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A Europe Made of Money: The Emergence of the European Monetary System

Author(s):Mourlon-Druol, Emmanuel
Reviewer(s):Mushin, Jerry

Published by EH.Net (November 2012)

Emmanuel Mourlon-Druol, A Europe Made of Money: The Emergence of the European Monetary System.? Ithaca: NY: Cornell University Press, 2012. viii + 359 pp. $55 (hardcover), ISBN: 978-0-8014-5083-9.

Reviewed for EH.Net by Jerry Mushin, School of Economics and Finance, Victoria University of Wellington, New Zealand.

At a time when the problems in the euro zone are frequently in the news, it is wise to consider the nature and origins of its immediate predecessor. Emmanuel Mourlon-Druol, of the University of Glasgow and the London School of Economics, has written a thorough description and analysis of the political and economic developments that led to the establishment, in 1979, of the European Monetary System [EMS].

The author explains that, especially from the early 1970s, there were several processes, which were often conflicting. Two were of particular importance. There was a cooperative, transnational monetary elite of technocrats, which was especially interested in the macroeconomic and operational benefits of monetary integration. In addition, from 1974, regular meetings of heads of government at the European Council ensured that this issue remained current. The politicians were often more interested in the importance of monetary stability in the establishment of a European identity. Despite the difficulties, there was a hesitant transition from emphasis on European cooperation to emphasis on European integration.

Although it deals with economic issues, this book is principally a political and diplomatic history, and not an economic history, of the founding of the EMS. It is part of the publisher?s Political Science series. The author has shown that the eventual outcome was reached by a tortuous process that was influenced by recent history and by traditional rivalries. The intermittent progress and regress of negotiations depended on the interaction of a small number of strong and idealistic personalities. Economic arguments were tempered by political pressures and vice versa. Political pressures frequently dominated the economic arguments.

Mourlon-Druol places the negotiations of the 1970s in their proper context. He refers to economic and political events in individual countries, including election results and national policies against inflation. He also shows the significance of world developments, including the perceived increasing weakness of the United States dollar. However, it is curious that the Sterling Area does not merit much attention. In the 1960s, the role of the UK in the Sterling Area was frequently seen, especially by France, as an obstacle in the British application to join the European Economic Community. The author also refers to the theoretical basis of monetary integration, including optimum currency area theory, and to the development of transnational and supranational institutions in Europe.

The negotiations occurred during the existence of the Snake, a cooperative exchange rate arrangement that dated from 1972. There were serious problems in this system. Membership was unstable; the United Kingdom and the Irish Republic withdrew after less than one month, and only the German Federal Republic remained a member for the whole of its existence. Other countries withdrew and rejoined and some, including France, did this more than once. The structure and processes that were eventually agreed for the EMS were an attempt to learn from the experience of the Snake. This was a lengthy process in which the dominant issues included the nature of the parity grid, the role of gold and of the SDR, the width of margins, the increased freedom of capital movements, and the precise obligations of members. The intention was that benefits and obligations would be symmetrical between larger and smaller members. The outcome was the establishment of the EMS, from which, in 1999, the euro zone could evolve.

Although Mourlon-Druol is a fluent and engaging writer, the volume of detail is likely to be overwhelming to all but the most committed specialists. This indicates one of the strengths of this book. It is based on extensive use of primary sources (including the archives of central banks). For this reason, it should be purchased by university libraries. However, it also indicates a weakness. An excess of detail means that this book is unlikely to be accessible to a wide readership.

Although this book should be purchased, as a research resource, by university libraries, it is unlikely to be included on undergraduate reading lists.

Jerry Mushin?s most recent book is Interest Rates, Prices, and the Economy, Scientific Publishers [India], Jodhpur, 2009.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII