Abstract
To clarify right from the outset: The introduction of flexible exchange rates and the establishment of European Monetary Union are not the consequences of applying economic expertise. The first is a consequence of the normative power of facts: the breakdown of the Bretton Woods System in 1973; the latter a consequence of political wisdom or shrewdness: the Maastricht Treaty of 1992. All economists did was to provide the arguments to rationalize flexible exchange rates (after the breakdown of the Bretton Woods System) and its opposite (absolutely fixed rates) in case of the European Monetary Union. Both should be seen together.
In slightly changed form reprinted from Credit and Cpital Markets, Vol 46:1, pp. 13–27 (Duncker & Humblot, Berlin, Germany). The original paper has been presented at the University of Saarland, Germany Feb. 27th 2012. I thank Kenneth E. Scott, Stanford Law School for his critical comments and corrections.
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Notes
- 1.
Own translation from the German.
- 2.
SR JG (1964/1965, p. 179).
- 3.
SR JG (1966/1967, p. 147).
- 4.
SR JG 1966/1967, p. 149.
- 5.
- 6.
Example: “…the foreign firms that entered the U.S. market when the dollar appreciated did not exit when the dollar fell back to its original levels.” (Dixit 1989, p. 620 on hysteresis of investments by foreign firms).
- 7.
- 8.
For a list of agreed upon Bundesbank exchange rate interventions (until May 1983), see the Annual Report of the Deutsche Bundesbank 1983, pp. 76–77.
- 9.
Such as in the “Plaza Agreement” of September 22, 1985 between the United States, France, West Germany, Japan, and the United Kingdom—or the “Louvre Accord” of Feb. 22nd 1987 between the G 6.
- 10.
Group of the six leading industrial nations (Germany, France, Italy, Japan, USA, GB).
- 11.
From Richter (1999, p. 146).
- 12.
The goal was combination of European Union member states into a cohesive economic system, most notably represented with the adoption of the euro as the national currency of participating members.
- 13.
A former student of Stützel.
- 14.
In a speech of 1997; reproduced in Deutsche Bundesbank, Auszüge aus Presseartikeln Nr. 49, 3. Sept. 1997.
- 15.
Note the similarities and differences to above described Stützel’s “hardened foreign exchange standard.”
- 16.
Publiched in Frankfurter Allgemeine Zeitung of June 11th 1992; see also Hrbeck (1993, pp. 159–161).
- 17.
“As so far no agreement exists on the structure of a political union there is also no sufficient democratically legitimated regulatory system.” (Hrbek 160, own translation).
- 18.
Thus Doyle (1989, p. 74) writes: “For EMU to be sustainable, the economies of the countries forming the union must be similarly competitive or else some countries would be faced with the equivalent of a constant balance-of-payments-deficit which, in EMU, would be reflected in terms of stagnation and unemployment.”
- 19.
See The Wall Street Journal, March 20th 1991, p. 11.
- 20.
How right these authors were is confirmed by the economic experiences of the years 1999–2011 as Wynne and Koech (2012, p. 2) show.
- 21.
“Instead of increasing intra-European harmony and global peace, the shift to EMU and political integration that would follow it would be more likely to lead to increased conflicts within Europe …”Feldstein (1997b).
- 22.
On this point and more see also Richter (1991b).
- 23.
- 24.
Apart from two IMF economists, Prati and Schinasi (1999), who studied the allocation of lender-of-last-resort and banking supervision responsibilities among the European Central Bank and the national central banks, the national supervisors, and national treasuries of the (at that time) 11 member countries.
- 25.
See, e. g., the contributions published in Hrbek (1993).
- 26.
One that cannot be fully recovered through the market.
- 27.
They don’t even know all relevant stochastic variables.
- 28.
Williamson (1985, p. 47) defines opportunism as “self-interest seeking with guile.” In other words, individuals are likely to be less than completely trustworthy in the sense that they may disguise preferences, distort data, deliberately confuse issues, etc., in order to gain advantage. The current negotiations of the “Troika” with EMU debtor countries illustrate this point.
- 29.
Williamson (1985, 72 ff.).
- 30.
He argues: “The higher the magnitude of asset specificity, the greater the incentives for opportunism and the greater the need for institutional integration: for the transfer of authority to bureaucratic, legislative, or dispute resolution mechanisms.” (Trachtman 2008, p. 174).
- 31.
According to the Second Senate of the German Federal Constitutional Court, EMU forms so far only a Staatenverbund (“group of states”).
- 32.
Own translation from the German. Markus Spillmann speaks of a “complicated interlacement of supranational and national responsibilities” (Neue Zürcher Zeitung, 5./6. May 2012, p. 1; own translation).
- 33.
- 34.
Example: The claim that the withdrawal from the eurozone would generate a domino effect (see, e.g., J. Chatzimarkakis, Saarland EU representative in Saarbrücker Zeitung, 9 May 2012, p. A3). Anyway, “…large debts of Greece are a problem of the creditors.” (Neue Zürcher Zeitung, 14 May 2012, No. 111, p. 10).
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Richter, R. (2015). The Euro Crisis from the Perspective of the Preceding Debates on Fixed Versus Flexible Exchange Rates and the European Currency Union. In: Essays on New Institutional Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-14154-1_6
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