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A Europe Made of MoneyThe Emergence of the European Monetary System$
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Emmanuel Mourlon-Druol

Print publication date: 2012

Print ISBN-13: 9780801450839

Published to Cornell Scholarship Online: August 2016

DOI: 10.7591/cornell/9780801450839.001.0001

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European Monetary Cooperation, 1945–1974

European Monetary Cooperation, 1945–1974

Background and Debates

(p.15) 1 European Monetary Cooperation, 1945–1974
A Europe Made of Money

Emmanuel Mourlon-Druol

Cornell University Press

This chapter explores several key ideas necessary to understand how monetary coordination works. It first considers the so-called triangle of compatibilities, or trilemma. According to Robert Mundell, of the three components of his “holy trinity”—high capital mobility, fixed exchange rates, and independent monetary policy—only two can be met at the same time. For instance, under the Bretton Woods system, fixed exchange rates and autonomous monetary policies were able to coexist thanks to low levels of capital mobility. The chapter then discusses the debate, also associated with Mundell, over optimum currency areas (OCAs), and its focus on the profound implications of a full monetary union. It also examines various approaches to an Economic and Monetary Union (EMU), along with European monetary cooperation in the 1970s in relation to the European Economic Community (EEC) institutional framework.

Keywords:   trilemma, Robert Mundell, capital mobility, fixed exchange rates, monetary policy, Bretton Woods system, optimum currency areas, Economic and Monetary Union, European monetary cooperation, European Economic Community

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