Andreotti’s Role in the EMS Negotiations

Jenkins’ statements were shortly followed by the decision by the nine Heads of Government of the EC, meeting in Copenhagen in April of 1978, to create a zone of European monetary stability, thereby beginning the rapid process that would lead in a few months to the birth of the European Monetary System�²⁵ At Copenhagen, Andreotti, who also had a one-on-one meeting with Schmidt,²⁶ had a wait-and-see attitude�²⁷

It is known that the most important decisions were taken – after a meeting between Giscard d’Estaing and Jenkins at the Élysée Palace on June 22 and one between Giscard d’Estaing and Schmidt on June 23 in Hamburg, where the content of a common unit of measure was defined as an “embryon d’une future monnaie européenne”²⁸ – at the European Council in Brema on July 6-7, where a “scheme for the creation of a closer monetary cooperation (European monetary system) leading to a zone of monetary stability in Europe”²⁹ was discussed� In addition to the focus on exchange rates with narrow margins of fluctuation, the Scheme called for the creation of both an initial fund containing a significant part of the central bank reserves of the European countries, destined to become the initial nucleus of a European central reserve, which would be the basis for a European monetary unit – the European Currency Unit (ECU) – as well as a European Monetary Fund, to be created within two years of the start of the System�³⁰ The currencies outside the Snake were

25 The European Council in Copenhagen, The Presidency’s Conclusions concerning the Economic and Social Situation, Draft, April 7-8, 1978, ASILS, AGA, Europa, b� 355, cart� “Consiglio Europeo (Copenhagen, April 7-8, 1978)”�

26 Anonymous note for Andreotti, ASILS, AGA, Europa, b� 355, cart� “Consiglio Europeo (Copenhagen, April 7-8, 1978)”�

27 “The long discussion […],” he notes, “focused almost exclusively on the monetary issue� […] Giscard hinted at a return to the Snake, though without insisting� He appeared quite interested in Schmidt’s own proposals� The crux of Schmidt’s ideas is the pooling together of the reserves of the nine countries, with the creation of a European Monetary Fund”� This was a hand-written note of Andreotti’s on the evening of the conversation at Copenhagen, in ASILS, AGA, Europa, b� 355, cart�

“Consiglio Europeo (Copenhagen, April 7-8,1978)”� See also Varsori, Antonio, La Cenerentola d’Europa? L’Italia e l’integrazione europea dal 1947 a oggi, Soveria Mannelli, Rubbettino, 2010�

28 Giscard d’Estaing, Valéry, Europa: la dernière chance de l’Europe, preface by Helmut Schmidt, Paris, XO Éd�, 2014�

29 The Results of the European Council in Bremen, in “Bulletin of the European Communities”, 1978, No� 6� See also Conclusioni del Consiglio europeo di Brema, July 6-7, 1978, in ASILS, AGA, Europa, b� 356�

30 In reality the EMS would never reach the second stage of fixed exchange rates decided at Brussels within two years of the inception of the System�

invited to gradually reduce their fluctuations ahead of their entry into the new System�

At Bremen, Andreotti asked for clarification regarding the link between currencies and economic policy� He explained that for some time the situation in Italy would remain unfavorable compared to the other member states of the Community and that “corrections” would be necessary to compensate for the difference in the average inflation rates of the nine countries� Moreover, his opposition to Giscard d’Estaing’s proposals to set specific dates and deadlines for the EMS was clearly evident� “We have come here,” he stated, “with several indications from Clappier (and from Schmidt personally)� However, we also have a document from the Monetary Committee that has not been discussed�

The Finance Ministers must examine everything and make conclusive proposals”�³¹ In response to Schmidt’s question: “What would you propose?”, he answered: “The Council, viewing the indispensability of a system of closer monetary cooperation for the growth of the Community, charges the Finance Ministers with drafting concrete proposals by July which take into account both the discussions in the European Council of April 7-8 and July 4 and Ecofin’s recent conclusions”� To Giscard d’Estaing, who insisted on giving clear instructions to the Finance Ministers, Andreotti responded: “If the document received tonight is published, it will seem as if the decision has already been made, making it difficult to gain the participation of other countries, which needs to be done gradually”�³²

The concluding speech by Schmidt finally led to a compromise: the following day the nine countries would approve a concrete and precise document, which, however, would be considered only as a commitment to study the issue, while the Irish representative Lynch would be charged with overseeing the drafting of a Scheme of Resolution which would include the commitment to the economic changes needed in the weakest countries�³³ Italy thus succeeded in getting the project to be considered as

