The Clash of Institutions: Germany in European Monetary Affairs

Every international monetary regime, one scholar has noted, rests on a particular political order.1 The recent European experience with mone tary cooperation is no exception. The political order that the institutions and practices of European monetary integration reflect is a German one, based on German norms and German money. Yet students of European integration have not fully come to terms with the dynamics of German influence in Europe's monetary affairs, despite a growing literature oh the subject.2 How deep is the support across the European polities for Ger man-led monetary integration, and how much support is there within Germany for its particular political role? Should Germany be seen as a benign force holding Europe together, as a malign hegemonic presence forcing European Union (EU) members to dance to its monetary tune, or—as we will argue—something altogether different? In this essay, we seek to contribute to these debates. We contend that Germany leads by example, if at all, and that this form of leadership is not adequate to ensure a stable future for Europe. Our analysis begins with a review of the history of European monetary integration. We argue that exchange rate cooperation is best understood in terms of the projection of German standards and their acceptance by other European countries.