European Monetary System Research Articles

독일 재통일과 유럽통합, 그리고 영국의 경제적 좌절

This paper analyses the economic consequences of German reunification upon the British economy. In the post-war period, Britain was reluctant on to the European project integration owing to alternatives of the Commonwealth and the Atlantic alliance with the USA. And the City of London took the US dollar for its revival as the international financial centre. It was not until the late 1980s when the City and Britain accelerated their paths towards European integration. However, the German reunification frustrated the efforts. In order to appease the Eurosceptic Germans, the City lost the competition to Frankfurt in the race to invite the European central bank. And the entry into the European Monetary System resulted in the exchange crisis of sterling in September 1992. Such experiences galvanised the Euroscepticism in Britain.

‘Banks 1 – Portugal 0’? Financial player entanglements in the Eurozone crisis

The euro has been at the heart of the debate about the crisis in the Eurozone. For some, it represents a fixed exchange rate regime, which hampered peripheral countries’ competitiveness, and for others, the European Monetary Union has a ‘flawed institutional design’ and an insufficient degree of integration that engendered the crisis. The present article analyses monetary integration from a materialist perspective. It draws attention to political agency, power and crisis management. The article focuses on the case of Portugal and poses the question of how the country's authorities were compelled to request a rescue package from the International Monetary Fund, the European Central Bank and the European Commission in 2011. It shows that this decision was triggered by the political agency of a series of players within the world of finance, most notably Portugal’s domestic banks, the independent Bank of Portugal and the European Central Bank. Reflecting their material interconnection through the European monetary system, their agency was highly coordinated. The strategies for crisis management that came to deepen the recession were not the result of insufficient European integration – they rather reflected Portugal’s form of integration within the European Monetary Union at the specific moment of crisis.

Making a virtue of necessity? The economics and politics of the ECB’s monetary policy, 1999-2019

The ECB could hardly afford political neutrality, even in the monetary union’s “honeymoon phase”. Being a stateless central bank entailed striking compromises between confl icting (national) monetary policy preferences. However, such compromises would often be reached at the expense of theoretical consistency and to the detriment of coherence in the ECB’s monetary policy strategy. And, perhaps inevitably, they would also bear the mark of the dominant partner in the European Monetary System, that is prior to the establishment of the monetary union, now also being the biggest subscriber to the ECB’s capital. Political neutrality and, for that matter, monetary activism on the part of the ECB -as well as liquidity in the euro-area- were largely inadequate during the euro area crisis, especially in its early phase. They were subsequently increased, but at a slow pace and in a preferential fashion, that is, largely to the benefi t of the banking industry. Eventually, the ECB did try to make a virtue of necessity; yet, this could only go so far. Thus, the ECB has reluctantly become the only game in town, its reluctance being mostly associated with the overriding concerns of certain national central banks of the Eurosystem, most notably the Bundesbank; namely, ensuring monetary dominance, averting (at that time illusory) infl ationary dangers, preventing moral hazard, enforcing structural reforms and, not least, fending off any, indirectly emerging, type of transfer union. Therefore, the ECB could have no great ambitions; its lonely game was unlikely to produce a medal-winning policy maker in the world championship of central banking.

An empirical analysis of the sustainability of meeting the convergence criteria for Turkey's accession to the European Monetary System

This paper compares Turkey against three other European Union countries, namely Germany, France and Italy in terms of the convergence criteria of the Maastricht Treaty and the Stability and Growth Pact for the potential acceptance of Turkey into the European Monetary System with single currency euro. The paper uses quantitative empirical analysis using macroeconomic data for the period 1999-2016 for all the three countries to compare and analyse the conditions of convergence between them. Results show convergence of EU countries in most criteria of the Maastricht Treaty and the Growth and Stability Pact during 1995-1999, prior to the creation of the European Union. During 1999-2005, Turkey exhibited convergence in all criteria except exchange rates, inflation rates and interest rates - during 2005-2016 it lacked convergence in areas of exchange rates, inflation rates and interest rates, again demonstrating that the country was not ready for economic integration with EU. This study attempts to consider the sustainability of Turkey's accession into the single currency European Monetary System using economic and monetary criteria only. The results from this research could throw insights into the macroeconomic and financial viability of the potential entry of Turkey into the single currency eurozone from policy perspective.

Imported or Home Grown? The 1992-3 EMS Crisis

Using newly assembled data on foreign exchange market intervention, we construct a daily index of exchange market pressure during the 1992-3 crisis in the European Monetary System. Using this index, we pinpoint when and where the crisis was most severe. Our analysis focuses on a neglected factor in the crisis: the role of the weak dollar in intra-EMS tensions. We provide new evidence of the contribution of a falling dollar-Deutschmark exchange rate to pressure on EMS currencies.

