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FRENCH PRESIDENT
Giscard d 'Es/aing
(le!/) and West German Chancellor Helmut
Schmid/ have cooperated to an unprece–
dented degree lo produce /he framework
of the new European Monetary System.
January 2, 1979 was to have been
yet another milestone in Europe's
long quest for economic and political
unity. On that day the European
Monetary System was to begin oper–
ation.
At the very last minute--on Fri–
day, December 29, 1978- the
French government forced ·a delay in
the launching of the EMS. French
Prime Minister Raymond Barre de–
manded that related Common Mar–
ket agricultura! pricing problems be
solved to France's sat isfaction before
the EMS could start up. West Ger–
man Agricultura! Minister Josef Ertl
vetoed the French demands, setting
off the crisis.
Spokesmen from various European
capitals assured the press that the
EMS was not dead, only delayed.
"Technically everything was ready"
said one official, adding that what
stood in the way was a "political
problem" between the two pillars of
the EMS, France and West Germa–
ny. The temporary setback to the
EMS, many felt, was true to form,
confirming postwar Europe's agoniz–
ing "two steps forward , one step
backward" march toward unity.
Enter the "ECU"
The details of the EMS were covered
in the October-November 1978 issue
of
The Plain Truth,
in the article
" How the Dollar Crisis ls Forging a
United Europe." Briefly, the scheme
entails binding the component na–
tional currencies within close tol–
erances in an arrangement similar to
previous, and generally unsuccessful,
alignments.
The EMS, when enacted, will be a
departure from the past. It has sorne
real teeth to it. Backing up the ar–
rangement will be a pool of gold and
national currency reserves (including
Eurodollars) estimated at roughly
$32 billion. The sheer size of the fund
is expected to take the wind out of
the sails of currency speculators at–
tempting to profit unduly from the
rise or fall of EMS currencies. The
The
PLAIN TRUTH February 1979
fund is intended to be the forerunner
of a European central bank.
The core of the new system will
be an artificial currency unit
dubbed the "ECU." West Germa–
ny's weekly newsmagazine,
Der
Spiegel,
notes the coincidental his–
torical association of this acronym:
" Its initials stand for the English–
worded 'European Currency Unit,'
but the experts pronounce the word
in French
ekuh,
and are thus pol–
ishing up the glorious past: the ecu
was the French gold or silver coin
from 1266 to 1803."
Settlements between the EMS
members will be denominated in
this initially artificial currency. But
many believe the ECU will become
a genuine European currency at
sorne later date- and a formidable
challenger to the floundering U.S.
dollar.
Britain lsolated?
Sorne of the glitter surrounding the
EMS (which was endorsed at the
Common Market summit on De–
cember 5) rubbed off when Italy
and l reland decided at the last mo–
ment to opt out initially from the
scheme. The two weaker Common
Market members felt they were not
getting enough financia! assistance
from the stronger economies.
Every delegate gathered in Brus–
sels for the summit knew that Brit–
a in was not going to join. The deci–
sion on the part of the ltalians and
l rish, however, was unexpected.
Eight days
la~er,
the fluid si tua–
tion changed again when the ltalian
parliament voted f.avorably on mem–
bership. Th e Italian decision
spurred the Irish, who voted to link
up on December 15.
The British , however , are not
likely to change their minds. T he
Labour government (many of whose
members loathe the Common Mar–
ket and anything smacking of Euro–
pean federalism) objects to being
forced into what it considers a
straitjacket of German-imposed fis–
cal restraints. Thus, if or when Brit–
ain does join (the way is still open
for future membership) , it will have
had only marginal inftuence on the
structure of the EMS. "lf we muff
this one," remarked a columnist in
the
London Times
of November 14,
"as we muffed the inception of the
[EEC] in the late 1950's, we could
find ourselves once more standing
on the platform while the European
train moves off."
Bold Franco-German Move
British officials argue that the EMS is
incomplete; that it deals only with ex–
change procedures and doesn ' t at–
tempt to harmonize na tional economic
and monetary policies. They point out
that economic conditions in Europe
look even less favorable for currency
linkageat this time than, say, ten years
ago, when national inflation rates
were simi lar and before the chaos of
floating exchange rates began .
The Germans and the French–
the two nations calling the shots in
Europe now- argue from the exact
opposi te viewpoint. They reply that
the skidding U.S. dollar and the
widespread lack of confidence in
America 's economic management is
forcing Europe to act now, however
imperfectly. A
Wa/1 Street Journal
editorial of November 24, 1978,
sums up the continental approach.
The EMS, it said, is "Europe's re–
sponse to U.S. monetary proftigacy.
It
is being hatched, mainly by the
Germans and French, out of weari–
ness with the trade disruptions and
capital market instabilities caused by
the flight from dollars into marks,
Swiss francs and yen."
The fact is, Chancellor Helmut
Schmidt of West Germany and Pres–
ident Giscard d'Estaing of France
have been determined to bring the
EMS about ever since the plan was
recommended by Schmidt at the
Common Market summit in Bremen,
West Germany, last J uly.
The two statesmen, who enjoy an
intimate, almost brotherly relation–
ship,conversing with each other in col–
loquial English, have brushed aside
the arguments of the British. They
have a lso rejected contrary advice
from within their own countries–
from academic economists (whom
Schmidt disdains) and even from Ger–
many's powerful central bank, the
Bundesbank ,
which had grave reser–
vations about kicking so much ofGer–
many's gold,
deutsche marks
and dol–
lars into the EMS kitty.
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