German Interests in European Monetary Integration

Contributions to Political Economy, 2013

Highlighting that France and Germany held largely contradicting hopes and aspirations for Europe's common currency, this paper analyzes how the resulting euro contradiction conditioned the ongoing euro crisis as well as current strategies to resolve it. While Germany generally prevailed in hammering out the design of the euro policy regime, the German authorities have failed to see the inconsistency in their policy endeavors: the creation of a model whose workability presupposes that others behave differently cannot be made to work by forcing everyone to behave like Germany. This fundamental misunderstanding has made Germany the main culprit in the euro crisis, but it has yet to face the full consequences of its actions. Germany had sought every protection against the much-dreaded euro "transfer union," but its own conduct has made that very outcome inevitable. Conversely, having been disappointed in its own hopes for the euro, France is now facing the prospect of a lost generation-a prospect, shared with other debtor nations in the union, that has undermined the Franco-German alliance and may soon turn it into the ultimate euro battleground.

The Eurozone Crisis and the Future of Europe, 2014

The currency crises of 1992 and 1993 have shown that extremely strong pressures can be exerted on official parities when investors realize that significant monetary realignments may be imminent. In this paper, I present an empirical analysis of the 1992-1993 crises in order to determine whether speculators are able to predict exactly when devaluations will occur, and whether information on current events political and economic influence their expectations and if so, in what way. In particular, I analyze the expectations of the date of the devaluation of the French franc against the Deutsche Mark before the 1992 and 1993 monetary crises. The empirical analysis shows that before the outbreak of these two crises, Investors realized that the devaluation was imminent and that they were very sensitive to the information disseminated daily on the markets. Over the last decade, the international financial markets have been affected mainly by the European currency crisis of 1992 and 1993 and, since 1997, by the Asian crisis. A currency crisis is a complex phenomenon that can be analyzed in different ways. In this respect, the dynamics of the crisis is a fundamental element, particularly with regard to the role played by exchange rate devaluation expectations that accelerate the onset of the crisis. In fact, the European crisis has demonstrated the very high pressure that can be exerted on official exchange rates when investors perceive an imminent risk of substantial realignments of exchange rates. As evidenced by research in the field of international finance (Flood and Garber, 1984), there is a close link between the collapse of a fixed-exchange rate and the expectations of financial market participants. Also, the analysis of the determinants of exchange rate expectations has become a fundamental step in economics. In addition, the recent European currency crisis has revived the debate on the dynamics of speculative attacks for which two categories of models have been proposed. The first model (Krugman, 1979) is based on the assumption that a fixed exchange rate system must be abandoned when foreign exchange reserves are exhausted. Indeed, insightful speculators then inevitably attack the currency before these reserves are completely exhausted, thus causing a change of system. The second category of models underlines the risk that a crisis is self-fulfilling, in the sense that speculators predict a change in monetary policy in the country whose currency is weakened if the currency crisis occurs. In both cases, the study of the speculative and rational behavior of the agents makes it possible to determine the date and the extent of the attacks. This means that there is a close link between the collapse of a fixed exchange rate system and the expectations of the players in the financial markets. It is therefore necessary, in order to understand the mechanisms that are at the origin of a crisis, to analyze what were the determining factors of the anticipations of realignment before the crisis occurs.

The European Currency Crisis The catalyst for the September currency crisis in Europe was the tension over the stance of monetary policy in Germany and other countries in the European Monetary System (EMS), the arrangement that limits exchange rate fluctuations among members. High German interest rates were blamed for limiting the prospects for an economic recovery in Europe by forcing other members to keep their own rates high in order to maintain the value of their currencies against the German mark. Market speculation against the parities set by the Exchange Rate Mechanism (ERM) of the EMS has resulted in the devaluation of several currencies against the mark, as well as the withdrawal of the United Kingdom and Italy from the ERM. These developments have raised new questions about the current direction of German monetary policy, the future of the EMS, and the prospects of a European monetary union. This Weekly Letter reviews and interprets these developments.

