The Nature and History of Monetary Unions
THE NATURE AND HISTORY OF MONETARY UNIONS
In the preface to the fifth edition of this work, completed in 1991, Dr Mann noted the efforts then being made to establish a monetary union or a single currency in Europe. From the language he employed, it is perhaps fair to infer that Dr Mann (along with many others) did not find this proposal entirely to his taste. Nevertheless, in the years which have elapsed since Dr Mann expressed his views, a project which was at times uncertain and, to many, ill-advised has now come to fruition; the euro was established as the single currency of eleven participating Member States with effect from 1 January 1999. Greece became a participating Member State on 1 January 2001, bringing the then current total to twelve. After a few years’ hiatus, Slovenia became the thirteenth member on 1 January 2007; Cyprus and Malta were admitted on 1 January 2008, whilst Slovakia joined on 1 January 2009. At the time of writing, the most recent adherent is Estonia, which became a eurozone member with effect from 1 January 2011. The eurozone has considerable potential for further growth; three Member States (the United Kingdom, Sweden, and Denmark) elected to remain outside the zone and could conceivably join at a later date, subject to meeting the requisite criteria. Equally, the recent enlargement of the European Union has created a number of additional candidates for eurozone membership and, as a noted, a number of those countries have already joined the currency zone.
Economic and monetary union thus requires detailed examination, not only for its own sake but also because the euro is in some respects unique.1 For example, the euro was the single currency of the eurozone States from 1 January 1999, and yet euro notes and coins did not come into circulation or become legal tender until 1 January 2002. Furthermore—even though not currently a participating Member State—the United Kingdom is a party to the Treaty on European Union, which was the principal catalyst for the creation of the single currency. It is necessary to determine, both for English and EU law purposes, the consequences of these particular states of affairs. These topics—and many others—will be considered in this Part. In keeping with the overall character of this book, the discussion will, so far as practicable, be confined to issues which are germane to money or monetary obligations. Inevitably, however, a broader treatment will at times be required in order to place matters into context, and this is especially the case in the context of measures taken to combat the eurozone financial crisis.
B. Definition and Consequences
First of all, what is a monetary union? Dr Mann defined2 a ‘monetary union’ to mean ‘a monetary system common to several independent States and characterized by a single currency issued by or on behalf of a single central bank and being legal tender in the States of the Union’. He therefore noted that the creation of a central bank was a key feature of this type of arrangement and that the following powers were the ‘indispensable ingredients’ of a monetary union:3
(a) the exclusive power to issue those notes and coins which are to enjoy the status of legal tender throughout the union;
(b) the power to determine the interest rate for the single currency;
(c) the power to effect the reduction or expansion of credit; and
(d) the power to take control of the external reserves of Member States and to effect the discharge of their external debts, ie foreign reserves and liabilities would be pooled.4
This approach perhaps rightly focuses on the central bank, which lies at the heart of a monetary union.5 But before this stage can be reached, the Member States of the union must achieve a degree of economic harmonization,6 and conditions must be created in which funds can flow freely among the Member States of the union. As Dr Mann noted,7 the abolition of both overt and covert exchange control is a prerequisite to the creation of a monetary union. In a European context, it will therefore be necessary to consider the rules on the free movement of capital now contained in Articles 63 to 66, TFEU.8
It will be appreciated that this definition of a monetary union—focusing as it does on the institutional structure of the single currency—is in some respects rather narrowly based. In practical terms, the treaty which creates a monetary union will also deal with a number of other matters. In particular, the treaty will impose at least some degree of restraint upon the economic policies and financial conduct of the participating Member States.9 It may also be necessary to stipulate that the institutions of monetary union are to act independently of Member States’ control.10 Matters of this kind will become apparent from the discussion throughout this Part. Nevertheless they deserve emphasis at this point. It is no accident that the Treaty on European Union referred not merely to a ‘monetary union’ but to an ‘economic and monetary union’, for in practical terms the two concepts are inextricably linked—indeed, as will be shown, economic union is in some respects the master, whilst monetary union is its servant.11 For that reason, a purely legal definition of a monetary union alone is bound to be unduly narrow and thus unsatisfactory in some respects. In order to place matters in their context, and in order to take account of the crisis that has gripped the eurozone, some attention must thus be given to the economic provisions of the Treaty.
As to the legal consequences of a monetary union, Dr Mann stated12 that ‘there cannot … be any doubt that a monetary union presupposes a constitutional organization which is or approximates that of a single (federal) State’. This statement could doubtless generate extended (and heated) debate. As a matter of international law, the Member States within the eurozone continue to be recognized as independent, sovereign States despite their participation in monetary union. Ultimately, the existence of an independent State rests upon its recognition by other States.13 It is true that the transfer of sovereign powers to an international organization (such as the European Union) may ultimately deprive the transferring State of its independent statehood and thus of its continuing existence. This, of course, depends upon the circumstances of the case, including in particular the scope and extent of the rights and powers which are transferred, and on the revocability of the transfer,14 and these are inevitably matters of degree and appreciation.15 In any event, a transfer of monetary sovereignty does not, of itself, deprive a State of its independent existence—as matters stand at present, the continued international statehood of the EU Member States is not in question.16 Nevertheless, the sovereignty issue remains at the heart of the debate on the United Kingdom’s (non-)membership of the eurozone, and it will therefore be discussed in more detail at a later stage.17
Finally, it is perhaps appropriate to ask whether this attempt to define monetary union—and to describe its consequences—is of particular assistance or value? The lawyer, naturally enough, tends to pay particularly close attention to matters of definition, and a description of the common features (especially the single central bank and the role which it plays within the union) is perhaps of some help in outlining the type of institutional structure upon which a monetary union must rest. The definition is also of value in that it helps to distinguish other forms of monetary arrangements which are fundamentally different and ought not properly to be labelled as ‘monetary unions’ at all; this can be of assistance in the sense that the necessary consequences of a monetary union18 only apply to monetary unions as strictly so defined, and not to other forms of monetary arrangements. But beyond those limits, it will be unsafe to generalize and—as is the case with any form of international arrangement—an analysis of the union will depend upon a close reading and evaluation of the instruments which created it.