Integration through monetary union: A sceptical view

After several years of unrest in the international monetary scene, the governments of the EEC countries agreed in December 1969 at The Hague to place monetary union in Europe on the agenda. Behind this agreement, however, resides a wide range of differences of opinion, which are partly expressed in the host of plans for European monetary integration that have been published in recent months. One essential divergency of opinion is, whether one should first peg intra-Community exchange rates or whether one should first try to harmonize policies and wait till stable exchange rates come about almost by themselves. A premature fixing of exchange rates would lead to — unwanted waves of imported inflation in the more stable countries and to imported deflation and unemployment in the less stable countries, — regional problems in those parts of the EEC that have had a tradition of wage push, and the danger of undue industrial concentration in those parts that have a tradition , of relatively high labour discipline, and — the necessity for sizeable intra-EEC fiscal transfers in favour of cost-push regions to counterbalance the negative effects of high wage costs. These transfers might easily overstress the European solidarity, that is the readiness to pay, of the more stable national regions. These problems appear to be bigger if one thinks of an enlarged EEC. Contrary to the costs and risks of premature exchange rate fixing, the benefits are, it seems, frequently overestimated: As long as the free flow of goods and capital is guaranteed (and not impaired in defense of outdated fixed parities, as has often been the case in the past) most of the beneficial economic integration effects are secured. To avoid a setback in integration - similar to the recent setback due to the premature fixing of common agricultural prices - it therefore seems advisable not to force together divergent underlying trends, but rather to implement elastic devices for a harmonious growing-together of the various European economies.