Econ Journal Watch, 2010

Why They Thought It Couldn't Happen American (and European!) economists did not understand the politics behind EMU at the time. The political causes of EMU were revealed by Jacques Attali, adviser to French president Francois Mitterand, as late as 1998. In a television interview he said (my translation),

West European Politics, 1997

When the patterns of French and German policies towards European monetary co‐operation are explored closely, one finds that French policy is characterised by a great deal of continuity, whereas German policy exhibits relative discontinuity. This article seeks to find the internal causes of these two countries’ policy dynamics in three cases of European monetary co‐operation: the creation of the European

International Advances in Economic Research, 1995

The European Community was established with the intent of reaching full economic, monetary, and political union among its member countries. The three elements of the European Monetary System-the Exchange Rate Mechanism, the European Currency Unit, and the European Monetary Fund-were designed to work together to achieve monetary integration among the member states. German reunification, as a result of the collapse of the Berlin Wall, played an important role in the failure of the Exchange Rate Mechanism. Many steps will need to be taken in order for the European community to obtain full economic and monetary union. (JEL P00

EMU and the …, 1997

Beijing law review, 2024

This paper critically examines currency relations between members of the European Union (EU) and members of the CFA franc zone. It demonstrates that these relations provide empirical support to the dependency theory given that the CFA franc monetary system is oriented towards serving the interests of members of the EU, specifically France. Members of the CFA franc zone on the other hand are compelled to live with perpetual structural deficits since they rely on France and the EU to set interest rates and determine the level of liquidity in CFA franc economies. This paper traces the genesis of the CFA franc from its creation as the currency of the French Colonies of Africa to the present currency hierarchy that is characterised by furtive operations accounts and cloak-and-dagger deals. It reviews arguments on both sides of the debate on the rationale of the CFA franc monetary system and demonstrates that it is ill-advised to credit the system with the low inflation and sustained growth of members of the CFA franc zone in the first decade after "independence". It shows that the monetary system is a bulwark against intra-regional trade, and members of the zone are vulnerable to external shocks because they are unable to effectively formulate and coordinate fiscal policies to offset the shocks. However, it warns that although dispensing with the CFA franc would reduce dependence significantly, doing so in haste to satisfy the emotional urge for revenge would be counterproductive. The CFA franc countries must consider three things in order to decide whether they should dispense with the currency. First, the importance of a monetary union. Second, the rationale of pegging their exchange rates to an external reference or anchor currency. Third, whether the euro is the most suitable reference or anchor currency.

International Journal of Political Economy, 2016

Professor Parguez is right when he claims that the 'euro' is a political failure and an economic disaster, in which French politicians and economists seem to have played a significant role. France's elite envisaged being a dominant political power on the Continent after the two military defeats of Germany in 1918 and 1945. The two strategies the elite tried were very different, but they both failed. A heavy war indemnity in 1919 and the common European currency in 1990 were seen by the French elite as instruments to suppress Germany's potential economic (and political) superiority. The French economic elite, represented by F. Perroux and Jacques Rueff, supported academically the elite's aspiration of being the leading power within a uniting Europe by academic arguments. The academic support to the Mitterrand government's EU-policy was organized by the former Minister for Finance (and later president of the European Commission), Jacques Delors. He headed the Committee on the Study of Economic and Monetary Union, which unanimously recommended a common European currency 'to the benefit of European prosperity'. According to Parguez, the resulting common currency created at a French initiative is the prime reason for the present European economic defeat, which has frustrated the French aspiration of playing a leading role being primus inter pares on the Continent. This is so because the rules we are bound to follow make no economic for Europe as a whole, which is collectively denied by the European elites. This short commentary discusses whether the economic profession not only in France, but in general, is incompetent, ideologically biased or simply a 'rent seeking' profession.