ABSTRACT
Does Europe need a Federal Reserve System? During 1988 and 1989 this question went from being a completely academic one to being one of the most controversial issues of the day. InJune 1988 the leaders of the European Community (EC) member governments agreed at their Hanover summit to form a committee under Jacques Delors, president of the European Commission, to investigate alternative routes to economic and monetary union and to recommend the most appropriate direction. The Delors report, submitted in April 1989, offered nothing less than a blueprint for a federal European superstate (see Delors 1989).1 Apart from a radical centralization of fiscal powers, the report also recommended that the separate European national central banks should be merged into a new European central bank organized along Federal Reserve lines. To achieve this objective, the United Kingdom was first to join the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS). The exchange rates of the EMS currencies would then be fixed irrevocably; the existing central banks would become part of a European version of the Federal Reserve system with a status much like that of the Federal Reserve banks in the United States, and the separate European currencies would be merged into one new currency.
