Eurodynamics E-Book

Jean Wanningen

• Herausgeber: Uitgeverij van Brug
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 299

Veröffentlichungsjahr: 2022

Beschreibung

Five years after the publication of Het Eurobedrog, a book about the genesis of the European Union and the introduction of the euro, Jean Wanningen publishes EURODYNAMICA - From partnership to transfer union. In those five years, criticism of the single currency has grown considerably. Friend and foe alike agree on one thing: the euro was a political currency, mainly instigated by France to break through Germany's monetary power. For Germany itself, the currency was important to make German unification possible. What has happened since then? And above all: are we better off in the Netherlands now than five years ago? The answers to these and other questions can be found in this new book by Wanningen, in which he focuses on problem number one: the euro. Or more precisely: the future of the euro and the European Monetary Union. It has been written for you, for everyone, and certainly also for politicians, who want to know what has really happened in the monetary and economic field over the past five years. Where are we now as the EU? And what does that mean for our future? In three parts, Wanningen broadens your view on: 1. the North-South divide within the euro area and the measures taken by the Council, the Commission and the ECB to save the euro and keep the euro area together. 2. the bloc's three largest economies: Germany, France and Italy. How did those countries get through the past five years? What are their biggest challenges? The Netherlands will of course also be discussed. 3. the future of the European landscape after 2019. Will the number of populists in the European Parliament increase sharply? And what does that mean for the future course? Is a sound, future-proof financial system being built or will the taxpayer still remain the lender of last resort through the eurozone's permanent emergency fund, the ESM? And finally the key question: can a permanent transfer union from North to South still be avoided?

Leseprobe

Eurodynamics

Eurodynamics - by Jean WanningenCopyright

Eurodynamics - by Jean Wanningen

Preface by Derk Jan Eppink

The euro: the ultimate deception, from start to finish

There are few economists with a political antenna, but Jean Wanningen (1957) is an exception. He is also an economist with practical experience, knows the world of money. At the same time, there are few politicians with thorough economic knowledge. Politics is increasingly conducted on the basis of 'make believe' and less and less supported by cost analyses. The current climate policy is a good example. So is monetary policy. This world therefore needs people like Jean Wanningen. He demonstrated this need earlier in his book 'The Euro Deception' and he does so again here. The introduction of the 'euro' had more to do with politics than with economics. The currency was sold to the general public with the proposition that a common currency would bring more political unity. The opposite is rather the case. Another selling point: a common market needs a common currency. Nor does it. On the contrary. The large economic differences between countries cause stagnation rather than growth. Even The Economist, on its 20th anniversary, described the euro as an 'economic fiasco'. Meanwhile, the eurozone has become a conflict zone and countries outside the zone are often doing considerably better.

Jean Wanningen's ability to combine the euro's political motives with economic insight allows him to expose the deception in fine detail. The euro was founded on myths and fairy tales. What could sound more beautiful than a common currency that will forge Europe into a political union! As the driving force of unification. As an example to the world of 'global governance'. As a 'peace project'.

Twenty years on, the euro has failed in its purpose. A few people with sound economic insight saw the coming of the storm. In the Netherlands, this was André Szász, who worked at the Dutch Central Bank from 1960 to mid-1994. In Germany, it was Otmar Issing, who worked at the German Bundesbank and became the first chief economist of the European Central Bank (ECB). They saw a split between Northern Europe, which envisaged a currency union based on economic arguments and agreements, and Southern Europe, which saw this currency union as a construction of temporary, adaptable arrangements. For the North, it was an obligation to achieve results; for the South, an obligation to make an effort. This split is the cultural gap that has run through Europe since the Reformation. Failure to comply with agreements in the currency union would irrevocably transform it into a transfer union. What Szász and Issing feared then, is happening now. Wanningen describes this process clearly, in a way that is accessible to a layman.

Neither of the political grandfathers of the currency union, Chancellor Kohl and President Mitterrand, had much understanding of economics. They believed in the primacy of politics, after which the economy would follow as an adjutant. Reality turned out to be more recalcitrant. Criticism was brushed aside and dissidence within the EU institutions punished. One committee official, Briton Bernard Connolly, was not only sacked but also lost his pension. In order to conceal the split, deception was allowed to grow. The lie reigned. The deception began with self-deception within the EU institutions.

