Options for Europe – Part 10

The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014.

You can access the entire sequence of blogs in this series through the – Euro book Category.

I cannot guarantee the sequence of daily additions will make sense overall because at times I will go back and fill in bits (that I needed library access or whatever for). But you should be able to pick up the thread over time although the full edited version will only be available in the final book (obviously).

[PRIOR MATERIAL HERE FOR CHAPTER 1]

[THE NEXT SECTION FOLLOWS ON THE DISCUSSION ABOUT THE BASIC DIFFERENCES OF OPINION BY THE FRENCH AND GERMAN ABOUT HOW THE ECONOMIC AND MONETARY UNION MIGHT BE INTRODUCED. IT COMES UNDER THE HEADING – “The Monetarist-Economist (Franco-German) struggle on the road to union”]

[THIS IS NEW MATERIAL TODAY]

The Werner Committee was thus comprised of members who came from different backgrounds and had very different views on what an economic and monetary union would look like, how it would be implemented, how it would function, and what goals would it advance.

The Germans were represented by its Finance Minister, Karl Schiller who was supported in his ‘economist’ views by the Dutch (Danescu, 2013b). The role of the Italians is interesting and we will examine that presently. They appeared to span both the ‘economist’ and ‘monetarist’ camps, and moved over time from a position supporting the retention of the fixed exchange rate system to one of flexible exchange rate advocacy (Verde, 2004). The French, supported by the Belgians, wanted the process to move to establish mechanisms to limit exchange rate movements between the European currencies and ensure there was an adequately supported central fund to ensure the CAP was secured (Danescu, 2013b).

The controversies that persist in the modern debate about the future of the Eurozone were on display as the Werner Committee sought some sort of compromise between the different camps. Even the appointment of Pierre Werner was an international intrigue that reflected complex dealings between the major players with the Belgians and French wanting their respective nominations to succeed and coming up with Werner as a compromise (largely because they thought he would be sympathetic to their monetarist leanings) and, in the process, reneging on a previous Franco-German agreement to recommend a joint chair. The fact that Werner was also the Prime Minister of Luxembourg meant that subtle diplomacy had to be involved to avoid an international incident. Documents provided by CVCE (2014a) conclude that the final agreement to appoint Werner was largely “thanks to Germany – which managed to bypass the double-dealing by France and bring the Netherlands on board”.

The archives of the actual working period of the Werner Committee (CVCE, 2014b) note that at the first meeting in Luxembourg (March 20, 1970) that while the “the main objective was clear and all parties were in agreement on this, determining its exact details gave rise to bitter clashes between the ‘economists’ and the ‘monetarists'”. The Germans wanted “prior convergence of economic policies” whereas the Belgians, French and Italians wanted monetary union before any economic convergence was anticipated. The French clearly were aiming for currency stability and eschewed handing over national sovereignty over fiscal policy (spending and taxation) to a supranational body. The Germans discounted the French position as wanting to “get access to European reserves which basically be German reserves” (Danescu, 2013a: 3, quoting Lefèvre, 2002). This sort of rhetoric still resonates in the contemporary debates.

The archives tell us that “the intellectual disagreements between monetarists and economists in the Werner Group grew more and more acrimonious” (CVCE, 2014b) as subsequent meetings took place, which led Pierre Werner to arrange a meeting between the representatives of Belgium, Luxembourg and the Netherlands to try to reach a common Benelux position. That initiative failed because the Dutch “sided clearly with the German economists” although they all agreed that it would be beneficial to establish a European exchange stabilisation fund to reduce the dependence of the European currencies on the US dollar. This fund would support currencies in trouble and reduce the fluctuations deemed damaging to the effective operation of the CAP.

At important parts of the deliberations, “no minutes, even summary minutes” (CVCE, 2014b) have been made public not because of “negligence on the part of the secretariat” but, rather because there remained “profound differences of opinion among the members” of the working party. There was even dispute about the wording in the Interim Report published on May 22, 1970. The Germans believed the wording was changed to weaken the “transfers of responsibility” that would be required for a fully functioning economic and monetary union (CVCE, 2014b). As the disagreements continued, Pierre Werner had private meetings with Jean Monnet in Paris in early July. There are no documents, but it is considered “highly likely that the two men discussed how to exert influence – especially on the Germans and the Dutch – to make sure that the work of the group produced an outcome” (CVCE, 2014b).

The archives show that the Germans adopted a “rigid attitude” and “was not encouraging when it came to finding a compromise solution” (CVCE, 2014b). Werner realised that a European-level stabilisation fund could not be established immediately if German support was to be achieved and further that if there were no “innovation on the monetary front” in the first three years, then proposals for “harmonising economic and budgetary policies”, the German position, would fail. The final report was thus a compromise, and was soon overtaken by the monetary disruption that followed the breakdown of the Bretton Woods system.

