Italy’s Participation in the EMS

As is widely known, at the European Council meeting in Brussels Italy decided not to immediately join the EMS, due to the fact that several

“parallel measures”⁵³ had not been adopted (in particular, the decision

50 Ministero degli Affari Esteri (MAE), Direzione generale Affari Economici (DGAE), Rome 29 November 1978, Notes, “meeting with a British delegation on the European Monetary System”� The meeting is also mentioned in the European Monetary System Talks, Hansard, 28 November 1978, http://hansard�millbanksystems�com/

lords/1978/nov/28/european-monetary-system-talks�

51 MAE, Notes from 30 November 1978, classified, in advance of the European Council meeting in Brussels, 4-5 December 1978, on “Parallel measures to strengthen the less prosperous countries in the European Monetary System framework”, in ASILS, AGA, Europa, b� 355�

52 This was a new loan instrument to finance projects for industrial restructuring, large infrastructures and energy projects, which was thought to be useful for dealing with several specific problems in the Mezzogiorno (the South)�

53 On this question, there was a true division in the Council between Andreotti and Giscard d’Estaing, while Schmidt had a more open attitude� See Extracts from the statements by Chancellor Schmidt to the Bundestag, in ASILS, AGA, Europa, b� 400, cart� “SME Partiti”� See also the “Schmidt Helmuth, Correspondence with Giulio Andreotti” folder in b� 310�

not to increase the Regional Fund) and the delicate situation regarding internal politics� Italy asked to be allowed a brief period for reflection�

The reservation was withdrawn by the time of the next European appointment on December 18� In order to understand Italy’s position, it is useful to examine several comments made to the Italian Prime Minister on December 9^th regarding the outcome of the European Council meeting, which are preserved in the Andreotti archives�⁵⁴ These clearly show Italy’s support for the EMS, even with the reservations discussed above� In fact, the first point to emphasize is that the creation of a zone of monetary stability was an objective shared by all member countries as well as all the Italian political parties: “We need a strong Community to emerge from the economic crisis,” it was stated� Italy had to deal with unemployment and industrial restructuring only “through Community solidarity”; otherwise, protectionist and nationalist impulses would be strengthened in both the economic and political areas� The EMS was to be seen as part of “a strategy aimed at combating stagnation and the involution in Europe’s construction”� It was emphasized that Italy’s joining the EMS was coherent with the Government’s commitment to the country’s economic recovery�

“If we do not immediately join,” it was feared, “our very own will to achieve the objectives we have been fighting for will be doubted”�⁵⁵ Of course there were concerns, but the decision to join had to objectively and clearly take into account the results achieved by Italy during the negotiations� Given the prospect that all countries would be allowed to join the EMS in a lasting manner, Italy had supported the need for the System to be flexible, thereby obtaining for itself a wider band of fluctuation (6%) than the snake allowed�⁵⁶ The request was made that, unlike the snake, there should be “a balance between the responsibilities of the strong currencies and those of the weaker ones” through the creation of “an indicator of divergence based on the shield that indicated the currency which deviated from the weighted average of the other currencies, in order to determine whose responsibility it was in the first place to intervene on the exchange-rate market, to adopt economic measures and to change the central rate”�⁵⁷ This objective was also achieved� Other requests that were granted were that the short-and medium-term credit system resources be set at 25  billion ECU; that

54 To the Hon� President of the Council, “Creazione del Sistema monetario europeo�

Risultati del Consiglio Europeo� Elementi di intervento”, Rome, 9 December 1978, in Asils, AGA, Europa�

55 Ibidem�

56 It was Paolo Baffi who, during a discussion with Giscard d’Estaing, obtained the 6% band�

57 “Creazione del Sistema monetario europeo� Risultati del Consiglio Europeo� Elementi di intervento”, cit�

15 billion of this amount go to short-term credit (granted unconditionally) and 10 billion to medium-term financial aid (granted conditionally, and with the actual sums amounting to 14 and 11 billion, respectively); and that the regulations among the Central Banks for the very short-term mechanism (unlimited in amount) occur 60 days after the end of the month in which the intervention took place (the agreement settled on 45 days)�

Italy, along with Britain, had also sought a precise commitment on the measures to support the less prosperous economies, which were defined as “essential” at Bremen, in order to ensure that the Community policies as a whole, including the Common Agricultural Policy, contributed to the convergence of the economic results� The text prepared by Callaghan was not adopted in this case� Nevertheless, the question was still open since the European Council, in its final communiqué, had delegated the Commission

“to study the relationship between a greater convergence of the economic results of the member states and the use of Community instruments, in particular the funds aimed at reducing the structural imbalances� The results of these studies were to be discussed at the next European Council meeting”�⁵⁸ Moreover, acting on strong pressure from Italy for an increase in the credit availability of the Community’s financial instruments, in particular in favor of the Mezzogiorno, the European Council decided to request that the Community’s institutions and the European Bank for Investment make available in Italy (⅔) and Ireland (⅓), over a five-year period, additional loans on special terms, for a maximum of a billion units of account per year� However, agreement was not reached on an increase to the Regional Fund� Finally, the document brought to light that, after the British decision not to participate in the EMS, in the event Italy also decided not to join, the alternative would be the creation of a Monetary System of six states, which would in fact have created a two-speed Europe, which Italy had always fought against� In conclusion, after reaffirming that there was no contradiction between the creation of the EMS and the stability of the dollar, promptly joining the EMS was defined as “an act of faith in ourselves”�⁵⁹

