The roots of the Economic and Monetary Union go back to the Treaty of Rome. Although the treaty was vague on monetary policy and had few binding constraints in macroeconomic policy, articles 104-109, now 102 to 130 contain a section called “Balance of Payments” and establishes the Monetary Committee to “Keep under review the monetary and financial situation.” This committee consists of two representatives from each member state and the commission. A chair was elected by the membership.

There was very little interest at this time in establishing a single currency bloc. The book gives several reasons for this:

1. The Breton Woods system was the reigning idea of the time

2. The U.S. dollar was the undisputed standard

3. Keynesianism was the popular idea of the time and local governments wanted control over their fiscal and monetary policies.

The need for a supranational monetary system became realized during the 1960’s with increa

The Hague Summit in 1969 brought a change to the Breton Woods ideal. The topic of discussion at this meeting was the target of a full EMU. The deepening of the EU at this time was attributed to the Hague Summit. This was a Franco-German initiative and involved President Pompidou and Chancellor Brandt. This was designed to allow for major future policy development. It was somewhat uneventful, however, but it brought initial ideas about the 3rd stage of the EMU.

From 1979 to 1992, stable exchange rates were experienced at an increasing rate. The mechanism for this was ‘gradually accelerating convergence of inflation rates downwards.’ When France began to accept this mechanism by dropping its expansionistic policies in 1983, leaps and bounds towards stable inflation rates were achieved throughout the EMS. Widening of the EMS was also achieved during this time period. The UK, who originally declined to enter the EMS, joined up in 1990. Spain Joined in 1989, and Portugal in 1992.

Price convergence and ERM stability relied on short-term interest rates, since long-term interest rates would have been difficult to accomplish with a more volatile exchange rate. Adjustments became smaller and less frequent. Eventually, long-term interest rates were possible with increased exchange stability.

5. Similarities with the German anti-inflation policy

Some topics in this essay:
Breton Woods, Monetary System, Werner Report, France Italy, Spain Joined, , Similarities German, German Deutschmark’s, Monetary Committee, Treaty Rome, exchange rates, exchange rate, divergence indicator, rate mechanism, central bankers, breton woods, single currency, breton woods system, german anti-inflation, anti-inflation policy, stage emu, german anti-inflation policy, exchange rate mechanism,