Helmut Kohl and the Monetary Union

Abstract

Wilfried Loth Helmut Kohl and the Monetary Union Numerous myths have shrouded the path leading to the Treaty of Maastricht. Was the renunciation of the German mark in favor of a European Community currency the price to be paid for German reunification? Or, when the unexpected reunification of the two Germanies rocked Europe in the winter of 1989/90, had the way already been paved for a monetary union thanks to the path dependency within European integration policy and the tenacity of François Mitterrand and his Italian and Spanish allies? Did Helmut Kohl yield all too readily to those tenacities “in order to make progress towards the establishment of a political union?” Should we therefore concur with Kohl’s biographer Hans-Peter Schwarz who speaks of a “tragic figure who wanted to do good and in many cases did so, albeit going too far and trusting too much?”1 These still unanswered questions have become all the more pressing in light of the sovereign debt crisis in the eurozone that has underscored the weaknesses of the Treaty of Maastricht. The only way to get at the heart of these issues and find reliable answers is to take a closer look at Helmut Kohl’s role in the development of the Treaty of Maastricht. The Monetary Union Project In the first few years of Helmut Kohl’s chancellorship, his agenda focused on intensifying the cooperation in monetary policy within Europe.2 The European Monetary System (EMS), which was introduced in 1979, provided greater incentives to establish a monetary union and overcome the crisis of stagflation than the unsuccessful “currency snake” that had been introduced in 1972. Not only did Translation by Christopher Marsh. 1 Hans-Peter Schwarz, Helmut Kohl. Eine politische Biographie, Munich 2012, p. 936; for the argument about the instrumental character of the decision in favor of monetary union, see ibid., p. 935. 2 On the long run-up to the European Monetary Union, see Horst Ungerer, A Concise History of European Monetary Integration. From EPU to EMU, Westport/CT 1997; on the details of the decision-making processes, see Emmanuel Mourlon-Druol, A Europe Made of Money. The Emergence of the European Monetary System, Ithaca/NY 2012; Harold James, Making the European Monetary Union. The Role of the Committee of Central Bank Governors and the Origins of the European Central Bank, Cambridge/MA 2012, and Wilfried Loth, Building Europe. A History of European Unification, Berlin/Boston 2015. 158 Wilfried Loth the participating states agree to limit currency fluctuations to a maximum of 2.25 percent relative to the central rate of their currencies against the US dollar, but also the EMS required governments to intervene in the money markets and adopt fiscal consolidation measures when the limit was in danger of being reached. To ensure the effectiveness of such interventions, the respective governments transferred 20 percent of their gold and currency reserves to the European Monetary Cooperation Fund and the European Currency Unit (ECU) ensured transparency when it came to the financial transactions of the participating countries. The EMS thus created a mechanism that not only enabled countries with weak currencies, such as France, to fight inflation, but also made it possible for Germany to resist the upward pressure on the German mark stemming from the weak US dollar. As a result, the countries of the European Community were able to return to a path of economic growth, uncoupled from the US dollar. The success of the EMS was jeopardized, however, when François Mitterrand took office and decided to introduce a governmental economic stimulus and job creation package early on in his presidency. But, in March 1983, he then switched to a rigid austerity policy, prompting all member states of the EMS, without exception , to prioritize the fight against inflation. Consequently, inflation rates across Europe dropped closer to those of West Germany and the Netherlands, making further monetary adjustments unnecessary . Only Italy and Ireland had to agree to significant devaluations of their currencies: The value of the lira dropped by six percent in July 1985 and that of the Irish pound by eight percent in August 1986. To prevent flight from their currencies , underperforming countries had...