The European Monetary System

Stewart, William J. (1979) The European Monetary System. Quarterly Economic Commentary, 4 (3). pp. 39-45. ISSN 0306-7866

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The goal of economic and monetary union has always been implicit in the Treaty of Rome. Whilst substantial progress was made in the early years with regard to the removal of tariff barriers and the setting up of a Common Agricultural Policy, little attention was paid to the development of monetary integration. This was changed with the presentation of the Barre Plan in 1969 and the publication of the Werner Report in 1970 which recommended the attainment of monetary integration by 1980 and set out the steps by which this was to be achieved. The requirements for monetary integration were clearly spelled out including; a system of irrevocably fixed exchange rates, or preferably a single Community currency; unified monetary policy conducted by a single monetary authority; a single exchange rate against other countries with Community control over the exchange rate and international reserves; a unified capital market; a Community regional policy and major fiscal policies to be decided at Community level. In the economic sphere the expectation was that this would lead to a simplification of the profit maximising calculations of producers resulting in a more efficient allocation of resources through the integrated markets for goods and factors, both capital and labour. This paper explores some of the issues to be confronted with the implementation of economic and monetary union.