I was working at the European Commission when the euro was actually introduced. Stars and balloons everywhere; the Commission saw itself as the soldier of the ideal. The agreements were softened from the start. The Greek mess was well known, but Greece was a small country. The eurozone was big and in 2010 the EU would overtake America as the most competitive economy in the world.

When the euro crisis came full circle in 2010, I was a member of the European Parliament. I sat on the Committee on Economic and Monetary Affairs and quickly became familiar with the subject. In the group, the British Conservatives took over the banking sector. London! I was allowed to do the 'euro'. The Commission seemed totally upset by the Greek crisis and called the euro the 'stability currency' and the European Union the 'stability union'. The Commission had turned self-deception into an ideology. And public deception a spearhead.

Then, in 2012, Mario Draghi, President of the ECB, came up with the big weapon: the monetary bazooka. The 'euro' had to be saved, whatever the price. He would stimulate the economy by buying up debt, whatever it was. Deception again. The ECB has a mountain of debt equivalent to 42% of the eurozone's gross domestic product. There was little sign of any increase in inflation. Zero interest rates hit savers and pension funds directly in the stock market. Little came of debt restructuring in problem countries. Economic reforms came to a standstill. After all, the money was free. The deception is so far-reaching that Draghi has become the biggest pickpocket in European history. His main goal is to use the European debt carousel to keep the Italian debt mountain affordable and Italian banks afloat. If this Tower of Babel collapses - of which Draghi was the architect himself as governor of the Italian Central Bank - the euro will also collapse. Draghi does not deserve praise, but a 'euro tribunal', for 'euro deception'.

Deception is followed by threats. If the Netherlands and Germany do not cooperate in a transfer union (with common debt obligations), the euro will be 'in danger'. The Netherlands is already exposed to transfers and risks in the currency union. Wanningen clearly illustrates this. For example, the zero interest rate is costing Dutch savers 10 billion euros annually. Pension funds have already suffered losses of around 100 billion euros. The Netherlands has entered into European commitments of around EUR 100 billion, mainly in funds for the euro rescue. The Dutch Bank has about 90 billion in claims in the Target II system. All in all, that is a huge amount of damage and risk.

Wanningen defines the danger of the Transfer Union: it will get much worse. It starts with some funds channelling money southwards, and culminates in debt sharing and mutualisation. Southern Europe continues unabated and the North is an ATM. Economics is subordinate to politics. Power politics. Should the Netherlands continue to fall unaided into the trap? That is the crucial question for the coming years. Wanningen has the courage to say 'no'. I think the majority of Dutch people agree with him. His book provides conclusive evidence of how economically inept politicians, and even so-called 'leaders', have driven their nation states and people into the danger zone via the eurozone.Derk Jan Eppink (Steenderen, 1958) is a Dutch journalist, columnist and list leader for the 2019 European Elections for Forum for Democracy. He was previously (from 2009 to 2014) a member of the European Parliament on behalf of the Flemish party Lijst De Decker. He also worked as a close associate of Frits Bolkestein for the European Commission and was also a speechwriter for Bolkestein. From October 2004 to early 2007, he worked for the Vice-President of the European Commission, the Estonian Siim Kallas. Eppink has various publications to his name and was also a columnist for NRC Handelsblad, De Volkskrant, Elsevier, De Standaard and the Flemish weekly Knack. Until recently, he was a senior fellow at the London Center for Policy Research in New York, where he also lives.

Introduction In this book, I present my views on the future of the euro and the European Monetary Union. First of all, I would like to make clear what my starting points are. I am in favour of European cooperation, but against a European superstate. For that reason, I have not liked the course that the current EU has been following for years. I am not a Eurosceptic; I prefer to call myself a Euro-realist. I am also in favour of democracy and against an oligarchy. So I am in favour of (initiating) referendums as a supplement to parliamentary democracy. And therefore against a purely 'top-down' dictate from so-called representatives of the people who mainly follow party discipline.

In my view, the European Parliament in its current form is nothing more than a caricature of what a parliament should be. Real debate takes place in a parliament. This does not happen in the European Parliament, nor can it, because people only understand each other through interpreters. I have experienced the limitations that this practice causes to a proper understanding of each other's arguments in my time in Brussels. It also leads to differences in the interpretation of texts. We all remember Ruttes' 'engage' (on whether or not economic contracts are binding) and Dijsselbloem's 'template' (on the blueprint for the bail-in of Cyprus). These misunderstandings are proverbial examples. More than one minute of speaking time is usually allotted to MEPs in the plenary hall of the Europarliament, where they read out their political statements. Debate on the basis of their opinions? That hardly happens. Not even with their supporters, by the way. The unification drive of the European Union therefore produces nothing but resentment. The political, economic and social interests of the Member States and the differences between them are simply far too great for them to be able to merge into one superstate or forge into a European Federal Republic. Why should they? It can be done differently. And above all: much better. The European Project urgently needs to go back to the drawing board.

In the summer of 2013, in The Euro Deception, I described the genesis of the European Union, the introduction of the euro, the structure of the currency union and its impact on the economies of eurozone countries.1 That book was published in April 2014. We are now five years on. In those five years, criticism of the single currency has grown considerably, as evidenced by the content of a large number of articles and books on the euro crisis in that period. By now, both friend and foe agree on one thing: the euro was a political currency, initiated primarily by France to break Germany's monetary power. For Germany itself, the currency was important to make German unification possible. What has happened since then? And above all: are we as the Netherlands better off now than five years ago? At first glance, it would appear so: after years of cuts and tax increases, the economy is, as they say, doing 'well' again. The Netherlands is passing the European Commission's economic exam with flying colours, as is evident from the draft 2019 budget that the government has sent to Brussels 2. Yet it is very much the question whether 'we' are so much better off than five years ago. Not only is (youth) unemployment still relatively high in large parts of the Eurozone, but the competition differences between the participating Member States have not diminished but actually increased. Our purchasing power has been at a standstill for years, while the policymakers of the past sold us the euro as 'good for employment and prosperity' and 'good for economic convergence'.

