While the French president, Charles de Gaulle, was trying to stamp his authority on Western Europe in the early 1960’s, the technocrats of Europe’s new supranational institutions, in Brussels and in Luxembourg, were gradually finding their feet away from the glare of newspaper headlines. There were by then nearly 2500 officials employed by the institutions of the European Economic Community (EEC).
On 26 July 1963, after all of the criticism that was leveled at the economic and monetary aspects of the “Memorandum of the Commission on the Action Programme of the Community for the Second Stage” that was published in October 1962, Robert Marjolin restated the future economic policy of the EEC in a more conservative manner. This was done in a recommendation by the EEC Commission to the EEC Council in a document titled, “Medium-term economic policy for the Community“. These were the recommendations and objectives:
- A “Medium Term Economic Policy Committee”, attached to the Commission, should be established to assist with the co-ordination of the general economic policies of the EEC member states. The task of this Committee, using all available information and especially the studies of economic prospects made by a group of experts attached to the Commission, would be to draft a medium-term economic programme, covering a period of five years. The Committee would set out the main lines of the economic policies which the Member States and the European institutions would be expected to follow and would co-ordinate those policies.
- The Committee would review the programme annually and would suggest any modification it considered necessary.
- The Committee would observe the medium-term economic policies of the Member States and would examine whether these were compatible with the programme proposed. The Committee would also study the development of the EC economy in order to determine the reasons for any divergence from the projected development. It would render opinions, either at the Commission’s request or on its own initiative, to guide the Community institutions in carrying out the proposed economic policy.
While the decisions of 1963 were a far cry from monetary union, as had been proposed in the 1962 Commission memorandum, they contributed to establishing the Commission as a participant in the monetary area. Firstly, the Commission had made it clear that their interpretation of the Rome Treaty gave them a right to act in the monetary area. Secondly, the Commission ensured that they would be invited, as an observer, to the meetings of the Committee of Governors of the Central Banks (CoG). This would give the Commission an entrance into the world of the central bankers. The CoG was established in 1964 and, by October 1964, it had held its first meetings in Basel.
This CoG complemented the EEC Monetary Committee and would prove pivotal for encouraging monetary co-operation among the central banks of the six EEC member states. Initially, the CoG had a very limited mandate, but over the years, the committee gradually gained in importance as it started developing and managing an institutional framework for monetary co-operation. It was this committee that prepared the first draft of the Statute of the European Central Bank in 1990.
However, towards the end of 1964, Marjolin reflected that getting the six EEC countries to co-operate on economic and monetary matters was proving to be difficult to achieve:
“…..It was in 1964, too, that the first attempt was made, if not to create an economic union, at least to co-ordinate national economic policies…….It was at that time that I started to have doubts about the possibility and perhaps even the utility, as a rule, of co-ordinating national economic policies. Either governments act spontaneously, guided by their own interest, or they are too weak to act, in both of which cases no amount of external pressure will be able to budge them…….At the same time the Council decided to draw up and implement a medium term economic policy. The latter remained largely a dead letter. As for the new committees…….they did not, at least at the time, do much to further the harmonisation, not to mention the unification, of national economic policies. It has to be said that the need for this had not yet made itself felt acutely.”
By the end of 1963, the EEC Commission’s first task of welding the six EEC countries into a single trading bloc, by creating a common tariff structure against the outside world, was almost complete. One of the year’s more controversial issues was a new Washington-inspired drive under GATT to lower import duties across the world, to be agreed through talks known as the ‘Kennedy round’. This was meant to be the first time the EEC acted as a single entity in international negotiations. But the USA proposals split the EEC countries into two camps. These were the ‘free traders’, led by Ludwig Erhard who was then the new Chancellor of the Federal Republic of Germany (FRG), and who supported tariff cuts and the ‘protectionists’, led by de Gaulle. The result was a weak compromise.
De Gaulle had desired to reshape France’s relations with the USA in two key areas, military security and in respect of the power of the US dollar. As long as the US dollar was the international reserve currency, France would not be free to determine its own fate. The Gaullist critique of the US dollar centered on two points; that an overvalued dollar (with respect to gold) helped the USA to buy up European industries with cheap money, and that the key currency role of the dollar allowed the Americans to finance their expansive foreign policies by printing money. By portraying the international monetary system as a structure which perpetuated American hegemony and from which defection was in the French interest, de Gaulle tried to undermine the consensus underpinning the transatlantic order. This fundamentally different conception precluded in principle any French participation in attempts to reform the transatlantic system, notwithstanding the pressure exerted by France’s partners.
Up until that time, the exchange rates of the EEC countries were never directly fixed, although they were all pegged to the US dollar. Exchange rate stability was still largely maintained by the Bretton-Woods system, and there was no urgent need for a new institutional arrangement among the EEC currencies.
In February 1965, the French President threw down the gauntlet. He announced that France from then on would immediately exchange every US dollar it earned for gold in order to force the USA into a radical change of the monetary system. The return to “health” of the French franc in the mid-1960’s provided de Gaulle with the necessary means for this challenge.
The Gaullist idea of national monetary autonomy, however, was not uncontested in France. French monetary authorities, for example, co-operated in some of the reform steps being undertaken by the Western countries. France even remained in the gold pool (which was supposed to stabilise the value of gold) until 1967, and it took part in talks about the reform of the transatlantic system. Thus, many officials in French monetary institutions obviously remained transatlantic in their outlook. Another conception was represented by the French Finance Minister, Giscard d’Estaing, and pronounced by his deputy, Andre de Lattre, in January 1965. This was the return of the idea of a common European currency.
On 8 April 1965, a move towards greater integration was made when the “Merger Treaty” was agreed to between the six EEC member states. Largely, this treaty served only to streamline the institutional arrangements by forming a single institutional structure by combining the Commissions and the Councils of the ECSC, the EEC and Euratom. The new structure then became known as the “European Communities” (EC), although the term “Common Market” was often used when referring to the EC. The Merger Treaty came into effect on 1 July 1967.
As it turned out, de Gaulle’s intention of bringing down the transatlantic system had failed, although the US gold reserves in Fort Knox did decrease. France found little support among other monetary powers and the FRG declared its solidarity with the USA. At the same time, the FRG shared with the rest of Europe some of the critique that de Gaulle uttered against lax American monetary policies. The Germans complained that the system forced them to import inflation and thus undermined the domestic priority of price stability. But the primacy of transatlantic co-operation in solving the monetary distortions remained dominant, not only in the FRG but also in countries such as Britain, Italy and the Netherlands (as mentioned earlier, an important factor was the security partnership of NATO linking these states to the USA).
Still, the close link between a broad consensus among and within the Western European countries on security policy and the continued support for the transatlantic monetary system was slowly dissolving. The United States government displayed a mixture of resignation and resentment against the Europeans who were not yet ready to completely break with de Gaulle and go along with the American proposals to reform the system.
The period from mid-1965 to mid-1967 was a time of political crisis and conflict between the EC Commission and the French government, led by de Gaulle. During this period, the functioning of the Commission was all but paralysed, whilst debates raged on in the EC Council, regarding several issues such as the provision of finance for the Common Agricultural Policy (CAP), voting and veto rights, dispute resolution and the creeping advance of supranationalism.
Things had come to a head in mid-1965, when de Gaulle’s patience with Walter Hallstein, the Commission President, and Marjolin had finally run out. To make matters worse, the EC had been very active in fostering links with the USA at the very time that de Gaulle was trying to distance France from the strong influence of the USA, both in military and monetary affairs. An example of the causes of this tension is well described in a series of meetings and conversations that took place in June and July 1965.
On 11 June 1965, Marjolin held a meeting (Developments in the Common Market) with senior US State department officials in Washington, USA. The discussions concerned the development of the EC and its future direction and objectives. The minutes of this meeting were kept “classified” until late 2000.
