It is widely appreciated that Europe’s monetary union is incomplete. Economists in particular are impatient at Europe’s slow progress Europe in advancing banking and fiscal union. But what is often under-appreciated is the extraordinary degree of complexity that forming a ‘complete’ monetary union entails. Often, the discussion loses sight of the fact that building a monetary union is not just about technical solutions but is rather about reconciling different interests. Jeff Frieden’s essay summarises some of the central themes that were fundamental in the creation of the United States’ monetary union. Irrespective of whether one ultimately is in favour of ‘complete’ European monetary union or not, it is useful and important to grasp what those fundamental themes were. The first theme is one of time. The US ‘monetary union’ was not finished with the work of Alexander Hamilton, the first Secretary of the US Treasury, who is widely credited with the creation of the US fiscal union. On the contrary, many years of deep conflict followed Hamilton’s period. The second theme relates to the nature of these conflicts. The conflicts were essentially about the right mix between bail-in and bail-out of federal states and banks, and about the appropriate monetary policy stance in a union of creditors and debtors. The third theme is the importance of federal institutions pursuing the common interest and demonstrating that the whole is more than the sum of its parts. For anyone following the European policy debate, this essay will provide many insights from the US. Ultimately, it will be up to Europe’s citizens to decide its destiny.This essay helps us understand that the conflicts our continent is encountering have happened in quite a similar way in the United States. Let me thank Professor Frieden for telling this fascinating story.
Guntram Wolff, Director, Bruegel Brussels, May 2016
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