About four decades ago, Pierre Werner envisioned concrete steps towards monetary unification consistent with an idea of European peace and prosperity.
Now, four decades later, Europe has done remarkable steps in this direction but, as the euro crisis and its aftermath have shown, there is a need to reassess the fiscal and monetary framework of the Economic and Monetary Union.
The aim of the Pierre Werner Chair Programme is to contribute to research and provide a forum for policy debates, with the objective to design sustainable and credible policies and institutions.
Pierre Werner (1913-2002) is widely remembered for his major role in building a united Europe, particularly for his ideas on the need for strong monetary integration. He served as Prime Minister and Finance Minister of Luxembourg for over 30 years.
After having completed a PhD in Law at the University of Luxembourg, he started a career in banking in 1938. When World War II ended he was elected to the Luxembour parliament, joining the Ministry of Finance as Commissioner for Banking Control from 1945 to 1949 and as government counselor until 1953, when he was appointed Minister of Finance and Minister of Defence.
In 1959 he became Prime Minister, a position he held until 1974 alongside responsabilities on the Finance portfolio.
In this capacity, in March 1970 he was asked by the Council of the European Economic Community to chair a high level group for studying the prospects for a progressive achievement of an economic and monetary union in the Community. The final report of the high level group came to be known as “Werner Plan”, foreshadowing the later economic and monetary union as it would have been defined in the Treaty of Maastricht in 1992.
In 1979 he was appointed Prime Minister for one final term before leaving politics in 1984. After retirement, he held positions as Chairman of the Compagnie Luxembourgeoise de Télédiffusion and of the Société Européenne des Satellites, besides holding the title of ‘honorary Prime Minister’.
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.”