European leaders are heralding next week's launch of euro notes and coins as the most important milestone in the history of European integration since the signing of the Treaty of Rome in 1957. It also marks the culmination of more than 30 years of negotiations towards a goal that many economists and political analysts dismissed as unattainable.
The first move towards monetary union came at a summit in The Hague in December 1969, when European leaders discussed a timetable for Economic and Monetary Union proposed by Luxembourg's prime minister, Mr Pierre Werner. A committee chaired by Mr Werner reported just over a year later, calling for the creation of a fully-fledged economic and monetary union that would eventually turn the common market into a single economy.
The Werner Report envisaged a single monetary authority, unified capital markets and the centralisation of fiscal policy in Brussels but it did not mention a single currency. Spurred by the collapse in 1971 of the Bretton Woods system that had pegged exchange rates since the end of the second world war, EU leaders agreed in 1972 to implement the Werner plan.
The first step was the introduction of the "European currency snake" which set limits on fluctuations between currencies. The original six member-states were soon joined by Ireland, Britain, Denmark and Norway but a combination of factors such as the oil crisis, a weak dollar and divergent national economic policies forced most currencies out of the snake. By 1975, the snake was laid quietly to rest.
The failure of the Werner plan might have spelt the end of the dream of monetary union but for the extraordinary relationship between Germany's Chancellor Helmut Schmidt and the France's President Valery Giscard d'Estaing. On the face of it, the arrogant, aristocratic Mr Giscard had little in common with the ostentatiously down-to-earth Mr Schmidt.
But from the time they first met as chancellor and president in 1974, the two men put the Franco-German relationship onto a new level. They met regularly and talked on the telephone at least once a week, setting a pattern that would be maintained by Dr Helmut Kohl and Mr Francois Mitterand during the 1980's.
Mr Schmidt and Mr Giscard were both unusually economically literate politicians, a distinction they shared with the Commission President at the time, Mr Roy Jenkins (now Lord Jenkins).
In 1977, the three men launched a joint initiative aimed at creating "a zone of monetary stability in Europe". There was no mention at first of monetary union, which was regarded as an idea that had been tainted by the failure of the Werner plan.
The European Monetary System started in March 1979, with a complicated currency stabilisation arrangement called the Exchange Rate Mechanism (ERM) at its heart. Once again, currencies were allowed to fluctuate against one another within specified bands . If any two currencies reached the margins of their bands, their central banks were obliged to intervene in favour of the weaker currency. As a last resort, currencies could be realigned.
The German mark became the anchor currency on account of Germany's superior record in keeping inflation low. Inflation fell in most ERM member-states throughout the 1980's and the completion of the single European market in 1986 provided a fresh momentum for moves towards a full monetary union.
In 1989, a committee chaired by the Commission President, Mr Jacques Delors and composed mainly of national central bankers, issued a new plan for Economic and Monetary Union (EMU). The Delors plan envisaged three stages, starting with the creation of a single financial area, moving through a closer alignment of exchange rates before the final stage, when exchange rates are set permanently and a single monetary authority would set interest rates. Although Mr Delors said that a single currency would follow in due course, he avoided calling for a centralised fiscal policy.
Dr Kohl and Mr Mitterand ensured that France and Germany were again at the forefront in the drive towards monetary union, despite the fact that few Germans wanted to abandon the dependable mark in favour of an unknown quantity.
At a summit in the Dutch town of Maastricht in 1991, EU leaders agreed to achieve full Economic and Monetary Union by January 1st, 1999. Strict conditions were laid down for entry, with explicit criteria to measure how greatly economies had converged. All members agreed to join EMU, with the exception of Britain and Denmark, which obtained protocols allowing them to opt out.
Within a year of the Maastricht summit, the Exchange Rate Mechanism was in turmoil, as high German interest rates and a weak dollar created tensions within the system. Aggressive currency speculation drove a number of currencies out of the ERM and in August 1993, EU finance ministers agreed to broaden the fluctuation bands dramatically in an attempt to stave off the system's collapse.
As the frenzy of currency speculation died down, the currencies began to stabilise around new levels. But in 1995, Germany persuaded other member-states to agree to a Stability Pact that would ensure that EMU member-states would continue to maintain strict budget discipline after they joined.
A row in early 1998 over the appointment of Mr Wim Duisenberg as President of the European Central Bank (ECB) threatened to undermine the Bank's independence. But the ECB has pursued a fiercely independent line since EMU was launched in 1999, resisting politicians' calls for lower interest rates and holding its nerve as the euro's value against the dollar plummeted in its first two years.
Mr Duisenberg has indicated that he wants to stay on as ECB president for at least another year.
If next week's launch proceeds without too many technical problems, it will represent a triumph for Mr Duisenberg and an important step towards making the idea of European integration a political reality.
