Stanley Fischer: Past, present, and future challenges for the euro area

Stanley Fischer : Past, present, and future challenges for the euro area

The ERM crisis was an apt illustration of the difficulties of trying to manage exchange rates among countries operating under markedly different economic conditions. However, rather than dissuading policymakers from trying to limit exchange rate fluctuations within a system that would nonetheless preserve the possibility of some exchange rate flexibility, the experience seemed to encourage them to continue with the plan of the Maastricht Treaty to introduce a single currency and a common monetary policy at the beginning of 1999. Here indeed was an example of a crisis leading to a strengthening of the European system - though the process to create EMU - the Economic and Monetary Union, not the European Monetary Union - began well before the ERM crisis.

The exchange rate and central banking provisions of the Maastricht Treaty were introduced on the schedule set out in 1991, with the ECB coming into existence in 1999. Until about 2009, the monetary aspects of the plans for the development of the European Union (EU) seemed to be a major success - but not a sufficient success to persuade all members of the Union to become members of the ECB and adopt the euro, with the most notable standout being the United Kingdom.

The ERM crisis also drove home the need for greater coordination of fiscal policies in the run-up to monetary union. Members of the EU agreed to the Stability and Growth Pact in 1996. Although, as we all know, the conditions of the pact have not always been observed, nor enforced by Brussels, the acknowledgment of the need for a coordinated fiscal policy to complement monetary union was still a step forward - one which may be drawn on in future.

What lessons can we draw from this history of the region's economic and monetary responses to earlier crises ?
Do the results bear out the spirit of the statements by Monnet and others about each crisis leading to greater strength ?

http://www.bis.org/review/r150522b.htm

Stanley Fischer: Past, present, and future challenges for the euro area

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Speech by Mr Stanley Fischer, Vice Chair of the Board of Governors of the Federal Reserve System, at the ECB Forum on Central Banking conference "Inflation and Unemployment in Europe", Sintra, Portugal, 21 May 2015.

http://www.bis.org/review/r150522b.htm