[Skip to Content]

Register to receive the OMFIF Daily Update and trial the OMFIF membership dashboard for a month.

* Required Fields

Member Area Login

Forgotten Password?

Forgotten password

Analysis
Economic psychoanalyst

Economic psychoanalyst

The geopolitics of monetary union 

by David Marsh in Berlin

Wed 18 Jan 2017

André Szász was a seasoned technocrat who was perpetually aware of the importance of geopolitics in European monetary integration. He was in many ways the psychoanalyst of French and German thinking on monetary union.

Szász was actor and observer combined. As a linguistically gifted representative of a small, active and globally minded country in Europe with a convoluted imperial and colonial past, he could understand better than most the mental make-up of his interlocutors.

He was no great believer in international monetary diplomacy. He saw instinctively that words and documents agreed in long economic parleying contained meanings that would be interpreted totally differently by different nationalities.

Szász’s views on the abiding gulf between Germany and France on monetary union – but also on the perpetual European ambivalence of the UK – do not make for comforting reading. A well-read man whose modest house in an Amsterdam suburb was awash with papers, books and records of all descriptions, Szász applied his acerbic mind to analysis of monetary fluctuations past and present.

He was convinced that politicians of all stripes did not understand what he called ‘the rules of the game’ about monetary integration – that domestic economic policies ultimately had to be harnessed to the overriding priority of external constraints. This was a condition easier to accept for a smaller country like the Netherlands – but even here Szász and his fellows at the Nederlandsche Bank often faced an uphill struggle.

In a long interview with OMFIF in 2011, he was asked: ‘Is it true that you once said that not one of the politicians who agreed the Maastricht treaty in 1991 understood what they were doing? I believe you said also: “And least of all our own prime minister [at the time, Ruud Lubbers].”’

Szász replied: ‘I may not have said exactly that, but I certainly believed it. The fundamental problem was that the two main countries concerned, France and Germany, wanted two different monetary unions. The French wanted to influence monetary policy to promote higher growth. They didn’t want to get an independent central bank and strong constraints on budgetary policies… The French accepted these conditions, instinctively thinking that once [monetary union] happened and once the Germans could be overruled, then the constraints… would automatically diminish. The Germans, for their part, through the personality of Chancellor Helmut Kohl, were convinced that EMU could start without political union, but once that got under way this would give rise to a dynamic that would force integration in other fields.’

Unusually for a central banker, Szász made speeches arguing for monetary union after the fall of the Berlin wall to keep Germany ‘bound in’ to European integration and escape the consequences of its history.

At the end of the 1960s, he linked new-found French willingness to accept Britain in the European Economic Community to France’s worries about Germany’s economic rebirth. In his 1999 book, The road to European monetary union, Szász pointed to the fundamental difference between France and the UK: ‘France believes it can ensure a leading role in Europe only by playing a leading role in its construction…. Britain feels it can afford to stay aloof, joining only once it turns out to be a success, and still claim a leading role. In the past, this did not work.’

He labelled the 1971 Werner report that set a (soon aborted) plan for monetary union by 1980 as ‘a compromise not in the sense that member states resolved their differences by meeting each other on intermediate positions, but rather they agreed on documents which they felt left them free to continue to push for their own preference.’

He expressed sardonic amusement over manoeuvrings on British membership of the exchange rate mechanism of the European Monetary System in the late 1980s.

‘I found it very difficult to understand why the other countries kept pressuring the UK to join. Especially if that pressure came not from politicians, who probably did not realise the consequences if they got their way, but from central bankers, as was the case occasionally from Bundesbank president [Karl Otto] Pöhl. During a visit to Amsterdam in August 1987, he supplied an answer, telling me that he was in favour, “just as you are yourself”, in taking a positive attitude… adding in his flippant way that he would not be arguing in favour of British entry if he thought they would listen… As a central banker I had to be cautious in airing my misgivings in public. Yet I did so in a speech in November 1988 in Antwerp… “[The advantages] can be expected only if Britain would be willing and feel able to respect the rules of the game… If there seems to be a conflict between internal and external objectives, a participant should be prepared – at least in the short run – to give priority to the exchange rate objective... Credibility always has to be earned… participation is not a soft option.”’

On the continent this was a lone voice, Szász said. He confessed to ‘a certain grim satisfaction’ when the Financial Times quoted from his speech in a valedictory article on Britain’s ERM membership in December 1992.

David Marsh is Managing Director of OMFIF.

Tell a friend View this page in PDF format