When asked about Monetary Union, Marjolin said that “it was being considered” and that “he expressed concern that there would be resistance to monetary proposals at present. Therefore it would be best to wait until the point is reached that adoption of such proposals would become virtually inescapable“.
By implication it appeared that the State Department officials and the Vice-President of the EC Commission were in agreement to promote monetary union in Europe but were equally agreed to not make such monetary proposals public in order not to generate “resistance”. Furthermore they were also in agreement in estimating that it would be smarter to let the course of events roll out and thus impose [unspoken: on the European population] this monetary union in an “inescapable” way.
Whether by coincidence or whether due to some knowledge of the substance of Marjolin’s meeting in Washington a few days earlier, de Gaulle then expressed his anger towards Hallstein and the Commission in a conversation with Alain Peyrefitte, who was then the French Minister of Information:
“Hallstein has invented a ceremony of letters of credence for officials of the states in Brussels. He takes himself for the President of a supranational Government. He doesn’t even hide his agenda, which consists of replicating at the European level the federal structure of West Germany. The Commission would become the federal Government. The European Assembly would be the equivalent of the Bundestag. The Council of Ministers would become the Bundesrat, the Senate, in short! It’s laughable. But don’t deceive yourself – it involves an institutional drift that will finish by taking over if we don’t put a stop to it. And we alone have the power to do it.
…..As for the Commission, it won’t get him into heaven. I will have satisfaction. Hallstein, Marjolin and Mansholt, they’re finished. I will not renew their mandates.”
[from C’était de Gaulle by Alain Peyrefitte]
Fifteen days later, on 1 July 1965, in another conversation with Peyrefitte after a stormy EC Council meeting, de Gaulle expressed further anger against the Commission, Hallstein and Marjolin. He also set out what the French response would be (the empty chair crisis):
[A.P: ‘“I will be asked what the consequences will be, especially the political consequences.”]
“The first of these consequences is that there will be no more common market meetings. If they hold them without us, they will be infringing the Treaty of Rome, but that means nothing to us. It does not commit us. A meeting to no purpose. They could simply hold them in London if they wish, at WEU headquarters, where they will be well received. Our chair will remain empty, and all meetings will be meaningless.
…..They are thinking of a different French Republic. They have never been able to understand that we were not Guy Mollet or Félix Gaillard. Well, once again they will find that is not true. It is they who will be in most trouble.
…..As for this Commission, it will have to go. I want no more of Hallstein. I want no more of Marjolin. I want no more of Mansholt. I never want anything to do with them ever again.
…..Nonsense, it’s Marjolin who is behind a Social Democrat Federation, on behalf of Gaston Defferre. That is what is called being very good. No, we have to do away with all that. At all events, I do not want the French Government to have anything more to do with those characters. I’m finished with them for good.
[A.P: “But under the Treaty they cannot be replaced until 1966.”]
“Bah! There’s no hurry. At all events, we shall no longer be dealing with them.”
In January 1966, the impasse of the “empty chair crisis” in the EC Council was eventually resolved with the acceptance and introduction of the principle of the “Luxembourg Compromise“. This principle stipulated that, during any negotiation where a country believed that its vital national interests might be adversely affected, negotiations had to continue until a universally acceptable compromise was reached. The mechanism of the Luxembourg Compromise, which was proposed by Pierre Werner, was welcomed by De Gaulle because he saw in it a means of containing the supranational aspects of European integration and reorienting it towards a more intergovernmental approach.
Finally, in June 1967, Hallstein was effectively ousted as Commission President and Jean Rey was appointed to replace him. At the same time, Marjolin was replaced as the Commissioner for Economic and Monetary Affairs by Raymond Barre, a French economist and politician.
On 1 July 1967, all of the provisions of the Merger Treaty came into effect.
