The Euro: The Battle for the New Global Currency
How the single currency was negotiated, by a reporter who watched it.
Summary
David Marsh, who has written on the Bundesbank and on European monetary affairs for decades, produced this political history of the euro from the early postwar discussions to the currency's first decade.
The narrative traces the successive attempts: the Werner Plan of 1970, the snake and the European Monetary System with its exchange rate mechanism, the crises of 1992 and 1993 that forced sterling and the lira out and widened the bands, the Delors Report, the Maastricht negotiation, and the political decisions that determined membership and design. Marsh's principal source material is interviews and archives, and he documents what the participants actually said to each other rather than what was announced.
His argument is that monetary union was a political project throughout, in which German unification and French anxiety about German power were decisive, and that the economic design problems were known to the participants and set aside because the political imperative was stronger. He documents the Bundesbank's consistent warnings about a currency without a fiscal union, the decisions to admit countries whose convergence was accounting rather than real, and the absence of any mechanism for handling a member state's insolvency. The book was published in 2009, as the crisis began, and reads as a diagnosis of what followed. Marsh is sympathetic to the Bundesbank's position and readers should note that.
Key takeaways 7
- Monetary union was a political project in which German unification and French concern about German power were decisive.
- The design problems including the absence of fiscal union were identified by participants and set aside for political reasons.
- The Bundesbank warned consistently that a currency without fiscal union would face crises it could not resolve.
- Membership decisions admitted countries whose convergence was accounting rather than economic.
- No mechanism for handling a member state's insolvency was created, because creating one would have acknowledged the possibility.
- The 1992 and 1993 exchange rate mechanism crises demonstrated the difficulty of fixed rates without full union, and accelerated rather than deterred the project.
- Marsh writes sympathetically to the Bundesbank's position, which shapes his account of the negotiations.
Who should read it
Investors and analysts who want the political negotiation history behind the euro's design and the warnings its architects chose to override.
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