The Passing of Jacques Delors, Architect of the Euro. How will his Legacy Play Out?

Introduction – the life and career of M. Jacques Delors, 1925-2023

Born in the interwar years, Jacques Delors joined France’s central bank aged 20, where he worked for seventeen years. He then became an academic, teaching economics at the Ecole Nationale d’ Administration, but also moved into politics as social and cultural adviser to Prime Minister Jacques Chaban-Delmas from 1969 to 1972. He joined the French socialist party in 1974 and was elected in 1979 to the European Parliament.

If all successful politicians need a stroke of luck, his came in 1981 with the spectacular victory of François Mitterrand who appointed him Finance Minister, with a radical agenda of bank and industry nationalisations. Markets were spooked, inflation raged, and the franc was devalued three times 1981 – 83. Of course, in the early 1980s the European Monetary System (EMS) obliged France and eight other countries to peg their currencies to the composite currency, the European Currency Unit (ECU). This was established in 1979; it was technically not a trading currency but was heavily used in capital markets instruments. Germany’s Mark was the dominant component of the ECU, and the rules forbade such a large devaluation by France. But here Delors showed his mettle; he won Germany’s permission to devalue by threatening to leave EMS.

Realising the damage that Mitterrand’s policies were inflicting on France, Delors worked effectively behind the scenes to change course, reversing some privatisations and changing the policy of high wages into one of price stability. In so doing he impressed influential European leaders such as Chancellor Helmut Kohl and Prime Minister Margaret Thatcher, who in turn endorsed him for the role of European Commission President in 1985. Delors remained in post for ten years, a period of rapid development in which he drove through the transformation of what was then an economic community of states into a politically and institutionally integrated European Union. He secured strong support for, and laid the foundations of, the two substantial initiatives for which he will be remembered: the Single Market for goods and services, and the Euro.

The Origin and Development of the Euro and Eurosystem¹

Armed with now considerable experience of the problems caused by the strength of the German Mark, the inoperability of EMS in all its variants (eg. corset, snake), Delors was convinced that Europe needed to emulate the USA by establishing a common currency and monetary system, driving close political integration among all member states by centralising important ‘federal’ powers within new institutions, and thereby consigning to history the turmoil and embarrassment of countries’ frequent needs to devalue their currencies against the Mark.

At their June 1988 Hannover conference, Delors persuaded Europe’s heads of state to create a commission, led by him, to prepare a plan for this vision. Ten months later, the Committee published its bold plan for a common currency and system of central banking and payments. The plan was diplomatically aggressive and fast; a vote in favour of taking the first steps towards monetary union, the report said, “should be a decision to embark upon the entire process”. Delors crushed dissent through his mastery of PR; opponents of monetary union and political integration were dismissed as “bad Europeans”. This political process was the opposite of what happened 200 years previously when 50 representatives of thirteen US states met in Philadelphia in summer 1787 to discuss and agree the Constitution of the federal USA. Everything was open for debate and all details mutually agreed.

In 1989 the constitutional core of Europe was the 1957 Treaty of Rome, which needed overlays to accommodate the Delors plan. The Committee Report became the basis of the Maastricht Treaty of 1992, which framed the mandate of the soon to be created ECB around Delors’ favoured concept of “price stability”, which sounds appealing, but which was not defined therein. As Charles Goodhart pointed out at the time, the concept of price stability was operationally meaningless from the start and the central bank was able to claim to have achieved it, unchallenged, in its regular reports².

Further, whilst it would be churlish to blame Delors – the overall project mastermind – for such institutional structural weaknesses, such details matter. The most glaring difference between the modus operandi of the Eurosystem and the Federal Reserve System of the USA is that, in America, debits and credits between the twelve reserve banks must be settled annually, in the Eurosystem they are never settled. The easy, cheap credit which this feature facilitated has been a factor in undermining EU member state fiscal discipline.

The result today, 25 years after the launch of the euro, is that the single currency is the only one of the three cornerstones of European Monetary Union (EMU) as foreseen in 1989 to have happened. The other two, fiscal union and banking union, have faded from view and are rarely even mentioned.

The State of Affairs January 2024 – As Climate Policies Undermine the Consensus, the ECB Strives for a Central Bank Digital Euro

Although the euro and Eurosystem appear to be unquestionably established, the political consensus upon which they depend is less than rock solid. This is understandable; the euro has not led to the economic growth originally promised. GDP per capita in many member states has been growing much slower than in the United States. In 1999 France and Germany’s GDP per person, had they been states in the USA, would then have ranked 36 and 31, but today have fallen to numbers 48 and 38. Accordingly, the ECB has dialled down its previous calls for budgetary discipline and now appears to be focussed more on maintaining confidence in Europe’s weak banking system by continuing work on its central bank digital euro (CBDE) project. This has been in research mode for years³, and in June 2023 the Commission presented a draft legislative framework. But progress is slow largely because political support is weak, and privacy issues are a major concern. The ECB has conceded that transaction anonymity is “not a viable option” but the European Data Protection Board is insisting on substantial anonymity. We expect this project to rumble on. Whatever the ECB’s 2024 challenges prove to be, recourse to a CBDE is unlikely to be a feasible policy tool.

2023 was a year in which political populism notably grew in Europe. A prominent reason for this is the EU and ECB’s adoption of increasingly extreme climate policies. The Common Agricultural Policy (CAP), incepted 1962, is part of the glue that helped bind the member states together as the original economic community. The EU’s plans to reduce CAP subsidies have provoked farmers everywhere, leading to Geert Wilders’ party winning the most seats in the recent Netherlands elections. There is a similar farmers’ groundswell in Germany.

The EU and ECB are the authors of their own misfortune. Having realised that the euro has not brought about the degree of political union envisaged by its architects such as Delors, present day leaders simply extended their mandates to obfuscate these previous failings. That strategy is now backfiring.

Conclusion

Jacques Delors was clearly a man who cared passionately about Europe, but was clearly wrong in assuming that centralisation and regulation would be a source of prosperity.

Delors achieved his goals by his political retirement date of January 1995; that he did so is a tribute to his mastery of the political process over which he presided as Commission chief for ten years. But it also reveals perhaps his greatest character weakness; his absolute conviction to his and his supporters’ ideas, and his failure to tolerate dissent. Would monetary and political union have worked better if he had welcomed challenges and structural amendments through open debate as Franklin, Washington and Madison so did in 1788-9?