Trading in the Global Currency Markets, 3rd Edition by Cornelius Luca

Author:Cornelius Luca
Language: eng
Format: epub
Published: 2019-01-21T16:00:00+00:00

3 The European Monetary Union

T he European Monetary Union (EMU) launched its long-planned euro on January 4, 1999, kicking off the most powerful union known to man in times of peace. It has been a great success, smoothing the emergence of the increasingly intertwined Eurozone economy. This was only a step in a long series of measures designed to fully integrate the richest, if divergent, economies of Western Europe in an all-out effort to compete head-to-head with the economic and financial might of the United States and China.

This chapter presents the historic path to this unique and historic supranational organization, its characteristics, and its future.

HISTORICAL BACKGROUND

The creation of the European Monetary Union was the result of a long and continuous series of post–World War II efforts aimed at creating closer economic cooperation among the capitalist European countries. The European Economic Community (EC) commission’s officially stated goals were to improve inter-European economic cooperation, create a regional area of monetary stability, and act as “a pole of stability in world currency markets.”

The end of World War II painted a ravaged picture of the former industrial and financial Europe. Foreign exchange was completely out of the picture, as currencies had lost their value. But even under better circumstances, trading would have been impossible, because currency fluctuations were tied in very narrow ranges against the U.S. dollar, under the Bretton Woods Accord of 1944. The accord had created a much-needed nurturing environment for the European economies. Currency stability was vital to the enormous task of rebuilding Europe.

The first steps in this rebuilding were taken in 1950, when the European Payment Union was instituted to facilitate the inter-European settlements of international trade transactions. In 1951, the Treaty of Paris established the European Coal and Steel Community, formed by West Germany, France, Italy, the Netherlands, Belgium, and Luxembourg; Great Britain declined to join. The purpose of the community was to promote inter-European trade in general, and to eliminate restrictions on the trade of coal and raw steel in particular.

The lesson one can draw from that early treaty is that the core lineup and the cultural gaps have changed little over the past fifty years. From the very beginning, the de facto European leaders have been Germany (at the time in its split Western version) and France, while the U.K. opted out. That was the case in 1951, and that remained the case on January 4, 1999.

The French National Assembly derailed plans for a joint European Defense Community in 1954. The lesson in this case is that French governments tend to have a more individualistic tone, a source of trouble within international unions, which require members to strive for the good of the whole.

In 1957, the Treaty of Rome established the European Economic Community, with the same signatories as the European Coal and Steel Community. The stated goal of the European Economic Community was to eliminate customs duties and any barriers against the transit of capital, services, and people among the member nations. The EC also started to raise common tariff barriers against outsiders.

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