While the political battles raged on in the EC Council meetings, a shift of policy started to take hold in the FRG. In early 1967, there was intensive debate in the FRG government about whether the FRG should continue to hold US dollars for the sole purpose of preserving the American military presence in the FRG. Thus began a new phase in West German politics, a growing irritation with American policies. And this was being supplemented by a new phenomenon that was arising in the FRG, increasing monetary nationalism, represented above all by Finance Minister Franz Josef Strauss.
On 9 February 1967, the EC Council decided to harmonise indirect taxes in the Community, adopted the principle of the added-value tax system and approved the first medium-term economic policy programme defining the aims of the economic policy of the Community for the next five years ahead.
On 11 May 1967, the UK re-applied to join the EC. It’s application was accompanied by similar applications from Ireland and Denmark and, a little while later, from Norway. Initially, de Gaulle was ambiguous about his opinion on the UK application and stated that he would only agree to grant Association status to the UK. The other five EC countries came out in support of the UK’s accession application.
On 18 November 1967, the British government was forced to devalue the UK pound by 14.3%. This event prompted de Gaulle to state that this was proof that the British economy was not ready to meet the conditions of the Common Market.
On 27 November 1967, even before the accession negotiations with the applicant countries could begin, de Gaulle held a press conference in which he declared his opposition, for the second time, to the UK’s accession to the EC. In his statement, de Gaulle particularly emphasised the incompatibility of the British economy with Community rules and stressed that the UK’s accession to the European Communities firstly required that the country undergo a major political and economic transformation. He reiterated his proposal for an association between the EC and the applicant countries to promote trade, but the UK government immediately rejected the idea of an association, which would exclude it from the EC decision-making process.
Again, a strong difference of opinion that arose between France and its EC partners threatened to affect the Communities’ activities. It was not until April 1969, when de Gaulle resigned as President of France that these problems were able to be resolved.
Meanwhile, on 9 September 1968, at a meeting of the Ministers of Finance of the EC member states in Rotterdam, Pierre Werner, the President of Luxembourg and Minister for the Treasury, once again tried to promote interest in his “five-point action plan”. Werner had first proposed the “five-point action plan” for European monetary integration based on the creation of a European unit of account, consultation, fixed exchange rates between European currencies, and solidarity — internal and external, in January 1968. Here is a very good, detailed chronology of the basis of Werner’s economic and monetary thinking.
The new monetary nationalism emerging in the FRG became very evident during the tempestuous emergency G10 conference that was held in Bonn in November 1968. The Finance Ministers of the world’s ten leading industrial countries met with the purpose of finding a common response to a wave of huge capital movements into the Deutsche mark. The main targets of speculation had been against the French franc and the British pound, and in a desperate attempt to defend the parities, the reserves of both France and Britain were soon brought close to exhaustion. Both governments put the blame for the crisis on the FRG which had refused to revalue an allegedly under-valued Deutsche mark. Prior to the meeting, Prime Minister Harold Wilson had called the FRG ambassador in the middle of the night to demand immediate action by the FRG government. Otherwise, he said, Britain would be forced to reconsider its NATO commitment on the continent which was costing it valuable foreign exchange.
By the end of 1968, the French government found itself under pressure from a number of fronts. Social upheaval and the student unrest in May 1968 resulted in a capital flight, which led to a rapid decrease of the French monetary reserves and to a period of prolonged difficulties for the French franc. This was caused by the reaction of the financial markets to the Grenelle Accords of May 1968 (which was intended to quell the social unrest by increasing wages). It was obvious that the relatively undisturbed pursuit of domestic economic objectives was no more compatible with the idea of a strong and independent franc. De Gaulle’s “splendid isolation” was an illusion.
Prior to the Bonn G10 conference, the USA had joined the chorus of those requesting a Deutsche mark revaluation. However, the FRG government did not yield to this. At a meeting of European central bankers in Basle, Blessing, the Bundesbank president, had agreed with his French colleague on a concerted adjustment of the French franc to Deutsche mark parity. Subsequently, Blessing tried in vain to convince his government of the benefits of such an arrangement. However Strauss and Karl Schiller, the FRG Minister of Economic Affairs, both supported the view that the FRG would not act under pressure and devalue a solid currency just to bail out weak currencies.