ЕВОЛЮЦІЯ БАНКІВСЬКОЇ СИСТЕМИ ЄВРОПЕЙСЬКОГО СОЮЗУ

The European banking system, established in the first postwar years, is the result and at the same time one of the important instruments of European integration and the European Monetary System. The creation of an effective banking system required not only radical changes at the legislative level of the countries that were part of the monetary union, but also the adoption of uniform requirements by all member countries. The article considers and generalizes the issue of paradigmatic standards of transformation of the European banking system. The purpose of creation of the European payment union is substantiated. The analysis of the mechanism of functioning of the European Payments Union is carried out. The reason for the creation of the European Coal and Steel Community is named. The activity and consequences of the formation of the European Economic Community are studied. The main idea of "Werner's plan" is described. The reasons for preventing the activation of the "Werner plan" are named. The consequences of the abolition of the US gold standard are highlighted. The essence of the "snake in the tunnel" is described. The reasons for the creation of the European Monetary System are named. The main elements of the European Monetary System are considered. The pros and cons of the formation of this system are summarized. The grounds for the formation of a monetary and economic union are substantiated. An analysis of the creation and operation of the Maastricht Treaty. The basic principles of the Maastricht Treaty are named. The main tasks of the European Monetary Institute are highlighted. The criteria for the participation of countries in the monetary and economic union are considered. The stages of formation of the European system of central banks are named. The activity of the European Central Bank is described. The shares of national central banks in the capital of the European Central Bank are highlighted. The main economic and political reasons for the adoption of the term "Eurosystem" by the Board of Governors are named. The structure of the Eurosystem is analyzed. The main elements of the banking union are generalized. The pros and cons of "emergency liquidity" measures in the Eurosystem are highlighted. The activity of the trans-European system of automatic transfers of gross settlements in real time – TARGET is characterized. The essence of the concept of "financial stability" is generalized.

An empirical analysis of the sustainability of meeting the convergence criteria for Turkey's accession to the European Monetary System

An empirical analysis of the sustainability of meeting the convergence criteria for Turkey's accession to the European Monetary System

Los aspectos monetarios en el relato de Europa: 1948-1978

El relato monetario europeo, desde el final de la Segunda Guerra Mundial hasta la puesta en marcha del Sistema Monetario Europeo y el ECU, se define mediante la paradoja de que los estados miembros de la CEE aspiraban a una mayor unión económica y, al mismo tiempo, se resistían a ceder soberanía en el terreno monetario. Los desajustes provocados por esta paradoja ponían en peligro la viabilidad del proyecto europeo. Con objeto de hacerles frente, el mundo privado impulsó la creación y utilización de “monedas-cesta”, como la European Monetary Unit o el “Eurco” que, paralelamente, servían para señalar al mundo político la necesidad de una moneda única europea. Todo ello en un contexto internacional en el que el dólar y sus problemas se trasladaban a las divisas de los estados de la CEE haciendo muy difícil mantener un equilibrio en el valor del comercio intracomunitario, lo que implicaba crisis monetarias continuas.

The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis

Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992–3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise.

Europe 1957 to 1979: From the Common Market to the European Monetary System

This essay deals with the contradictory dynamics that engulfed Europe from 1959 to 1979, the year of the launching of the European Monetary System. It focuses on how the macroeconomic framework of stop-go policies in the 1960s ended up privileging external – intra-European - exports at the expense of domestic demand. The paper offers a very tentative explanation as to why stop-go policies, by weakening domestic demand, did not put an end to the to the ‘long boom’ earlier as they should have. The French crisis of 1968-69 leading to the demise of De Gaulle is discussed at length, as is the renewal of the German export drive in the wake of a nominal revaluation of the D-Mark in 1969. Finally, the revival of labor struggles in Italy in the same year is put in the context of the structural weaknesses of the Italian economy as analyzed by the late Marcello de Cecco. The conclusion is that European countries had neither the political culture nor the institutional mechanisms to coordinate mutually advantageous policies. Their so-called cooperation was an exercise in establishing hegemony while defending the interests specific to the dominant economic groups of each country. The essay then deals with the formation of the EMS as an expression of efforts to establish and enforce economic dominance.

Putting European Monetary Integration into a Historical Perspective: Two Decades of the European Monetary System versus Two Decades of the European Monetary Union

Abstract This comparative study looks at broad economic developments during the 20 years of the European Monetary Union (EMU) and 20 years of the European Monetary System (EMS). We analyze the economic performance by looking at a set of macroeconomic variables. The analysis of macroeconomic performance includes two perspectives: one is internal, i. e. how did the countries perform relative to each other; the other is external, i. e. how did the group of member countries perform vis-à-vis other countries. Overall, the analysis of the two periods suggest that the EMU does not display a macroeconomic development inferior to the EMS period. On the contrary, some crucial macroeconomic indicators point to a greater stability during the EMU period compared to the EMS period.

European currency system: problems and developments of prospective evaluation

In the article the authors investigated the problems of the European monetary system functioning. It is emphasized that the EU and the Euro zone are currently suffering from strain and unsolved problems, which do not exclude gradual decrease in the EU countries consolidation and influence.
 The aim of the article is to analyze present days’ problems of European Union functioning and European monetary system, in particular evaluation their further development perspectives.
 Debt crisis in the Euro zone sets a question to the single European currency and European integration prospective. It is noted by the authors that as a result of economic crisis Europe are divided into two macro regions, which are unsuccessful “South” and prosperous “North”. Numerous prognoses foresee various scenarios for the situation development, from pessimistic to optimistic ones. However political efforts of the leading EU countries, primarily Germany, France, and the Netherlands are required.

