Although previous initiatives for a European currency had failed, discussions were revived in the mid-1980s. Several leading European politicians called for greater monetary integration in the wake of the Single European Act of 1986 and the “1992 program” of completing the single market. One of the hurdles to the completion of the Single Market was seen in the volatile exchange rates between the members’ currencies, which made cross-border trade more costly. The Delors report that was prepared for the European heads of states and government proposed concrete stages leading towards EMU and laid the foundations for the single currency.
There is a consensus that the institutional design of EMU rested on a bargain between France and Germany. Particularly for Germany, fixing exchange rates within a monetary union had to be combined with institutionalizing the principle of price stabilitywith the help of an independent European Central Bank (ECB). France agreed to these principles. However, early in the Maastricht negotiations, the French side made it clear that central bank independence should only be realized within a strong political framework at the EU level. The so-called “gouvernement économique”, a European economic government of sorts as a political counterpart to the independent central bank, became one of the core elements of the French vision for the governance of the single currency. For many politicians in Germany, however, the French proposals for an economic government (whose potential tasks were in fact never clearly described) were a taboo. In the end, a strong anti-inflationary mandate and the depoliticization of monetary policy with the help of an independent central bank modeled on the Bundesbank were the core German demands on the euro architecture that eventually found their way into the Maastricht Treaty.
During the treaty negotiations, there was also a broad commitment among the future euro members to budgetary discipline. The debate revolved primarily around the strength of the implementation mechanisms and the use of sanctions. For Germany, a stability-oriented budget policy meant strict rules against excessive budget deficits and treaty-based penalties for non-compliance. In preparation for the introduction of the single currency, the Stability and Growth Pact (SGP) was adopted in 1997 at Germany's request to guarantee sustainable public finances in the long term. The pact was to prevent governments from accumulating excessive debt that would endanger the stability of the euro. The 3%-deficit and 60%-debt rules that the SGP institutionalized can be traced back to the Maastricht Treaty’s convergence criteria that had to be fulfilled by member states to join the common currency.
Thirty years on, it turns out that the Maastricht concept of stability was too narrow for monetary union. Budgetary stability was and is a crucial element of the monetary union’s framework, as a low-debt country may have more leeway for countercyclical policies in times of crisis. Particularly the euro crisis has shown that other factors such as macroeconomic imbalances between member states, a lack of adaptability to different economic cycles, a lack of crisis management instruments, too lax banking supervisions in some member states and the danger of a self-reinforcing dynamic between weakened banks and over-indebted states should be taken into consideration when it comes to the stability of the euro area.
Moreover, the fiscal framework itself – particularly its deficit and debt targets – has proven to be of limited functionality. It has neither ensured budgetary discipline in good times, nor does it provide member states the fiscal framework needed to deal with major challenges such as climate change and digitization that call for considerable investments over the coming years. The most recent call for reform of the fiscal rules from Italian prime minister Mario Draghi and French president Emmanuel Macron therefore points to an old problem which is, 30 years after Maastricht, more pertinent than ever.