In plain English: 'The economies of the different countries will grow together, i.e. become more similar.'3 In addition, ensuring price stability was an important objective of the currency union. A European Central Bank was supposed to ensure this. However, the most important promises of the euro have not been kept. It is therefore surprising that the euro is considered 'irreversible' by the established order - also in the Netherlands - and that criticism of it is still taboo. It seems that the European project can only go one way: in the direction of further integration. The question of what the people think about this is not put to them directly. On the contrary, consultations with the people are discouraged or even made impossible, except when it comes to something as trivial as deciding on winter or summer time. Meanwhile, the number of homeless doubled between 2009 and 20154. Among them are many people from the middle of society. The observation that the economy is doing 'well' is therefore certainly not true for everyone. This is not only the case in the Netherlands, but in all eurozone countries. But something else has changed compared to five years ago. Back then, the migration flows from the Middle East and Africa to Europe had yet to take off. Now they are a fact, especially after German Chancellor Angela Merkel's famous statement on 31 August 2015, 'Wir schaffen das', suggesting that Germany could handle the large flow of refugees. Continental Europe was flooded with people from outside the European Union. Since then, 'Europe', as the media and politicians increasingly refer to the EU erroneously, has added a major problem: the 'refugee' crisis. I put 'refugees' in inverted commas because they are by no means exclusively refugees from war zones, but certainly also young people from poor countries without the threat of war who are looking for a better life. Who can blame them? Alongside the still existing eurozone problem, the problems posed by this large-scale migration represent the two greatest challenges to the preservation of the European project. The euro split North and South, the migration issue split East and West. But with the unrelenting eurozone problem, the problems associated with such unprecedented levels of non-Western immigration are now one of the greatest challenges to preserving the European project. Whereas the euro initially played havoc with the North and South, nowadays mass migration is also driving a wedge between East and West. To make matters worse, and against all expectations, 'Brussels' was not only confronted with the planned departure of the United Kingdom from the European Union, but also with a rebellious Italy that did not want to comply with the budgetary agreements made with the Commission. Why? Because, in the opinion of the Italian government, these agreements are not good for the growth of the Italian economy, and therefore not good for its own population. There is no denying it: the EU is more divided than ever. At the same time, the gulf between Brussels and the citizens of the various countries that make up the European Union is wider than ever, even though the Commission, through its Eurobarometer polling station, would have us believe otherwise. According to this Eurobarometer, support for 'Europe' is growing everywhere. But the quality of the Eurobarometer surveys is open to question, as a German study by the Max Planck Institute shows5. The title leaves little to the imagination: 'How the Eurobarometer Blurs the Line between Research and Propaganda'. The researchers accuse the prestigious EU research agency of deliberate manipulation and insinuating questions, among other things. That is a serious accusation. Citizens feel that they are not being heard on these important issues and are rebelling. To the Brussels bureaucrats, however, these are 'populists', people who have not fully understood 'the European community of values'. Apart from being arrogant and self-righteous, it is also extremely unwise not to take the - justified - concerns of large groups of citizens seriously, even if one sometimes pretends to. When are those ivory towers in Brussels going to start asking themselves why this so-called populism is growing so fast? The 'Yellow Hashes', the movement that spontaneously arose in France last November, are really not just about high fuel prices. That increase was merely the trigger for a massive popular protest against an administrative and political elite that is not listening. But the gap between the Brussels administrative elite and the citizenry is not the only one. There are more: between rich and poor, between young and old, between city and countryside, between the highly educated and the poorly educated, between those for and against globalisation, mass immigration and the causes of climate change. In short: the gap between the administrative elite and large groups of citizens is wider than ever. All this leads to a polarised society, everywhere in the Western democracies. And the largely unsuccessful integration of large numbers of people from religious and cultural backgrounds other than Western ones has in turn led to a segregated society. And both - polarisation and segregation - lead to instability. However, it is of the utmost importance for our future prosperity that all citizens can live in a stable society. It is therefore in everyone's interest to put an end to these two phenomena. However, this requires a different attitude and policy from our political leaders. First of all, an open mind without the tendency to declare certain subjects taboo, combined with a capacity for self-reflection and the courage to express self-criticism in public. And above all: the courage to correct past mistakes. When the euro was introduced twenty years ago, there was hardly any room for any criticism of it in the Netherlands. The few economists or politicians who did dare to criticise the single currency, such as Professor Arjo Klamer and former VVD leader Frits Bolkestein, were invariably dismissed as isolationist, Europhobic or chauvinist6. Apparently, the Dutch administrative elite had already decided that there had to be a United States of Europe. Both then-Prime Minister Ruud Lubbers and his Finance Minister Wim Kok thought that this was the ultimate consequence of giving up your own currency and merging into a common currency union. During the negotiations on the Maastricht Treaty, however, it turned out that there was no political majority in favour of this in the then European Community. It seems highly unlikely to me that Lubbers and Kok - certainly with today's knowledge - thought through the consequences of their proposal for a Political Union at the time. After all, the European Union lacked, and still lacks, proper adjustment mechanisms when economic imbalances occur. The bail-outs of Greece, Ireland, Portugal and the Spanish and Cypriot banking sectors, as well as the actions of the ECB, have clearly demonstrated this. And there have been plenty of economists who predicted this in advance. Even the Optica Group - a selection of international economists who were asked by the European Commission for advice on this matter - considered that a single currency should only be introduced in parallel with existing national currencies. Not instead of it7. These two issues - the euro and the migration issue - are the major challenges facing Europe's governing elite. The choices that will be made on these two issues by that administrative elite

