Thursday, February 23, 2012

MTF - Britain & the origin of the EMS, 1978

1973 Mar: pre-history - "the snake"

"...Late in the evening of Thursday 1 March 1973, the British Prime Minister, Edward Heath, met with West German Chancellor Willy Brandt at Schloss Gymnich, near Bonn. It was a time of acute crisis in international markets. The last components of the post-war system of fixed exchange rates, Bretton Woods, were collapsing – the US authorities unilaterally unpegging the dollar from gold, allowing it to float – and European governments were struggling to formulate their response.
Brandt made an astonishing suggestion. The member states of the European Community should join a “common float” against the dollar, linking their currencies and pooling reserves to defend their parities. Since the Bundesbank held vast reserves, unlimited support from this source would have transformed market perceptions of sterling and other participating currencies. It would also have constituted a large step towards full monetary union. For a strong supporter of European integration like Heath, the prospect was alluring. In fact the proposal was not entirely a surprise - we had heard something similar a few weeks before in Paris from Brandt's Finance Minister, Helmut Schmidt - but voiced by the German Chancellor himself, the idea had historic significance..."

1978 mar 12: déjà vu in Bonn

1978 mar-apr: waiting for Giscard

"It quickly became clear than the Germans were reluctant to commit the Schmidt scheme to paper, and that it was unlikely to gain definition till the French Parliamentary elections in April at the very earliest: had the left won, Schmidt told Callaghan he would not go ahead with the scheme. In fact Giscard was far from being in the dark as to Schmidt's thinking - the two had long matured the ideas rehearsed in Bonn - but it is likely true that he preferred not to be involved in detailed discussions which might leak in the run-up to the poll and hand his opponents on the left a stick with which to beat him. Against expectations, Giscard's party won the elections and a right-wing government was formed led by Raymond Barre. The French now entered openly into the process. Callaghan met Giscard and Schmidt for breakfast before the final session of the Copenhagen European Council on 8 April and believed he had secured explicit agreement to a 'tripartite' approach, the three powers each designating a single official to take things forward. (Couzens was chosen for Britain, with the result that the Bank of England fell out of the inner circle and struggled to return to it.) The French and Germans were each to prepare a paper, which the British would examine in a "neutrally critical stance". For political reasons Italy was to be included in the scheme, though it was not to be involved in these preparatory discussions . Schmidt said that he envisaged a two-tier Community in the longer run.
Intriguingly, the proposals at this stage gave a central role to the European Unit of Account (EUA), an obscure monetary instrument against which currencies would be pegged and cash settlements made between participating central banks, to be issued perhaps by a "European Monetary Fund". (The EUA is better known by its later name, the European Currency Unit, a terminological change promoted by Giscard because its acronym, ECU, was also the name of a medieval French coin). Plainly the EUA/ECU had the potential to develop into a parallel currency, and at the breakfast meeting Schmidt and Giscard told Callaghan explicitly that such was their intention. Many years later the idea of a parallel, as opposed to a single, European currency played a part in MT's diplomatic response to European Monetary Union ("the hard ecu"), though it tended to be seen as a spoiler rather than a serious proposal.

1978 apr-jul: from copenhagen to Bremen

1978 jul-nov: negotiating from outside

1978 nov 30: a visit to Frankfurt

1978 dec - 1979 Mar: delayed birth & AFTER SHOCKS


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