Monetary and Fiscal Policy in a European Monetary Union: Some Public Choice Considerations

European Monetary Union (EMU) has long been considered an important part of the European integration process, albeit a highly ambitious one. Provisions for the coordination of monetary policies in the European Community (EC) were already included in the Common Market Treaty of 1958, which obliged all member states to regard their exchange rate policies as a matter of common concern (Art. 107) and created an advisory currency commission (Art. 105). But it was not before the Bretton Woods System ceased to furnish monetary and exchange rate stability externally to the EC in the late 1960s, that the process towards EMU gained strength. EMU was first adopted as an official goal by the EC at its Hague Summit in 1969, which lead to a number of significant steps. The Werner Report (1970) presented a first proposal of how to achieve EMU. It lead to the unsuccessful Snake arrangement of 1972, the European Monetary Cooperation Fund of 1973 and a number of directives to institutionalize monetary policy coordination in the EC (Christie and Fratianni 1978). The Marjolin Report (1975) discussed the relationship between trade and goods markets integration and monetary integration in the EC. It argued that monetary union should be postponed until the achievement of a high degree of economic integration in the Community. Reducing barriers to trade and factor mobility would create a unified internal market which would be a sound basis for subsequent monetary unification.