On December 7, in preparation for the debate in the Chamber of Deputies on the EMS, a meeting was held at the Christian-Democrat Senate Group headquarters,⁶⁰ introduced by Minister Pandolfi, in which two alternatives emerged: seize the opportunity on December 18 to

58 Ibidem�

59 Ibidem�

60 Notes on the meeting held on December 7, 1978, at the Christian-Democrat Senate Group headquarters in preparation for the debate on the European Monetary System, in A�A�

join the EMS as an essential condition both for behaving in a manner coherent with domestic policies and for facing the economic crisis with the support of international solidarity, or note the absence of the domestic conditions for participation and thus identify the necessary binding pre-conditions regarding economic policy� Supporters of the first alternative emphasized that non-participation might appear to have been conditioned by the behavior of the PCI, as a result weakening the position of the Christian-Democratic government; the supporters of delaying participation emphasized the fact that the EMS could have represented a healthy impetus toward more rigid anti-inflation measures, a precondition for subsequent participation and for the immediate taking on of unilateral commitments� In the event of an immediate participation in the EMS which was not tied to stringent domestic agreements, the danger that the Christian-Democrats could be held responsible for any future devaluation was underscored�

Between December 11-13 the final hectic meetings were held between Andreotti and Baffi, Pandolfi and Forlani, along with telephone conversations with Giscard d’Estaing (on the 11^th) and Schmidt, who promised his support (the 13^th)� On December 12, Andreotti and Pandolfi gave a lengthy report⁶¹ on the results of the Brussels meeting and on the subsequent contacts and meetings� The report was approved by the Council of Ministers� Debate on the EMS began in Parliament on December 12, with a report by Pandolfi in which the economic policy proposal was firmly tied to the Europe option� The “new monetary system,” Pandolfi stated, “is the point of arrival for the objective of greater integration among the Community members”�⁶² Andreotti stressed the link between joining the EMS and the government’s commitment to restoring the economy� On the same day the EFM approved a motion of support for Italy’s immediate entry in the EMS,⁶³ at the same time requesting that Baffi step down�⁶⁴ A rally was held that day in Rome, during which Andreotti received a delegation of Young European

61 Minutes of the meeting of the Council of Ministers, December 12, 1978, in A�A�

62 Debate in Parliament on the EMS, Atti parlamentari, 382° session, 12 December 1978, in ASILS, AGA, Europa 1/A/8, b� 399, p� 22050�

63 Motion of the European Federalist Movement “L’Italia e il Sistema monetario europeo”, 12 December 1978, in ASILS, AGA, Europa, b� 400, cart� “Movimento federalista europeo”�

64 The President of the EFM sent a telegram to Andreotti which contested the policies of the Governor of the Central Bank of Italy in light of the expression used by Triffin to define the EMS: “the most important monetary agreement after Bretton Woods”�

Telegram of the President of the EFM to Giulio Andreotti, December 11, 1978, in ASILS, AGA, Europa, b� 400�

Federalists of Italy that included Domenico Moro, Franco Spoltore and Maria Teresa Brigazi�

Carlo Russo played a fundamental role in gaining support from the DC deputies for the monetary agreement� This support allowed Andreotti to formally bring Italy into the EMS�⁶⁵ At the end of the discussion the Chamber of Deputies assented to Italy’s immediate entry in the EMS with 270 votes in favor, 228 against and 53 abstentions� The PCI, in a moment of complex transition to Europeanism,⁶⁶ voted against entry, while the Socialists abstained� The EMS came into effect on January 1, 1979, while the adoption of the European Exchange Rate Mechanism (ERM) would take effect on March 13, 1979� A European Currency Unit (ECU) was created, to be used as a means of regulation among the Central Banks� A system of fixed, though adjustable parities was also created among the currencies� The member states were granted the right to vary their central exchange rates after consulting with and gaining the approval of the other participatory members� The EMF thus limited monetary sovereignty� A very short-term mechanism of unlimited amount was created and a common reserve fund was to be instituted (though this never came to fruition) in the final stage, made up of 20% of the gold and dollar reserves of the member-state Central Banks� It was thus clear that a monetary agreement of this breadth could only be sustained through a broad strategy to improve the prospects of economic growth which intensified the convergence of the economic policies of the various states in the attempt to produce greater stability� Therefore, measures in support of the weaker currencies were also called for, including loans at favorable conditions�

For Italy, joining the EMS from the start would have represented a significant change from past monetary policies, enabling the country, through the persuasive action resulting from its being obliged to follow the virtuous model of “external constraint”, to adopt unpopular policies for economic recovery�

65 Testimony from Duccio Grassi, in Preda, Daniela and Levi, Guido (eds�), L’europeismo in Liguria. Dal Risorgimento alla nascita dell’Europa comunitaria, Bologna, Il Mulino, 2002, p� 412-417�

66 On the CP’s transition to Europeanism, see Maggiorani, Mauro, L’Europa degli altri: comunisti italiani e integrazione europea, 1957-1969, Rome, Carocci, 1998;

Maggiorani, Mauro and Ferrari, Paolo (eds�), L’Europa da Togliatti a Berlinguer:

testimonianze e documenti, 1945-1984, Bologna, Il Mulino, 2005, with an afterword by Giorgio Napolitano�

5. From the EMS to the Single Currency: Elements