Postwar: A History of Europe Since 1945

by Tony Judt

In 1978 the West German Chancellor Helmut Schmidt proposed recasting the snake into something altogether more rigorous: a European Monetary System (EMS). A grid of fixed bilateral exchange rates would be set up, linked by a purely notional unit of measure, the European Currency Unit (the écu5), and underwritten by the stability and anti-inflationary priorities of the German economy and the Bundesbank. Participant countries would commit themselves to domestic economic rigour in order to sustain their place in the EMS. This was the first German initiative of its kind and it amounted in fact if not in name to the recommendation that, for Europe at least, the Deutschmark replace the dollar as the currency of reference. Some countries stayed out—notably the UK, where Labour Prime Minister James Callaghan correctly understood that the EMS would prevent Britain adopting reflationary policies to address the country’s unemployment problem. Others joined precisely for that reason. As a ‘solution de rigueur’, the EMS would function rather like the International Monetary Fund (or the European Commission and the euro in later years): it would oblige governments to take unpopular decisions which they could hope to blame on rules and treaties framed from abroad. Indeed, this was the true long-term significance of the new arrangements. It was not so much that they succeeded in time in driving out the demon of inflation (though they did), but that they did so by steadily depriving national...