Making the European Monetary Union

When the European Union’s Economic and Monetary Union began in 1999, it was a bold step forward for European integration. Melding Europe’s currencies fulfilled a dream long held by early advocates of the EU, who saw a single currency as a critical milestone for political integration. The hope was that if countries pooled their sovereignty into a single monetary authority, the European Central Bank (ECB), and a single currency, the euro, these ties would tightly bind the previously warring states of Europe together once and for all. A single currency was also seen as promoting needed trade and investment in Europe’s single market.

As the EMU neared the end of its first decade of existence, it looked astonishingly successful. Some commentators even talked about the potential for the euro to supplant the dollar as the world’s currency, and the EU to rise to superpower status. Today, that is all a distant memory as the eurozone crisis drags on and squabbling and inertia seem to rule. European leaders cannot seem to agree on much. Financial markets toy with various countries in turn, while domestic austerity programmes cause widespread hardship and political strife.

Economic historian Harold James offers clues as to how things could have gone so wrong in this thorough accounting of the technocratic thinking behind the creation of the euro. In a work commissioned by the ECB and the Bank for International Settlements (BIS) - an international organisation made up of the world’s central banks - James offers a careful reconstruction of the path to the EMU, focusing on the role of central-bank and finance officials. These officials met regularly long before the euro was created in a group called the Committee of Central Bank Governors. Sitting in the Basel headquarters of BIS, this committee ended up providing most of the crucial design for the EMU.

James covers the period from the early efforts at European currency stabilisation starting in the 1960s, through to the Maastricht Treaty that established the EMU in the 1990s. His book is a detailed analysis of mounds of documentary evidence made available to him by the ECB and BIS, augmented by a multitude of interviews with participants and observers. No other such a complete narration of the official path of the EMU through the halls of technocracy exists. This means that Making the European Monetary Union will be an invaluable document for future scholars seeking a thoroughly researched work based on primary historical materials.

But it is less likely to be a work that contributes to the broader debates about the dynamics of monetary union in Europe. James’ overall finding is not novel, as several political scientists have long argued that the Committee of Central Bank Governors had a decisive role in shaping the way in which the EMU developed. However, his emphasis on the interplay between the technocrats and the national political elites does provide a window into the ongoing challenges faced in the eurozone today. Although the central bankers and finance ministers could engineer an independent central bank and monetary union that looked, on paper, as strong as you could ever hope for, the other component parts of a broader economic union - fiscal union with shared taxing, spending and debt, and political union with real channels of representation to allow for legitimacy of decision-making in hard times - were outside the bounds of what the technocrats could deliver. These sources of the EMU that James highlights here haunt the euro and its member states, and have profound implications for the entirety of the European project.