As rumours spread in Bonn on the impending French franc parity adjustment, even more speculation occurred. When the conference ended in complete disagreement, everybody expected that there would be a large franc devaluation. However, de Gaulle would not take the humiliation and decided to hold the parity by re-introducing severe exchange controls, cutting public expenditure and imposing a surcharge on imports coupled with subsidies for exports.
During most of the 1960’s the Bretton-Woods system provided the EC countries with a favourable international monetary environment. Stable exchange rates, both between the countries of the EC and with other countries, low unemployment and the abolition of trade barriers and the creation of the common custom’s union facilitated the progress with the Common Market project and provided strong economic growth. However, academic discussions about the future of the international monetary system had already started with Friedman’s discussion about flexible exchange rates and Triffin’s analysis of the flaws of the Bretton-Woods system.
By the end of the 1960’s, the international environment had changed significantly. The Bretton-Woods system was showing signs of increasing strain as a result of US balance of payments policy. The EC member states increasingly differed on economic policy priorities. Greater price and cost divergences between them led to several exchange rate and balance of payments crises, which in turn threatened to disrupt the customs union and the common agricultural market, which had been functioning quite successfully up to then. For the EC policy makers at the Commission, macroeconomic imbalances, especially the inflation differentials between countries, were becoming a major concern.
The G10 conference in Bonn was probably the key event in the process of dissolution of the transatlantic consensus and its substitution by a European conception in Western Europe. The FRG’s previous policy of stabilising the fixed rate dollar system finally led to very strong pressure on the FRG government to take measures which it considered adverse to its core economic objectives, particularly concerning the export interests of German industry. Unprecedented amounts of speculative funds that were streaming into the FRG were to become a regular feature, and this undermined the domestic autonomy granted until then by the Bretton-Woods system.
On 12 February 1969, Raymond Barre, the EC Commissioner for Economic and Monetary Affairs, submitted a memorandum to the Council titled “Commission Memorandum to the Council on the co-ordination of economic policies and monetary co-operation within the Community” (The Barre Plan). The Barre Plan was a reaction to the outcome of the Bonn G10 conference and it reflected the deep concern of the EC Commission regarding the effects of monetary disunity on the project of European integration. The Barre Plan called for the co-ordination of EC member state’s economic policies and regular consultation on budgetary policy and fiscal measures directly affecting external trade.
Regarding the practical proposals contained in the Barre Plan, they were, compared to the Commission’s 1962 Action Programme, very cautious. It suggested prior consultation among the member countries before they undertook important economic measures and the creation of a mechanism for short-term and medium-term assistance to help countries in balance of payments difficulties. Barre proposed neither a common currency, nor a European central bank nor a European reserve fund. He also argued that the planned monetary mechanism would not duplicate the work of transatlantic institutions. The reaction of the member countries during prior consultations ranged from mildly positive to indifferent.
In April 1969, De Gaulle resigned and Georges Pompidou became the new president of France and Giscard d’Estaing became the new premier. Giscard d’Estaing communicated to the FRG government that he considered a European solution to be the best way to confront the monetary crisis, despite the silence which had greeted his earlier proposals.
During the time when the member countries were discussing the Barre Memorandum, the French vision of monetary policy had been changing. The outcome of the Bonn G10 conference was a severe blow to the Gaullist idea of French monetary autonomy. Instead of ending US dollar hegemony, France had become dependent on FRG monetary policy and even had to accept American financial support. The huge speculative movements from the French franc to the Deutsche mark which continued regularly throughout 1969 had convinced the non-Gaullist and non-Communist part of the French establishment that the strategy of national autonomy was not working and that a unified European solution was the only answer to avoid the franc, if it was ever to be free from dependence on the US dollar, from being subjugated by FRG monetary policy.