will determine the direction in which the European Union develops in the coming years. And therefore also decisive for the Netherlands, as a part of that Union. Certainly as far as the euro and the eurozone are concerned, the Netherlands is facing crucial choices. Our sovereignty, our identity and our economic flexibility are at stake. Common sense is preferable to naivety or a blind faith in 'Brussels'. What is at stake here is our prosperity and well-being, our common future. In this book I concentrate on problem number one: the euro, or more precisely: the future of the euro and the European Monetary Union. I have not written it for fellow economists or other academics, but for all those citizens, and certainly politicians, who want to know what has really happened in the last five years in the monetary and economic field. Where are we now as an EU? And what does that mean for our future? That is what I want to talk about in this book. Problem two, the migration issue that divides East and West, may be addressed in a future publication. The content consists of three parts. In part one I describe the North-South divide within the eurozone and the measures taken by the Council, the Commission and the ECB to save the euro and keep the eurozone together. I also discuss possible alternative routes. In part two, I look at the three largest economies in the bloc - Germany, France and Italy. How have they got through the last five years? What are their biggest challenges? Of course, the Netherlands is also discussed. Part three is a look ahead to what the European landscape might look like after 2019. In that year, there will be elections to the European Parliament. After that, there will be new people in key positions in the European institutions, such as a new President of the European Commission, a new President of the European Central Bank and, of course, a new President of the European Council of Heads of Government. With our current Prime Minister, Mark Rutte, as an important candidate, even though he still denies, of course, that he wants to be a candidate. I think he will go and that, moreover, it need not be a bad thing for the Netherlands. After all, as EU President, you have more opportunities to set the agenda and adjust things if necessary. What kind of new policy could this game of musical chairs produce? Will the number of populists in the European Parliament increase dramatically? And what does that mean for the future direction? Will Angela Merkel succeed Jean Claude Juncker as President of the Commission? Will the migration flows really be curbed? Will the ECB finally stop its market-distorting policy of buying and refinancing government bonds? Will we succeed in breaking the ‘doom loop’ between banks and states? Will a healthy, future-proof financial system be created or will taxpayers still be the lender of last resort through the eurozone's permanent emergency fund, the ESM? And finally, the key question: can a permanent transfer union from North to South still be avoided? In short: should we be worried? These are pressing questions that need to be addressed. This book does just that. I wish you all much pleasure in reading it.

Part I:

North versus SouthThe first law of Eurodynamics states: money always flows from North to South

1.1 Awakening from the euro dream ‘Awake from the euro dream'. This was the title of a heartfelt cry by economics professor Arjo Klamer in the NRC newspaper of Wednesday 26 February 1997. I remember it well when that piece came out. That week I was skiing with my family in the Austrian Alpine village of Gerlos. As a former director of an Anglo-Dutch multinational, active in many European countries, I had little interest at the time in Dutch politics, but naturally all the more in international developments and the related monetary issues. Such as the abandonment of one's own currency a fortiori. From a business perspective, having one currency sounded logical and attractive to me (because no more currency risk), but from the very beginning I was extremely sceptical about the formation of a currency union with so many different economies. That can never work forever, I thought then. And I still think so now. What struck me about Klamer's piece that February evening was not only the un-Dutch fierceness with which he dismissed Dutch politics, but also - and perhaps even more so - the establishment's apparent blind faith in the single currency. Criticism of it seemed taboo even then.

Here are a few quotes from the article to illustrate the point.

‘The Hague's strategy is to stifle doubts [about the euro] with soothing comments larded with vague, mostly economic arguments and something about a train or a bicycle that must keep running. The Hague prefers the ignorance of the citizens to disbelief (...).There is no room for any criticism whatsoever. When recently 70 economists, including yours truly, wrote that the economic reasoning for a single currency is questionable, parliamentarians, ministers and even journalists fell over each other to proclaim that the criticism is incorrect, inappropriate and outdated.’

‘A number of Dutch people have decided that they must want this united Europe anyway. (...). The believers dominate the channels in The Hague and in the media. Dutch people who start thinking are more likely to actively not believe than to do so (...). They fear the loss of the Netherlands' independence, are afraid of being overrun by the French and German giants and do not want to give up the guilder, for whatever economic or emotional reason. They feel, as one listener put it, that the euro is being "rammed down their throats".

'Whatever the believers claim, there are well-founded reasons for your disbelief. You do not have to be a chauvinist or a nationalist, an isolationist or an economic nitwit to have doubts. Whatever ministers and other politicians want you to believe, economic science gives you good reasons to doubt the rationality of the euro.'