“modifiable”� It was also decided at Bremen that before the next meeting, planned for July 24, the Finance Ministers would draft a mandate to the Monetary Committee and the Board of Governors of the central banks

31 Notepad with Andreotti’s original notes, in ASILS, AGA, Europa, b� 356, “Brema 6-7-1978”�

32 Ibidem�

33 “There will be – stated the conclusions at Bremen – concurrent studies of the action needed to be taken to strengthen the economies of the less prosperous member countries in the context of such a scheme; such measures will be essential if the zone of monetary stability is to succeed”� The Results of the European Council in Bremen, cit�

to develop a European Monetary System (EMS) project by October 31, to be voted on by the European Council in Brussels at the beginning of December�

Some days after the Bremen Summit, at a meeting of the Italian cabinet presided over by Andreotti, the Foreign Minister, Forlani, explained that at Bremen Italy had reaffirmed its allegiance to the Community and its wish for a strengthening of the economic and monetary union, so long as this occurred under acceptable conditions for those countries which, for a certain period of time, would have differentiated growth and inflation rates�³⁴ Re-proposing one of the main topics in Europe’s political debate beginning with the Hague Conference in 1969 – the opportunity for a country to go it alone in the monetary area or in the monetary and economic areas contemporaneously – Forlani added that, along with the monetary proposals, at Bremen the need was recognized to also work toward economic cooperation, in particular as regards employment and energy policies and the reduction in regional imbalances�

Therefore, the Italian government’s interpretation of the proposal for the creation of a European Monetary System was clearly wide-ranging, leaving ample room for considerations regarding the link between monetary, economic and political unification in the hope for new impetus in the Community’s construction� This interpretation was confirmed on July 20 by the relations presented by the Foreign Minister Forlani and the Treasury Minister Pandolfi to the joint Foreign Affairs and Finance committee, under the presidency of the staunch Europeanist Carlo Russo�³⁵ Forlani spoke of an “ambitious and concrete project to relaunch Europe’s construction, supported by a firm political will”�³⁶ Pandolfi spoke of a process aimed at creating a more integrated economic zone, a European monetary policy, and greater political cohesion, adding that “the Italian government has stated that it attributes great importance, even political, to increased efforts to achieve closer economic and monetary cohesion”�³⁷

34 Minutes of the Council of Ministers meeting of July 14, 1978, in the historical archives of the Luigi Sturzo Institute (ASILS), and the Giulio Andreotti archives (AGA), Serie Europa�

35 Russo was a staunch Europeanist member of both Monnet’s Comité d’Action pour les États-Unis d’Europe and the European Federalist Movement� See Preda, Daniela,

“L’Europa di Carlo Russo”, in Preda, Daniela and Levi, Guido (eds�), Genova, Liguria, Europa. Protagonisti del federalismo nel secondo dopoguerra, Genoa, Genoa University Press, 2015, p� 87-101�

36 Chamber of Deputies, “Bollettino delle Commissioni”, July 20, 1978, Joint Foreign Affairs and Finance and Treasury Committee, presided over by the President of the Committee, Carlo Russo, p� 8�

37 Ibidem, p� 10�

Pandolfi emphasized that, in order to avoid the age-old quarrel between

‘monetarists’ and ‘economists’ it was necessary to adopt a “pragmatic approach” and show “strong political will”, at the same time� He added that “the real heart of the question is the fact that the Italian government views its decisions within the community structure favoring monetary discipline as part of its general internal economic policy”�³⁸ Therefore, the European option was directly linked to the domestic economic one�

A document drafted by the Government on August 31 succinctly stated:

“Everything, cultural tradition, popular sentiment, political orientation, leads us toward Europe� However, much of our economic reality tends to push us toward the perimeter� This represents a contradiction we must resolve� The road that leads us toward Europe is the same one that leads us toward the objectives of growth with stability […]� To remain in Europe it is necessary to reduce the gap between the increase in prices and the cost of labor that exists between us and the other Community countries”�³⁹ Not by chance, in August the Treasury Minister would present a draft proposal that would become, with the appropriate changes, the 1979-1981 Three-Year Plan, known as the Pandolfi Plan�

