The Pierre Werner legacy
Pierre Werner belongs to the group of European leaders who promoted policies firmly rooted in a coherent vision of Europe, bringing together economic, historical and political arguments, as of why peace and prosperity in Europe need economic and monetary integration.
At the end of the 1960s, the Werner Report defined monetary unification as a European long-term goal, proposing a blueprint on how to achieve monetary integration which dominated the debate on this issue in the following decades.
The international economic and financial turmoil of the 1970s brought this early impulse to a swift halt. The monetary arrangement known as 'the Snake' kept the policy initiative in monetary matters symbolically alive, but it was not until 1978 that the launch of the European Monetary System (EMS) marked the beginning of the path to the monetary union envisioned by Pierre Werner.
The initial phase of the EMS was met with general scepticism and had little influence on domestic policies until 1983. Then, policy support of a new view of European monetary integration emerged, based on a fixed exchange rate that could ‘borrow' anti-inflationary credibility and fiscal discipline from the country with the most successful inflation record, Germany, to the other European countries. This asymmetric view of European monetary arrangement was absent in early analyses, including the Werner Report, which instead influenced clearly the Delors report, and therefore the Treaty of Maastricht, in terms of ensuring the conditions for effective policy co-ordination.
The 1992-93 European currency crises imparted two important lessons. First, a fixed exchange rate per se is not a guarantee of success; and second, any failure of policy coordination is potentially quite disruptive in Europe. It took a few years for European leaders to readdress their strategy on both these accounts.
Although the successful launch of the Euro and the subsequent overall good economic performance of the euro area were somewhat helped by a favourable international scenario, large global and local imbalances were also building up in this phase. Combined with deep but well hidden problems in financial markets, these factors generated the strongest crisis since the Great Depression. The response of economic policy was appropriate, preventing systemic collapse of the financial markets and of the real economy.
The counterpart of this policy was, however, a major deterioration of the fiscal position of most countries, in particular in Europe and in the euro area, with massive increases in the fiscal deficit and in the government debt. A number of important steps were taken towards redesigning the institutional architecture of EMU, based on the roadmap outlined in the Four Presidents Report (2012).
The background has changed in these years following the crisis. At first it seemed to be going ‘according to plan’: with ‘euro-stressed countries’ starting to come out of the recession, the development of the European Stability Mechanism and of the European Banking Union, and the 2015 Five Presidents’ Report (2015)calling for a further development of the Financial Union and the Fiscal Union, as well as an enhancement of risk-sharing “through a mechanism of fiscal stabilization for the euro area as a whole,” and to improve the collective decision making within the Fiscal Union with a “future euro area treasury.”
However, the plan has been shaken since 2016: in response to the international situation, EU priorities have changed – with migration, security and defense coming to the forefront, – euro-skeptic populism, nourished by the recession, has become a democratic challenge in several euro countries and, more importantly, Brexit: the first historical reversal of the European integration process, questioning the process itself.
The same European Commission in its White Paper on the future of Europe has postulated five different scenarios of “the potential state of the Union by 2025”, which in turn entail five different scenarios for the EMU – only the maximalist scenario contemplates: “Economic, financial and fiscal union is achieved as envisioned in the report of the Five Presidents of June 2015.”