So what these quotes make abundantly clear is that the euro was virtually canonised by the establishment at the time. Criticism was inappropriate,even questioning the added value of the single currency was taboo. The euro would and had to come. This is all the more worrying because

the Dutch politicians who dealt with it at the time had 'no idea' what they were doing8, according to the then Minister of Economic Affairs Koos Andriessen, who was involved in the introduction of the currency. Professor Klamer and the other 69 economists who expressed their concerns about the frivolous introduction of the currency in that letter to the editor9 in De Volkskrant were ridiculed. Their arguments were not heard; a normal debate about it could not take place. While you might expect that something as essential as replacing your national currency should be based on a thorough economic debate. Nothing of the sort, der Euro muss sein (the euro has to be).

The euro was not a currency based on a monetary-economic reason; the euro was a political currency, born out of a French envelope. How exactly this came about is explained below.

1.2 How it startedThe second law of euro dynamics states that the EU always needs more money, never less.

The benefits, not the burdens'. This is how a well-known economist, involved in the negotiations on the economic unification of the European Union, described France's attitude at the time. In the summer of 2015, statements10 by both the then French President Hollande and his then Minister of Economy Macron11 left little doubt about the way the then French government was engaging in the European debate. To make the euro and the eurozone function better, the eurozone economies had to 'grow closer together', and those who did not want to or could not come along had to wait in the waiting room. Who was to pay for this intended convergence was not mentioned, of course, but certainly not the French taxpayer.

Little seems to have changed in those French positions, witness the plea by the same Emmanuel Macron - now President of La Patrie - for a eurozone budget of his own. With its own eurozone finance minister, the transformation of the European emergency fund ESM as a backstop for poorly performing countries and banks into a genuine European Monetary Fund (EMF), a European unemployment insurance scheme, a European deposit guarantee scheme and - extremely controversially - the possibility of levying direct European taxes. The French President had drawn up a whole wish list. If German Chancellor Angela Merkel had initially reacted rather coolly to these far-reaching French eurozone plans, on Tuesday 19 June 2018 the two countries nevertheless issued a joint declaration, the Meseberg Declaration12 , named after the lock where the agreement had been made. And on 12 February 2019, the finance ministers of France and Germany Bruno Le Maire and Olaf Scholz announced that they were in favour of a separate eurozone budget and strong EU industrial policy.

To counterbalance the US and China. This is nothing less than a further overture to a United States of Europe, and thus to a permanent transfer union13 . Other eurozone countries were not involved in drafting this Meseberg declaration. It was merely a Franco-German get-together, initiated by Macron. The question that this 'alliance' immediately raises is of course: will France and Germany determine the future EMU (Economic and Monetary Union)? (See note 13). And: is that in the interest of the Netherlands?

After French President Mitterrand had earlier succeeded in convincing German President Helmut Kohl to exchange the strong DM for the euro, history now threatens to repeat itself with the duo Macron and Merkel. How can it be that Germany keeps allowing itself to be used by the French, even though the plans are said to cost the country tens of billions each year 14 ?

Let's go back in time for a moment, to 1956 in particular. The Suez Crisis15 put an end to the supremacy of Great Britain (GB) and France as world powers. Unlike GB, which turned its back on European unification and opted for permanent subservience to US policy, the French resented the United States for abandoning them during the Suez Crisis, according to Henry Kissinger in his book Diplomacy (p. 548). This led to France's firm conviction that it should never again find itself in such a position of dependence on the US 16.

Partly for this reason, France decided to strengthen its ties with its former archrival Germany. Moreover, the then Chancellor Konrad Adenauer had shown much more understanding for the French Suez intervention than the US. The French therefore decided to speed up negotiations on the European Economic Community. These negotiations had been delayed because a large part of the French civil service feared German competition. Adenauer's attitude certainly helped to allay those fears. Europe will be your revenge', he is reported to have said to the then French President Guy Mollet17.

