Then and Now: European Trade, Payments, and Financial Regionalism in Historical Perspective

Abstract

This article compares the current European Economic and Monetary Union (EMU) and the European Payments Union (EPU), the institution which in the fifties contributed to Europe’s postwar recovery and achieved currency convertibility. While the two periods are characterized by different historical and economic initial conditions, there are also many striking similarities, starting from the emphasis placed in both regimes to the goal of economic integration in the context of a fixed exchange regime. A major difference is worth highlighting though. Differently that in the EMU, in the EPU the risk that excessive permanent imbalances among member countries might hamper the functioning of the system was prevented by a safeguard mechanism. In its absence, payment imbalances between the North and the South have contributed to the accumulation of large stock of foreign debt. Capital reversals, by shifting the portfolio balance have brought the system towards instability, and sovereign default, thus threatening the survival of the fixed exchange rate regime. In spite of such negative developments, the article argues that what seemed a hard necessity in the difficult postwar years, dictated by the need to rebuild the European trade and payments system, would be harmful step behind today and a sign of ongoing political disagreements over the purpose and ultimate goal of EMU and European integration.

History is not, of course, a cookbook offering pretested recipes. It teaches by analogy, not by maxims… yet each generation must discover for itself what situations are in fact comparable.

Henry Kissinger

I wish to thank Randy Henning and Domenico Lombardi for the encouragement to write this essay and useful exchanges of view; Lorenzo Giorgianni, Paolo Guerrieri, and other participants in the XXIV Edition of Villa Mondragone International Economic Seminar (June 26–27, 2012), where this work has been first presented, for helpful comments. Errors and opinions are my own.