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Book Reviews This study seeks to explain Germany’s role in the development of European monetary co-operation by looking closely at the institutional relations between the federal government and the Bundesbank. Germany’s dominant influence in the design of succeeding monetary arrangements bears the imprint of German foreign policy objectives as pursued by the federal government. Secondly their particular design reveals the mark of the Bundesbank itself. International monetary co-operation and exchange rate regime commitments were in principle the decision of the federal government, but the insistence that agreed operating systems had to satisfy the legal requirement on the Bundesbank of the maintenance of price stability points to the Bundesbank’s strong restraining influence. The Bundesbank disliked international monetary regimes which inhibited its focus on domestic price stability, namely by any requirement to intervene to prop up weak currencies. Although constrained to support general government policy, the Bundesbank could nevertheless insist on restrictive design and operating procedures. Heisenberg makes very clear how these institutional tensions in Germany interact at the level of the international monetary regime. She stresses that the Bundesbank acted as the domestic ratifier of federal government policies and so its preferences had to be observed in international monetary negotiations. Heisenberg assesses in considerable detail the relative roles of the Bundesbank and federal government in five main periods of the evolution of the EMS and EMU: the construction of the EMS in the late 1970s, the tensions of tight German monetary policy in the second half of the 1980s, the role of the Bundesbank in the design of EMU, the DM crises of the early 1990s and, finally, the further refinements to the EMU regime after ratification of the Treaty on European Union. Heisenberg makes very clear how, in the face of the political push by Giscard d’Estaing and Schmidt in 1977–78 to establish an EMS after the failed ‘snake’, the final system agreed and implemented was far less symmetrical in its construction and so imposed far fewer intervention responsibilities on the Bundesbank. The Franco-German agreement in 1987 to establish a Franco-German Finance Council, reflecting the strong French desire for a looser monetary policy, also exemplified the Bundesbank’s principled insistence on the primacy of German price stability. The central bank had inserted in the agreement that the Council would be consultative only. It is well known that the impetus behind the Maastricht Treaty lay with Delors, Mitterrand and Genscher, with a strongly committed Kohl acting as mediator with the unpersuaded German Finance Ministry and a very reluctant Bundesbank. Again, in almost every regard, the Maastricht arrangements reflected the Bundesbank’s preferences and this occurred because of the dominant influence exerted by the EU Central Bank Governors’ Committee in its design. Heisenberg also pursues very sound and detailed arguments in her treatment of the role of the Bundesbank in the currency crises of 1992 and 1993, with a ‘near diplomatic incident’ occurring with the UK, while both open and secret support was given to the French franc. In the post-Maastricht years, however, with the Stability Pact, the design of ERM II, etc., it was clear that other German political forces, particularly the Finance Ministry, came to play a greater role in further tightening the monetary orthodoxy underlying the Maastricht EMU arrangements. In a full and detailed discussion, Heisenberg shows an assured analysis of the relative roles of federal government and the Bundesbank in the German negotiating position for monetary arrangements in Europe.
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