Besides these political considerations, monetary-economic factors also played a role in the changing French orientation towards Europe. When the European Economic Community (EEC) was founded on 25 March 1957 and came into force on 1 January 1958, there was no monetary integration of the EEC countries; the Member States remained largely autonomous. However, a common agricultural policy was one of the main pillars of the treaty, as well as a policy that obliged the participants to coordinate balance of payments imbalances, price stability and the stimulation of employment. The French were struggling with structural balance of payments deficits. Their aim was to bring more 'symmetry' to those deficits. In other words, if only the Germans would adapt to the French expansionary monetary policy, not constrained by balance of payments deficits. The Germans, for their part, were reluctant to do so, fearing that this policy would lead to high inflation. The memory of the hyperinflation at the time of the Weimar Republic was still fresh. But the Netherlands, too, was not keen on abandoning balance-of-payments discipline.

As early as 1956, the then DNB President Holtrop had asked:'Should the ant from La Fontaine's fable open his storehouse to the cricket? And then Finance Minister H. J. Witteveen had spoken in parliament of 'a blank cheque'18 . In short, our country was already fully on the German line. The French did not get their way yet.

The period between 1958 and 1970 was used to examine how further economic and monetary integration of the EEC could be shaped. This resulted in October 1970 in the Werner Report, named after its author, the Luxembourg Prime Minister Pierre Werner. This report advocated a plan to achieve monetary and economic union in the EEC in stages over ten years. And eventually to a political union, since the transfer of budgetary policy to Brussels meant de facto transferring national sovereignty. From the Werner report: 'These transfers of responsibility involve a process of fundamental political significance, which implies the gradual development of political cooperation. Economic and monetary union thus appears to be the catalyst for the development of a political union which, in the long run, it cannot do without'.

But the words 'political union' no longer appeared in the final resolution of the 1971 Council of Heads of Government. Fundamental questions that remained open included: What priority should 'price stability' have in EMU (Economic and Monetary Union)? Should there be intergovernmental or supranational arrangements? Finally, there was the question of the basis on which EMU should be built. There were considerable differences of opinion between 'economists' (advocates of strict budgetary policies, such as Germany and the Netherlands) and 'monetarists' (advocates of flexible budgetary policies, such as France and Italy).

The texts were deliberately drafted so that everyone could continue to pursue their own preferences, according to Dr Szász, quoted earlier. Or, as deputy member of the Werner committee, Hans Tietmeyer, put it: 'They were compromises, not so much in intermediate positions, but rather on texts that allowed everyone to continue to pursue their own preferences'. However, the heads of government did adopt the report's recommendation that the pursuit of a single currency necessitated the transfer of powers from national public finances. However, there was no discussion of a treaty amendment necessitating this transfer of powers. France, in particular, wanted to make haste in the monetary field. It decided to set up a European exchange rate mechanism, which became known as 'the Snake'.

It would be going too far in this chapter to go into that exchange rate mechanism in detail. What is relevant is that there were striking similarities between the events of 1970 and those of eight years later when the European Monetary System (EMS) was established.

Former DNB executive André Szász writes in his book The Euro:'There are striking similarities between the events of 1969, which led to the acceptance of EMU as a common objective, and those of 1978, which resulted in the establishment of the EMS. In each case, there was a need for an initiative to get the stagnant process of European integration back on track. This initiative had to be in the monetary field [i.e. with the central bankers], but the motives were above all political, as was the ultimate goal.19

For France, that goal meant: monetary integration according to the French centralised model with an expansive budgetary policy. For Germany and also for the Netherlands, that goal primarily entailed: a strong currency and solid state finances, with a monetarily independent Central Bank, modelled on the GermanBundesbank. Both the German and the Dutch Central Banks opposed the complicated political construction with questionable credibility of the French.

Nevertheless, German Chancellor Helmut Schmidt, together with his French counterpart Giscard d'Estaing, succeeded in getting the integration process back on track, although many 'open ends' remained, including the tasks and position of the European Monetary System.Szász writes that the participating countries that joined the EMS in 1979 did so without a common strategy or tactics and without previously agreed rules. They just did what they did and politicians did not understand the technical details. The explicit purpose of the EMS was to create a zone of monetary stability in Europe. But that pointed more to an exchange rate arrangement than to the formation of an Economic and Monetary Union, Szász said.

