Integration. From the Werner Plan to EMU. pp. 31 – 38. New York. • Vehrkamp, Robert B. (1995): Vom Europäischen Währungssystem zur Währungsunion. Konzepte und Strategien für einen stabilitätsgerechten Übergang. Wiesbaden.