On 10 July 1969, Pompidou suggested that an EC summit meeting be held in order to review the progress made towards achieving the objectives of the EC and to sort out the problems that were affecting the Community. The other EC country leaders agreed to this and the summit was scheduled to be held in The Hague in December 1969.
On 17 July 1969, the Barre Memorandum was accepted by the Council except that they initially were only prepared to endorse the parts of the Barre Plan that related to consultation and short-term assistance. The FRG, Italy and the Netherlands still had reservations and warned of a duplication of transatlantic mechanisms by European structures. The French government, however, gave their full support to the Barre Plan.
Added to the long-term concern of avoiding monetary dependence on the FRG, came the urgent short-term business of saving the CAP which was thrown into disarray when France was forced to devalue the French franc by 11.1% in August 1969. This was followed shortly afterwards by a revaluation of the Deutsche mark by 9.3% in October 1969.
Remarks by the new FRG Foreign Minister Walter Scheel, that the CAP was practically at its end, deeply irritated the French government. The French left no doubt that the accomplishment of the common agricultural market was a precondition for any progress in the field of European integration. Thus, the de-legitimization of Gaullist ideology and a mix of short-and long-term concerns opened the path for the French government’s embrace of a European solution.
Giscard d’Estaing’s hints and the Commission’s proposals surprisingly struck a receptive chord in the FRG, the country which had been the core supporter of the transatlantic system on the European side. The major reason was that the previous consensus in the FRG on the priority of pursuing international monetary policy in a transatlantic framework was rapidly dissolving. Although important institutions such as the Bundesbank, remained linked to the Bretton-Woods system, and although Strauss and Schiller flirted with the Gaullist ideas of national autonomy, based on the success of the FRG’s anti-inflationary policies, it was the European option which ultimately prevailed at the EC summit meeting in The Hague in December 1969.
In September 1969, Willy Brandt was elected Chancellor of the FRG to replace Erhard. Brandt’s core project became the achievement of a reconciliation with the Eastern European countries to enhance the Federal Republic’s freedom of manoeuvre and to reduce its dependence on its Western allies in some of the most vital fields of external relations. At the same time, Brandt was acutely aware that this new Ostpolitik might provoke apprehensions from countries wary of greater FRG independence. The currency crisis of late 1968 had been a very good illustration of this fact. After the G10 meeting, the British and French press speculated on how the FRG would use its new power founded on the strength of its currency. A continuation of the Federal Republic’s policies of national autonomy at times of a disintegrating transatlantic order was bound to re-enforce these views and increasingly undermine the achievements of the FRG’s Westpolitik. Brandt agreed with the analysis of Schiller that “[a] consequent […] German policy of stability inevitably would set in motion tendencies towards a dissolution of the EEC”, because this would again and again undermine the other European currencies.
In his years as FRG Foreign Minister since 1966, Brandt had witnessed the progressive deterioration of relations with France, the procrastination in the European institutions and the increasingly destructive influence of monetary conflicts on the Federal Republic’s relations with its partners. Additionally, he was sympathetic to the critique leveled towards the policies of the USA by the European Left and thus he was not particularly disposed to make a strong effort in order to save the transatlantic bargain. He therefore made European integration a crucial part of his foreign policy framework.
A symbolic and self-binding step by the Federal Republic would serve to provide a counter-balance for the alarm that the FRG’s partners might have felt regarding Ostpolitik and it would serve to repair the Franco-German relationship. Preliminary discussions gained a French “yes” for the start of the discussions with the UK about EC membership and, in return, the FRG would support the French request for a guarantee on CAP financing.
