Introduction

The initiatives to discuss the establishment of a centralized monetary authority in Europe, coming from government officials, have caught observers by surprise. The European Monetary System (EMS) has proved to the whole world to be a viable arrangement, and has been able to withstand the sizeable international financial shocks of the early 1980s: an immediate threat to the EMS is thus not evident. These initiatives, however, should all the more be applauded, since they signal the concern of governments with the fast evolution of the European economies and capital markets. The renewed debate on a European central bank reopens the questions of whether current monetary institutions will be obsolete and incapable of functioning in the face of the seemingly unstoppable trend towards market integration, and of the viability of new institutional arrangements among central banks.

In the significant body of research on the EMS there is little concern with the issue of a European central bank. Existing work concentrates on interpreting EMS experience, and evaluating the performance of that system. Hence this book represents a first attempt at analysing the various aspects of the problem of a centralized European monetary authority. While by no means exhaustive, this book brings the perspectives of both economic analysis and economic history to bear on this issue. The purpose of this essay is to describe the background to the question of monetary unification, the arguments according to which Europe would need its own central bank, and the problems of designing viable institutional arrangements, in the light of historical experience.