It was only after 1983 that France began to prioritise price stability, but its view of the role that monetary policy should play remained very different from that of its neighbour Germany. However, it now dawned on the French that without clear rules of conduct, the EMS could not be made viable. As a result, the EMS functioned reasonably smoothly until the early 1990s and no exchange rate adjustments were made. In June 1985, the European Commission published a so-called White Paper with proposals for the completion of the internal market. This led to the Single European Act, which entered into force on 1 January 1987. The extremely positive influence of the new French President of the European Commission, Jacques Delors, on the European integration process should not go unmentioned. Delors, previously Minister of Finance, had taken office on 1 January 1985. As an experienced politician, he brought new momentum to the negotiations and sought ways to meet the objections of the German and Dutch monetary authorities. He understood that a renewed and positive focus on the free movement of capital could build an important bridge to the surplus countries Germany and the Netherlands. Former IMF Managing Director Professor Age Bakker put it this way: 'By accepting the objective of a full liberalisation of capital movements, he [Delors] took the gamble of setting in motion a dynamic process that would eventually bring German monetary policy into the European sphere.'

These events in 1985 and 1986 would prove to be an important basis for the later Maastricht Treaty. The years 1987 and 1988 were also characterised by a positive climate for further European integration. Delors' approach worked: the economic conditions became more fulfilled and the political motives gradually became more transparent. France wanted the surplus countries, especially Germany, to foot the bill for the balance of payments imbalances, while Germany, especially in the person of Chancellor Helmut Kohl, attached great importance to European cooperation in the area of defence. For the time being, however, the Germans were adamant on monetary matters.

The only way for France to achieve its goal was therefore to transfer national monetary decision-making to the European level. The creation of a European Central Bank (ECB) fitted seamlessly into that objective. In June 1989, the French President Mitterrand declared on French radio: 'Today the strongest currency in Europe is that of West Germany, (...) must we live in a market zone where only the Germans can express themselves? I would prefer an assemblée, an assembly, a permanent conference of various authorities where France could express its views on all aspects of economic life.'20

The German response to the French suggestions for an ECB was lacklustre, to say the least. Bundesbank President Karl Otto Pöhl declared in mid-1987 that the formation of a single currency under the auspices of an ECB was above all a 'long-term goal'. But the German Foreign Minister, Hans-Dietrich Genscher, sent a very different signal to the French. He considered a monetary union necessary to complete the internal market

and publicly supported the French Government when it advocated the establishment of a European Central Bank. This was not only to the displeasure of Pöhl, but also of Germany's Finance Minister, Gerhard Stoltenberg.

As a result of Genscher's actions, the meeting of the European Council of Heads of Government on 27 and 28 June 1988 was not concerned with the - essential - question of whether there should be an EMU at all and what the consequences would be, but rather with theprocedures to be followed to achieve it. It was agreed that a 'committee of wise men' would look into this. The chairman of that committee was ... Jacques Delors. However, he was politically astute enough not to go too far against the vision of fellow member Pöhl: the future ECB would be modelled on the German Bundesbank. Delors was well aware that this apparent concession was the only way to get the Germans on board. A solution would be found later for what really mattered to the French: an end to German monetary domination in Europe.

And so it happened. The fall of the Berlin Wall and the reunification of Germany provided France with a unique opportunity to impose its political will: in exchange for reunification, Germany would give up its strong Deutschmark and agree to an ECB. This ECB would have to commit itself to the recommendations of the Delors Report, which included permanently fixed exchange rates with no fluctuation margins for the participating countries. In other words: a de facto single currency. The Delors Report also underlined the irreversibility of the currency union, which required a single monetary policy, implemented by the ECB. And although the final treaty texts appeared to reflect the German position, the French managed to negotiate enough ambiguity in the texts to ensure that differences of interpretation would later lead to the substance being revisited, according to André Szász, who was directly involved. The Maastricht Treaty (1992) then laid the foundations for the single currency (introduced in book-entry form in 1999), the single currency union (formally entering into force on 1 January 2002) and the subsequent Stability and Growth Pact (1997). We can see that the agreements made at that time in the European context were clearly based on German principles: no bail-outs of other Member States - each country keeps its own financial trousers on; strict criteria for budget deficits and maximum government debt; and an independent European Central Bank (ECB), which - following the policy of the Bundesbank - would pursue a careful price stability policy for the euro area.