Policy Research in Macroeconomics (PRIME)’s blog Prime Economics reminds us of the Treaty of Rome, to establish a European Economic Community, first signed in 1957 which has a Chapter on Balance of Payments:
BALANCE OF PAYMENTS
Each Member State shall pursue the economic policy needed to ensure the equilibrium of its overall balance of payments and to maintain confidence in its currency, while taking care to ensure a high level of employment and a stable level of prices.
- In order to facilitate attainment of the objectives set out in Article 104, Member States shall co-ordinate their economic policies. They shall for this purpose provide for co-operation between their appropriate administrative departments and between their central banks. The Commission shall submit to the Council recommendations on how to achieve such co-operation.
- In order to promote co-ordination of the policies of Member States in the monetary field to the full extent needed for the functioning of the common market, a Monetary Committee with advisory status is hereby set up. It shall have the following tasks:
– to keep under review the monetary and financial situation of the Member States and of the Community and the general payments system of the Member States and to report regularly thereon to the Council and to the Commission;
– to deliver opinions at the request of the Council or of the Commission or on its own initiative, for submission to these institutions.
The Member States and the Commission shall each appoint two members of the Monetary Committee.
I have emphasized many times in my blog that Euro Area balance of payments and international investment position imbalances are quite important for the Euro Area. Even before I started writing this blog, I had stressed before anyone else (on other Post-Keynesian blogs) that the imbalances are large and quite important in understanding the crisis.
Of course, imbalances can be corrected by deflating demand and output as has been the case in the Euro Area since the start of the crisis by policy makers. But it’s good to know that the founders of European integration thought of coordinating policies, which implies their policies would have been expansionary. Anyway, had the original ideas not been overthrown, the Euro Area would also have had a central government. Unfortunately neoliberalism became popular in the 1980s and this led to the Maastricht Treaty which forgot the original intentions of the founders.
The Treaty’s opening also has this important line:
RECOGNISING that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition
I should mention however that the Euro Area has this thing called the Macroeconomic Imbalance Procedure which tries to address the issue and even thinks of current account surpluses in the balance of payments as an imbalance, but it is still far away from doing anything about it, such as a coordinated fiscal policy expansion.