During the summer the discussions on European monetary integration continued at a brisk pace� On October 26, during a joint meeting of the finance and treasury committee, Central Bank Governor Baffi spelled out Italy’s position in a blueprint pamphlet distributed by the Bank of Italy on October 2 to the other EEC governors, “aimed at the construction of an exchange-rate system which was able to adapt to  the specific conditions of our country and usefully contributed to the convergence process”⁴⁰ of the Italian economy toward the conditions prevailing in the other member countries� Three priorities were indicated: the rigorousness of exchange rates, the centrality of the ECU System, and the possibility for countries outside the Snake to take advantage of wider margins of fluctuation during an initial transitional phase�

Fundamental to convincing the Italian government to join the new monetary system was a meeting in Siena on November 1-2, 1978, between Andreotti and the German Chancellor Schmidt�⁴¹ On that

38 Ibidem�

39 This document is mentioned in Pandolfi’s speech to the Senate on December 7, 1978, 345^th and 346^th session, summary account�

40 Speech by the Governor of the Bank of Italy, Paolo Baffi, to the joint session of the Senate finance and treasury committee, October 26, 1978, in ASILS, AGA, Europa, 1/A/8, b� 399�

41 On the Siena meeting, see ASILS, AGA, Europa, b� 451�

occasion, during an event organized by the Federalists Andreotti received a delegation led by the Tuscan regional secretary, Gastone Bonzagni, and the regional secretary of Emilia, Marco Bondesan� The Federalists were also received by the Minister Pandolfi, who would later write an article significantly entitled Non possiamo perdere l’autobus dei Nove (We Cannot Miss the Bus of the Nine)⁴²� After the meeting of the Federal Committee of the UEF on November 4-5, 1978, the European federalists would also write to Andreotti through Caterina Chizzola, urging him to accept the EMS “as a transitional phase toward an economic and financial union”, through an increase of at least 2�5% of Community GDP, as called for in the Mc Dougall Report, “in order to make possible the support measures needed to reduce the structural imbalances among the European states”�⁴³

Nevertheless, at the beginning of November Italy’s disappointment at the results of the Committee’s activities was tangible, as shown by the

“political observations on the European monetary discussion under way”

preserved in the Andreotti archives, a part of which is handwritten�⁴⁴ The Prime Minister mentions that the Bremen proposal to stabilize the currencies of the European countries had been “presented with the prospect of a leap in quality for an authentic policy of equal distribution among the various economies and situations”� Emphasis had been placed

“in general on the transfer of resources, obtainable in different ways (a substantial increase in the Regional Fund and the Social Fund, loans by the European Bank, etc�)”, and the creation of a sizeable Guarantee Fund had been called for, one that would represent an important technical as well as symbolic element� This point now seemed less clear-cut to Andreotti� Moreover, also envisaged were elastic margins of fluctuation, which would take into account the different starting points of the countries involved� After Bremen, despite the fact the political importance of a step forward for Europe toward the unification of the monetary system was not questioned, all the political features had been de-emphasized, with everything boiling down to a re-proposal of the Snake� Andreotti underscored, on the one hand, the pressure by Germany and France for Italy to participate in the new Monetary System (given the

42 Pandolfi, Filippo Maria, “Non possiamo perdere l’autobus dei Nove”, Corriere della Sera, December 3, 1978� The article was first published in Jozzo, Alfonso (ed�), Thema. Quaderni di Economia e Finanza dell’Istituto bancario San Paolo di Torino, 1978, No� 2�

43 Resolution on the European Monetary System by the Federal Committee of the UEF, sent to Andreotti in a letter by Caterina Chizzola, November 7, 1978, in ASILS, AGA, Europa, b� 400, cart� “Movimento federalista europeo”�

44 Political observations on the European monetary discussion under way, November 8, 1978, in ASILS, AGA, Europa�

fact it was a founding state), and on the other Italy’s interest in Britain’s participation�⁴⁵ In fact, if all the countries did not participate in the new system, then how could the Community take on the burden of loans from the European Bank to redistribute resources?

