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Analysis
Lessons on a ‘fair-weather currency’

Lessons on a ‘fair-weather currency’

Euro negotiator who worried about derailment

by Roel Janssen in The Hague

Wed 18 Jan 2017

Eyes suddenly aglow, André Szász would say, in his characteristically throaty voice, ‘Just to be sure that it is correct what I have been telling you, shall I look it up?’ He would turn around, open the small safe in his office in the Nederlandsche Bank, and take out one of his diaries.

In his meticulous handwriting, Szász kept notes of the many monetary meetings he had attended over the years as international director of the Dutch central bank. He would locate the passage he was seeking. Invariably, it confirmed what his ferociously precise memory had already told him.

Szász died on 2 January, aged 84. He had a front-row seat in oscillating episodes spanning the breakdown of the Bretton Woods system in 1971-73, the foundation of the European Monetary System and the move towards economic and monetary union.

Fluent in German as well as a flawless English speaker, Szász was that rarity among international central bankers: a man who could speak in their own language to leading Germans such as Karl Otto Pöhl, Helmut Schlesinger and Hans Tietmeyer. He shared the Bundesbank’s near-theological leaning towards monetary stability. A convention was established that the Dutch would argue for German propositions at international meetings with less controversy and greater chances of implementation.

Szász’s understanding of both the geopolitics and technicalities of central banking was deep-rooted, his life intensely private. A shy, amiable, enigmatic man, in small groups of trusted friends he could vividly relate tales of past policy-making, peppered with ironic asides about the misdeeds of politicians who dared meddle with the sanctity of money.

Szász stemmed from a wealthy Hungarian family. His father was a doctor in the Austrian-Hungarian army during the first world war, who travelled to the Dutch East Indies in 1923, returning to Hungary in 1928 to find a wife. Together they went back to the Dutch Indies where Szász was born in Jogjakarta on the island of Java in 1932. In 1933 his parents returned to Hungary, with two small children. After the 1938 Anschluss of Austria in the Third Reich, they moved again to the Dutch Indies, where his father continued work as a surgeon. During the Japanese occupation, the Szász family was not forced into an internment camp, as Hungary was considered a neutral country.

In 1947, the family moved – for good – back to the Netherlands. Szász’s mother died a year later, and his father sent him to a boarding school near Montreux in Switzerland. He studied economics at the University of Amsterdam, and worked at the central bank from 1960-94, latterly practically single-handedly in charge of Dutch foreign monetary policy.

In 1988, still at the central bank, he published his Ph.D. dissertation, Monetaire diplomatie: Nederlands internationale monetaire politiek 1958-1987. After his retirement he wrote De euro, politieke achtergrond van de wording van een munt. The English translation contained several important variations from the Dutch original (not least in that it excluded some material on Dutch government documents deemed too senstive for release to an international clientele). It was published as The road to European Monetary Union in 1999 and became a well-received standard text.

After a shaky start to the European Monetary System in 1979, the Nederlandsche Bank was convinced that the Netherlands should remain fixed to the anchor currency, the D-mark. However, in 1983 Prime Minister Ruud Lubbers’ government decided amid an economic crisis that the Dutch should not follow the D-mark in an exchange rate realignment. Szász pointed to the subsequent spread between German and Dutch interest rates as an example of the pernicious effects of what he called this ‘once but never again’ decision. Thereafter all Dutch parties accepted that the guilder should remain irredeemably linked to the D-mark under the ‘hard guilder’ policy.

After 1989, together with Nederlandsche Bank President Wim Duisenberg, Szász was closely involved in negotiations on setting up the European Monetary Institute and later the European Central Bank (of which Duisenberg became the first president). In 1990, he attended a meeting of the Dutch cabinet to describe progress. ‘They had no idea,’ Szász recalled afterwards. ‘It seemed that, for the first time, they realised how fast things were moving and what the implications of monetary union would be.’

A year later, Lubbers sealed the path to EMU at the Maastricht summit. French President François Mitterrand and Giulio Andreotti, Italian prime minister, managed to include in the draft treaty 1999 as final date for introducing the European currency. Lubbers went along with the idea, to the dismay of central bankers. Szász was convinced that timetable pressure would undermine the stringent admission criteria backed by the central bankers. He was proved right.

The second birth defect, according to Szász as well as many in the Dutch government, was the absence of a political union. The Bundesbank had insisted on this, much to the exasperation of politicians (including some in Germany). In the end, monetary union came about without political union or even a road-map to that goal.

The euro, Szász used to say, was a ‘fair-weather currency’. When storms hit in 2010, shortcomings inevitably emerged. He continued to believe in the desirability of a sound European currency, but was worried about derailment – because the moment might arrive when Germany would have enough. ‘If the Germans are no longer willing to pay the bill and a populist party surges that picks up this discontent, then it will be the end of the euro,’ he predicted, well before Alternative for Germany, the anti-euro party founded in 2013, started to make headway.

On 9 January he was cremated ‘in silence’, as the Dutch say, without the presence of former colleagues, or current Nederlandsche Bank representatives. His vast personal archive will be handed over to the central bank. The euro area still has 19 members, but the deficiencies of which Szász had tirelessly warned remained unresolved.

Roel Janssen is a Member of the OMFIF Advisory Board and has covered economic and financial affairs, fiscal policies and the euro for NRC Handelsblad, a leading Dutch daily newspaper, for more than 30 years.

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