On 1 December 1969, at the EC summit meeting in The Hague, Brandt went a step further and surprised everyone by proposing the idea of a European reserve fund and calling for the progression towards an economic and monetary union in stages. The reserve fund idea had been suggested by Monnet to Brandt prior to the summit but Brandt had told Monnet that he considered such a step to be too premature. Nonetheless, Monnet’s argument was that a FRG initiative in the monetary field might make a deep impression on the public and demonstrate leadership in Europe. On reflection and despite the reservations of his officials, Brandt decided that to propose to have a monetary union and a reserve fund would have the necessary symbolic value and serve a series of important objectives, already outlined previously. This was the first time that a FRG Chancellor had publicly backed the idea of a European monetary union and Brandt’s initiative rested on a very fragile base in the FRG. Also, notably, this marked the start of the use of the common term, “Economic and Monetary Union” or EMU.
At the conclusion of the Hague Summit, agreement was reached on a number of important issues affecting the EC. Regarding the proposed economic and monetary union, there was agreement that further action was needed to strengthen the Community and to promote its development into an economic union. To achieve this goal, the EC Council was given the task of drawing up a detailed plan in respect of how an economic and monetary union could be accomplished, using the Barre Plans as their basis. In addition, it was also agreed that the EC accession negotiations of the UK, Denmark and Ireland should commence.
During the period January to February 1970, the Belgian, Luxembourg and FRG representatives on the EC Council presented their respective proposals on ways of making progress towards economic and monetary union by stages. Then on 4 March 1970, Barre presented the “Barre Plan II”, which largely reflected the French position. On the same date, the Commission submitted proposals to the Council for the establishment by stages of an economic and monetary union.
On 6 March 1970, in order to proceed forward, the Council decided to convene a group of experts who were given the task to investigate how such an economic and monetary union could be brought about and come up with a recommendation for implementation. Werner was appointed chairman of the group (The Group) and they held their first working meeting on 20 March 1970.
In the meantime, on 18 March 1970, the Commission had drawn up a paper comparing the proposals set out in the four monetary plans mentioned previously in relation to the coordination of economic policies, the money market, the fiscal domain and the monetary domain.
On 8 October 1970, the Group eventually completed their final report and it was officially submitted to the Council and Commission on 15 October 1970. The report was titled “Report to the Council and the Commission on the realisation by stages of ECONOMIC AND MONETARY UNION in the Community” (The Werner Report). The Report proposed to achieve economic and monetary union by 1980.
Three main elements were prescribed in The Werner Report for such an EMU:
- “Within the area of a monetary union, currencies must be fully and irreversibly convertible, fluctuation margins around exchange rates must be eliminated, par values irrevocably fixed, and capital movements completely free.”
- “It is of primary importance that the main decisions regarding monetary policy be centralized, whether such decisions concern liquidity, interest rates, intervention on the exchange markets, management of reserves, or the fixing of currency parities vis-à-vis the rest of the world.” and
- “Under such a system, national currencies could be maintained or a single Community currency could be created. […], but considerations of a psychological and political order militate [influence] in favour of the adoption of a single currency which would guarantee the irreversibility of the undertaking.”
The Report did not elaborate very much on the institutional structure of the EMU and it did not distinguish clearly between a single currency and a system of irrevocably fixed exchange rates. An important reason for this were the Franco-German divergences on the conception of economic and monetary policy and on European integration.
It was noted in the Report that “the transfer of powers to the Community level from the national centres of decision raises a certain number of political problems. In this respect it is fitting to quote in particular the relationship between the centre of decision for economic policy and the Community system of central banks as well as that between the Community organs and the national authorities.”
As it transpired, the Report was never adopted as presented, since the the recommendations that were contained in the Report turned out to be too advanced for the level of economic and monetary integration prevailing at the time. Although there was a gradual acceptance of the idea of a common currency, the EC countries were not yet ready to be part of a grand federal state. And certainly not France who was only prepared to accept monetary co-operation at an intergovernmental level.
Eventually, on 22 March 1971, at a Council meeting, only some of the elements of the Werner Report were approved for implementation. It would take a few more years before any further progress on economic and monetary union was made.
Thus, although after 1971 the objective of having an European economic and monetary policy had become a consensus and slowly replaced the old transatlantic outlook, there was still no proper and formal agreement on the manner by which it was to be achieved.