The Euro Crisis in the Mirror of the EMS: How Tying Odysseus to the Mast Avoided the Sirens but Led Him to Charybdis

Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise.

Helmut Kohl and the Monetary Union

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...

Finance, Geopolitics and the Avoidance of War: an Evolving Framework for Irish Diplomacy?

Ireland's sense of its own place in international relations has been governed by an equal commitment to the UN and EU, although Irish diplomacy has not necessarily been an advocate of European federalism. This paper highlights the degree to which a key factor in shaping the historical evolution of Irish diplomacy has been the experience of the Irish state as a member of the sterling area and subsequently the European monetary system (1978—present). It is argued that this has created legacy issues that have made it more difficult, as well as more important, for the Irish state to formulate a coherent diplomatic expression of the state's fiscal, geopolitical and cultural identity that is located firmly within broader international debates on the interrelationship between finance, geopolitics and the avoidance of war.

Alpine ice-core evidence for the transformation of the European monetary system, AD 640–670

Abstract

EVOLUTION AND CONTEMPORARY TRENDS OF THE INTERNATIONAL MONETARY SYSTEM

The growth dynamics of international exchange and capital flows is conditioned by the efficiency of the international monetary system whose basic task is to provide for international liquidity and smooth international payments. The tendencies in international economic relations in the time of globalisation have determined further directions for the development of the international monetary system. The breakup of the Bretton-Woods System initiated the establishment of a new European monetary system with the aim to stabilise the exchange rates and improve further process of integration and international economic relations. In this research paper we have pointed out to the fact that economic interdependence of souvereign countries leads to coordination of macroeconomic policies, and that it can motivate monetary integration within the monetary policy. The objective of this research paper is to emphasize the stability of the international monetary system as a prerequisite for sustainable growth of national economies and monetary union. The contemporary international monetary system is characterised by the trend of reduced number of national currencies, as this is a logical conseqence of increasing European integrations, but also beacuase of significant economic advanatages. Simultaneously, the costs of the euro changeover and introduction of a common currency are lower if economic performances of member countries mutualy converge.

Lessons from the History of European EMU

This paper examines the history of previous examples of EMU from the viewpoint that state actors make decisions about whether to participate in a monetary union based on rational self-interest concerning costs and benefits to their national economies. Illustrative examples are taken from nineteenth century German, Italian and Japanese attempts at monetary integration with early twentieth century ones from the Latin Monetary Union and the Scandinavian Monetary Union and contemporary ones from the West African Monetary Union and the European Monetary System. Lessons learned from the historical examples will be used to identify issues that could arise with the move towards closer EMU in Europe.

Better Than the Euro? The European Monetary System (1979–1998)

ABSTRACTThe euro crisis has provoked a debate on the pros and cons of adjustable exchange rate regimes that enable their participants to negotiate nominal de- and revaluations. To evaluate the functioning of such regimes, we revisit the EMU’s predecessor, the European Monetary System (EMS). We show that in the EMS, devaluations did indeed help more than revaluations did hurt. Assuming that the political-economic heterogeneity of the Eurozone will not vanish in the foreseeable future, the move to a more flexible exchange rate regime might therefore be economically advantageous. However, a purely economic view ignores the huge political ‘maintenance costs’ of negotiable realignments, costs that the EMS members aimed at overcoming when they opted for the euro. The re-politicization of nominal exchange rate policy in today’s Eurozone would therefore not end transnational political conflicts in the Eurozone but fuel new ones.

Smooth Transition Spatial Autoregressive Models

This paper introduces a new model for spatial time series in which cross-sectional dependence varies nonlinearly over space by means of smooth transitions. We refer to our model as the Smooth Transition Spatial Autoregressive (ST-SAR). We establish consistency and asymptotic Gaussianity for the MLE under misspecification and provide additional conditions for geometric ergodicity of the model. Simulation results justify the use of limit theory in empirically relevant settings. The model is applied to study spatio-temporal dynamics in two cases that differ in spatial and temporal extent. We study clustering in urban densities in a large number of neighborhoods in the Netherlands over a 10-year period. We pay particular focus to the advantages of the ST-SAR as an alternative to linear spatial models. In our second study, we apply the ST-SAR to monthly long term interest rates of 15 European sovereigns over 25-year period. We develop a strategy to assess financial stability across the Eurozone based on attraction of individual sovereigns toward the common stochastic trend. Our estimates reveal that stability attained a low during the Greek sovereign debt crisis, and that the Eurozone has remained to struggle in attaining stability since the onset of the financial crisis. The results suggest that the European Monetary System has not fully succeeded in aligning the economies of Ireland, Portugal, Italy, Spain, and Greece with the rest of the Eurozone, while attraction between other sovereigns has continued to increase. In our applications linearity of spatial dependence is overwhelmingly rejected in terms of model fit and forecast accuracy, estimates of control variables improve, and residual correlation is better neutralized.