The nature of the compromise was “obtained by opting for the lowest common denominator” (Danescu, 2013a: 4). The Werner Report (1970: 9) considered the proposal to be the “minimum that must be done” but chose only to detail the first, three-year stage, thus baulking at the difficult decisions. The Werner Report (Werner Report, 1970: 26) claimed that it was not “feasible” to lay down “a precise and rigid timetable for the whole of the plan by stages” preferring to “maintain a measure of flexibility”. The Werner Report also maintained faith with the Germans by leaving the “total and irreversible cqnvertibility of currencies, the elimination of margins of fluctuation in rates of exhange, the irrevocable fixing of parity ratios and the total liberation of movements of capital” (Werner Report, 1970: 26) as the last act, a decade into the future, without a pathway to get there being defined in any coherent manner. Just as ambigious was the recommendation of a European reserve fund, a major aim of the French. While noting that integration would require new “links in monetary matters” (Werner Report, 1970: 28), the Report indicated that the establishment of a European Fund for monetary cooperation as a forerunner of the Community system of central banks” “must be effected as soon as possible” but avoided committing to whether this should be done in the first stage.

Former Deutsche Bundesbank President and original member of the Werner Committee, Hans Tietmeyer (2003: 6) noted that:

After the Werner Group had presented its final report it rapidly became evident that precisely this transfer of powers and the emergence of supranational structures were the sticking point for the French. Owing particularly to pressure from the Gaullist parliamentary party, President Pompidou and his government felt obliged to refrain from endorsing a concrete phased plan including a clear definition of the final stage. For the German delegation, on the other hand, any greater curtailment of national and monetary sovereignty without binding definition of the requisite supranational structures was unacceptable.

As a consequence, the joint resolution of the Council of Ministers was adopted in March 1971, which approved general goals for union, chose to defer the “concrete definition of stages II and III of the phased process” (Tietmeyer, 2003: 7) outlined in the Werner final report.

[TO BE CONTINUED – TODAY WAS A DAY OF HEAVY DOCUMENT ACCESS AND READING IN FRENCH, GERMAN AND ITALIAN – WHICH IN THAT ORDER HAS A DEGREE OF DIFFICULTY FOR ME OF EASY, LESS EASY, ALMOST IMPOSSIBLE!]

THIS DISCUSSION IS LEADING US TO THE WAY IN WHICH EUROPE REACTED TO THE COLLAPSE OF THE BRETTON WOODS SYSTEM AND PARTICULARLY THE WAY IN WHICH GERMANY AND FRANCE REACTED IN THE EARLY 1970s WHERE GERMANY WANTED A JOINT FLOAT BUT FRANCE (AND THE EC) WANTED TO MAINTAIN FIXED PARITIES WITH CAPITAL CONTROLS.

[MORE HERE ON THE 1970s DEBATES, DELORS REPORT etc COMING]

Additional references

This list will be progressively compiled.

Carli, G. (1970) ‘The World’s Money Now’, Euromoney, March.

CVCE (2014a) ‘Pierre Werner’s appointment as chairman of the committee of experts – three different accounts’, http://www.cvce.eu/recherche/unit-content/-/unit/ba6ac883-7a80-470c-9baa-8f95b8372811/9a1fe366-c88c-4cd3-90ac-9e2ddec20719, accessed January 20, 2014.

CVCE (2014b) ‘The work of the Werner Committee’, http://www.cvce.eu/recherche/unit-content/-/unit/ba6ac883-7a80-470c-9baa-8f95b8372811/cde3fbe8-3e9b-4d05-97fe-491440c8fb55, accessed January 20, 2014.

Danescu, E.R. (2013a) ‘Economists v. monetarists – agreement and clashes in the drafting of the Werner Report’, Centre Virtuel de la Connaissance sur l’Europe (CVCE). http://www.cvce.eu/obj/economists_v_monetarists_agreements_and_clashes_in_the_drafting_of_the_werner_report-en- 875a85f1-e099-4013-acbf-68b2c50a6879.html

Lefèvre, S. (2002) ‘Les ministères de l’Économie et des Finances allemand et français dans la mise en place de la CEE: politiques et compétences’, in Le rôle des ministres des Finances et de l’Économie dans la construction européenne (1957-1978), Comité pour l’Histoire économique et financière de la France, Volume I, Paris, 73-84.

Maes, I. and Quaglia, L. (2004) ‘France and Italy’s Policies on European Monetary Integration. A Comparison of “Strong” and “Weak” States’, in Comparative European Politics, Palgrave Macmillan, 2(1), 51-72.

Realini, A. (2013) Between crisis and cooperation: the Bank of Italy and the collapse of the Bretton Woods system, MA Thesis, University of Padua, September.

Tietmeyer, H. (2003) ‘From the Werner Report to the Euro’, Pierre Werner Lecture, Luxembourg, October 21, 2003.

Verde, A. (2004) ‘La Lira dal Crollo di Bretton Woods alla fluttuazione: Una Ricostruzione degli Schemi Teorici del Comportamento delle Autorità Monetarie Italiane’, Studi e Note di Economia, 2/2004, 47-67.