The 1980s: Liberalization and Deregulation

Abstract

The decade of the 1970s in many respects had been a lost decade for Europe. Ill-conceived plans and unrealistic time schedules had left European countries floundering about for newborn faith in the integration ideals. However, the decade had ended on an optimistic note with the establishment of the European Monetary System. Admittedly, the EMS was not without its ritualistic jargon: the ECU being at the centre of the system, whereas of course in practice the Deutsche mark was to form the focal point for the participating currencies; and the divergence indicator signalling the need for policy action, whose frequent ringing, however, was left unanswered.¹ But if all the frills were cut out, a pragmatic system it was, resembling closely the snake in its essential operational elements. Unlike the snake, the EMS was not placed in the framework of the Werner Report’s goal of Economic and Monetary Union. This implied that there was no institutional pressure for capital liberalization. Such liberalization was not needed because the arrangement lacked the goal of monetary unification.² It was not wished for either because capital movements were still seen as potentially threatening for exchange rate stability. The founding fathers of the EMS were convinced that without exchange rate stability, there would be no resumption of European integration. The system was a realistic attempt to precisely reach this goal of ‘a zone of monetary stability in Europe’. 3 Later, it could be seen if the foundation had gained sufficient strength to build the European house further.

While some countries have almost completely liberalized capital movements, others fall far short of their obligations. The European Commission’s zeal in proposing new commitments has in the past not always been matched by the same attention to have old obligations respected. It can grant dispensation by empowering member countries in difficulties to take temporarily so-called safeguard measures. In one case this dispensation has been in force without interruption since 1968, when De Gaulle’s France got into trouble because of the students’ revolt. One should assume that the specific circumstances justifying it at the time have changed since then (and I do not only mean that those students have hopefully graduated by now).

W.F. Duisenberg, 1985