Formulating and implementing a common monetary policy: technical problems and political will

Two issues present themselves when discussing the creation of monetary union: firstly, the impact of a common monetary policy on the various economic systems and how far differences in the economic systems should be taken into account when designing a common policy; and secondly, how to solve the institutional problems connected with the implementation of a common monetary policy and what kind of relationship can be established with existing institutions, namely, in the case of European monetary union, the national central banks. In both respects Italian economic history is an interesting case, firstly because at the time of national unity there were marked differences in the political, administrative and economic systems of the States involved – some scholars talked of a sort of ‘mutual extraneousness’ (Cafagna, 1965); secondly, because no State had yet completed its process of industrialization, thus offering an excellent opportunity to study the interrelationships between political unification, market integration and economic growth.

With specific reference to the institutional problems of monetary integration, there are some analogies between Italy at the time of unification and Europe today, since the choice faced by Italian policy makers was not between a note-issuing monopoly and free banking – the term Vera Smith used to describe ‘a regime where note-issuing banks are allowed to set up in the same way as any other type of business enterprise, so long as they comply with the general company law’ (Smith, 1936, pp. 148–49).