The prospects were clear: Italy could not stay out of the EMS without admitting its weakness, and the repercussions of this on the lira in terms of speculation were easy to imagine� It was necessary to make an effort to find a solution satisfying all of the countries�

In order to find allies to support Italy’s position, meetings were soon organized with representatives of the Benelux countries, and immediately afterwards with Ireland and Denmark� At the same time, the hope was that, in advance of the meeting in Brussels, Italy’s political parties could agree on a common stance�

The preparatory notes for the meeting with the Benelux Prime Ministers showed the central importance of Italy’s concerns about the proceedings for the creation of the EMS� In particular, the need to avoid a tapering off of the ‘political plan’ to relaunch European construction that was foreseen in Bremen was reaffirmed, along with the need for this plan to entail diverse starting points for the various countries�⁴⁶ Italy was clearly concerned that, under the hypothesis of a “two-speed Europe”, it would be relegated to the second group� It was thus essential “to find solutions for the Community which would allow our country to participate in the EMS right from the start”, while at the same time undertaking “all that was necessary for a similar participation by Britain”,⁴⁷ in part to avoid political and psychological divisions within the Community, with its attendant weakening� The EMS could not be considered “a simple exchange-rate accord, accompanied by a strengthening of the credit system”, but instead

“the start of a renewal of the European integration process”�⁴⁸ This accounts for Italy’s disappointment with the technical solutions called for up to that point, based on the reduced amount of credit resources made available for the transitional phase and the scarce progress regarding economic measures in support of the weakest economies�

45 Pandolfi and Baffi went to London, where a close relationship developed between Hearley and Pandolfi, marked by daily phone calls� In addition, a meeting between Andreotti and Callaghan was set for November 22�

46 Foreign Ministry, classified� Notes on the meeting with the Benelux Prime Ministers in Luxembourg on November 11, 1978, “Sistema monetario europeo e misure economiche per aiutare le economie meno prospere nel quadro di tale sistema”, in ASILS, AGA, Europa 1/A/8, b� 399�

47 Ibidem�

48 Ibidem�

An additional element of concern also emerged, which cannot be ignored� If the will of the partners to correct the budget imbalances and undertake the needed transfer of resources to favor the convergence of the economies was not clear, not only would the prospects of support by all the national political parties be undermined, but it would also be difficult to explain to the public that the EMS sought to strategically strengthen the Community, with clear-cut consequences regarding consensus for the plan�

The notes in preparation for Giscard d’Estaing’s visit also reaffirmed that the EMS was to represent an occasion for strengthening the entire Community, thus making it a serious problem if, on the contrary, the system impeded the participation of some countries, thereby isolating them, or the proper measures were not taken to ensure the weakest countries were not forced to abandon the EMS after they had joined�

Evidently still vivid for Italy was the memory of the monetary Snake, which the government did not want repeated� Moreover, it was emphasized that the EMS should not compromise the national plans for economic recovery but instead support these through ad hoc economic measures in favor of the less-well-off economies� Such measures would aim at producing an effective economic convergence and should be adopted by the European Council at the same time as the EMS� Fundamental among the plans to be safeguarded was the medium-term plan for economic recovery prepared by the Treasury Minister, Filippo Maria Pandolfi, which aimed at reducing the budget deficit and maintaining the real cost of labor, thereby keeping down the inflation rate� Currency reserves would be needed for Italy’s economic recovery, which would risk being compromised by too rigid a monetary mechanism� Therefore, Italy was in favor of a wider band of fluctuation than that proposed under the snake during a transition period of adequate length; the adoption of a flexible procedure for the exchange-rate parities, in which exchange rates would reflect real economic disparities and could be modified before strong speculative movements occurred; and the creation from the system’s inception of a European Monetary Fund�

On November 28, at Palazzo Chigi, Pandolfi illustrated the technical difficulties that still needed to be overcome in the negotiations under way for the EMS� For his part, Andreotti added a report on the contacts he had had, the last of which, with President Jenkins, had occurred that very same morning�⁴⁹ He positively reflected that, during his November 22^nd meeting

49 Minutes of the Council of Ministers meeting of November 28, in ASILS, AGA, Europa�

with British Prime Minister Callaghan,⁵⁰ an agreement had been reached between Italy and Britain regarding the text of a final communiqué on parallel economic measures that could be adopted by the European Council�

The Council expressed the hope for a positive crowning achievement to the negotiations from all the Community countries�

The preparatory notes of the Ministry of Italian Foreign Affairs for the European Council debate in Brussels on December 4-5 underscored that the hoped for achievement of measures to strengthen the less prosperous economies implied a gradual increase in the Community budget, to the point of reaching “the critical mass necessary to support and accelerate in an incisive manner”⁵¹ the efforts these countries would have to make�

The preparatory notes of the Ministry of Italian Foreign Affairs for the European Council debate in Brussels on December 4-5 underscored that the hoped for achievement of measures to strengthen the less prosperous economies implied a gradual increase in the Community budget, to the point of reaching “the critical mass necessary to support and accelerate in an incisive manner”⁵¹ the efforts these countries would have to make