of the EMS and of the Monetary Union
2. Italy on the Eve of the EMS
In this climate, which saw a strong convergence of views among academics, experts and politicians on the topic of Economic and Monetary Union, Roy Jenkins, the President of the European Commission, decided
14 On Petrilli’s position see Caraffini, Paolo, Un grand commis e la dimensione internazionale: Giuseppe Petrilli e il processo di integrazione europea (1950-1989), Milan, Guerini e Associati, 2015� In particular, regarding the EMS, see p� 169-176�
15 The proceedings of the conference are found in L’unione economica e il problema della moneta europea. La moneta come elemento di divisione o di unità dell’Europa, edited by the European Movement and the European Federalist Movement, Milan, FrancoAngeli, 1978�
16 Masera, Rainer, L’unificazione monetaria e lo SME, Bologna, il Mulino, 1980�
17 See L’Unità Europea, 1977, No� 45 (November)�
to become the leader of the group in favor of a single currency�18 On October 27, 1977, during Jean Monnet’s by-now historic lecture at the European University Institute in Florence,19 Jenkins re-launched the political debate on the advantages of a monetary union, which would have forced the governments to undertake stricter economic policies, slowed down inflation and favored price stability� Jenkins re-affirmed his convictions during both a lecture in Bonn20 the following December and before the European Parliament in January 1978, emphasizing also that a monetary union could represent a potent stimulus to growth, and thus to employment, allowing Europe to avoid an excessive dependence on a dollar in clear crisis�
The prospects for a re-launching of Europe came at a time when Italy was experiencing deep political and institutional instability during the dark days of terrorism� After Andreotti resigned, there was a succession of three governments between 1973-74 – the fourth and fifth governments led by Rumor, and Moro’s fourth government – in which Rumor and Moro alternated as Foreign Minister, while Andreotti strengthened his competence in the monetary area as Budget Minister from 1974 to 1976 in Moro’s government� The economic situation in the country was dire: a spiral of recession was leading to the closure of thousands of companies, inflation was continually growing (reaching 17% in 1976), youth unemployment had reached its maximum levels, and there was a strong deficit in the trade balance� Economists agreed that inflation was a necessary means for maintaining high levels of employment, while currency devaluation was viewed as the most valid instrument for guaranteeing competitiveness�
In 1976, Giulio Andreotti was charged with forming a government, and on July 23 he presented the “Ideas for the Government program”, which held that the “community bond” created “an intertwining of rights and duties not to be underestimated”� The abstention of the Communist
18 On the launching of the EMS see Ludlow, Piers, The Making of the European Monetary System, cit�; Ludlow, Piers, Roy Jenkins and the European Commission Presidency, 1976-1980. At the Heart of Europe, Palgrave Macmillan, 2016; de Vries, Tom, On the meaning and future of the European Monetary System, International Finance Section, Department of Economics, Princeton University, 1980; Mourlon Druol, Emmanuel, A Europe made of Money: the Emergence of the European Monetary System, Ithaca and London, Cornell University Press, 2012�
19 Jenkins, Roy, Europe’s Present Challenge and Future Opportunity, the First Jean Monnet Lecture, Florence, October 27, 1977�
20 Jenkins, Roy, “The integration of the Community in the Face of Enlargement”, speech to the Deutsche Gesellschaft für Auswärtige Politik, Bonn, December 8, 1977, in Europa-Archiv, 1, 1978, p� 1�10�
group21 allowed Andreotti to form a one-party government: the ‘non-no-confidence government’, which would govern from July 29, 1976, to January 16, 1978,22 with Arnaldo Forlani as Foreign Minister� For the PCI, the Communist Party, which had reached 34�4% of the vote in the June elections, reducing to a historical minimum the gap with respect to the DC (the Christian Democrats) in the polarized party alignment, it was the end of the conventio ad excludendum� On March 11, 1978, a few days before Aldo Moro’s kidnapping by the Red Brigades, the new Andreotti government (the fourth) received a vote of confidence� In this government, Forlani remained as Foreign Minister, Pandolfi became the Treasury Minister, and the Europeanist Franco Maria Malfatti became Finance Minister� Once again the votes of the PCI were decisive�
The Governor of the Bank of Italy from August 1975 until October 1979 was Paolo Baffi,23 who played a key role in the design and carrying out of the economic and currency measures that led to the overcoming of the crisis of 1976, restoring a balance in Italy’s current account�
Nevertheless, Baffi was against the ‘external constraint’, which he felt would have dampened the growth of salaries and forced Italy to undertake a deflationary policy, convinced as he was that Italy was not ready to enter into a common monetary system without appropriate economic convergence policies with the other countries� Even the Confindustria, a large number of economists, trade unions, and vast assisted economic sectors, fearful of losing the competitive advantage from exchange rate maneuvers, opposed monetary unification and fixed exchange rates�24 Between 1976 and 1978 Italy took advantage of the operating space afforded by the absence of exchange rate constraints to improve its balance of payments, at the same time reducing internal monetary instability, although the worry existed that an inflationary-currency depreciation spiral could be triggered�
Therefore, the conditions for Italy’s participation in the new agreements was a radical inversion of the tendencies in economic policies and a real change in its mentality toward inflation and devaluation, and their consequences, as well as a re-launching of productivity as the engine of competitiveness and employment�
21 The federalist Altiero Spinelli would instead vote against this, contesting Andreotti’s government program�
22 The Foreign Minister was Arnaldo Forlani, the Finance Minister Filippo Maria Pandolfi, and the Treasury Minister Gaetano Stammati�
23 See Baffi, Paolo, Testimonianze e ricordi, Milan, Scheiwiller, 1990�
24 See Spaventa, Luigi, Italy joins the EMS. A political History, in Research Institute, The John Hopkins University, Bologna Center, Occasional Papers, No� 32, 1980