The Maastricht Treaty

The Maastricht Treaty, adopted in 1992, should be considered against the backdrop of various historical developments and interests. Firstly, it was hoped that Europe, with the euro, would enjoy a stronger position in the international monetary system. In particular, experience with the Bretton Woods system had shown that, in case of doubt, the United States gave more weight to its national interests than to its responsibility for a functioning international monetary system. Secondly, the regular currency crises jeopardized the aim of creating a single European market, and the EMS had been unable to meet expectations in addressing this. Thirdly, the so-called weak currency countries in Europe had learned that the lack of credibility of their currencies in relation to the D-Mark led to significantly higher interest rates than those in Germany (see Figure 7.2). By transferring national powers for monetary policy to a supranational institution, it was believed that the credibility trap could be avoided and lower interest rates could be realized. Fourth, the southern European countries, as well as countries like France, had discovered that their monetary autonomy was limited and that monetary policy in Europe was largely determined by the Deutsche Bundesbank. The transfer of monetary policy to a supranational institution was thus not interpreted as a major loss, rather, it was hoped that in a supranational institution like a European Central Bank (ECB), monetary policy would be determined more democratically in Europe in the future (Brunnermeier et al. 2016).

Germany's interests were different. In a monetary union, it had to give up the dominant role of the Deutsche Bundesbank and the D-Mark as the regional reserve and key currency. The Deutsche Bundesbank and parts of the German public were sceptical about a quick monetary union (see Chapter 1). But the upheavals in Central and Eastern Europe pushed Germany to compromise. A symbol of this development was the fall of the Berlin Wall in November 1989, which made the official German reunification in 1990 possible. Unification consolidated the German position in Europe, making it even stronger, which France, Italy and the UK regarded with mixed feelings.