The renewal of the economy after World War II

The Schuman Declaration of 1950 was guided by the spirit of free trade. The European Coal and Steel Community (Montan Union) was established in 1951. The 1957 Treaty of Rome subsequently laid the foundations for the European Economic Community.

Robert Schuman, French Foreign Minister, unveiled his plan in Paris on 9 May 1950; this day is celebrated as Europe Day.


The ensuing thirty years or so were a period of lifting barriers to the free movement of goods, services, capital and labour. The rules for doing business in the Member States were liberalised and unified.

In legal terms, this process took the form of amendments to the Treaty establishing the European Economic Community.
After the Maastricht Treaty took effect in 1993, the name was changed to the Treaty establishing the European Community. Following the entry into effect of the Lisbon Treaty at the end of 2009, most of the text of this Treaty is now contained in the Treaty on the Functioning of the European Union.

The most important piece of legislation was the Single European Act of 1987, based on which the single internal market entered the lexicon at the start of 1993. The process of liberalisation and creation of the single market was modified by the gradual enlargement of the Community and by the gradual integration of new Member States into the common market. The term “common market” was used in the initial phases of integration; the term “single market” was introduced after the Single European Act was passed. The founding six countries (France, Germany, Italy, Belgium, the Netherlands and Luxembourg) were joined gradually by other Western, Northern and Southern European countries and, after major social changes, also by countries of Central and Eastern Europe. The number of Member States increased to the current 27. Most of the waves of enlargement were characterised by several-month-long transition periods involving integration into the common market.

Besides gradual integration of the common market, the high stability of the international monetary system in the early period of European integration until the end of the 1960s was another reason why the idea of monetary integration did not figure in the early days of integration. At the end of the 1960s, after significant progress had been made towards liberalising the movement of goods and serious political rifts within the Community had been bridged, thoughts about introducing a single currency in Western Europe started to appear.

Under the leadership of Luxembourg’s Finance Minister Pierre Werner, a report on Economic and Monetary Union was drawn up and submitted in October 1970. The Union was to be established by 1980 through monetary cooperation, economic policy coordination, liberalisation of the movement of capital, and regional financial adjustment. However, subsequent developments in Europe in the early 1970s, when the international monetary system collapsed, led to considerable divergence. The integration efforts in this area were put on ice.

In response to the abandonment of the gold standard and the double devaluation of the dollar (1971, 1973), less ambitious plans were implemented. These were aimed at least at reducing mutual exchange rate fluctuations. The European Monetary Cooperation Fund (based on the “Snake in the Tunnel” principle) was established under a 1972 agreement among central banks. A new agreement on more permanent cooperation in the currency and exchange rate area was achieved only at the end of the 1970s, when the situation calmed after years of considerable exchange rate and price instability

The European Monetary System was established in March 1979 on the basis of a decision taken by the European Council in December 1978. The main aim of the system was to achieve stability of the exchange rates of the participating countries’ currencies. Exchange rate parities were expressed in terms of the mutual relations of the individual currencies in the system, in a so-called grid. The exchange rates were supposed to deviate from the set parities by no more than 2.25%. A temporary maximum deviation of 6% was set for countries with higher exchange rate volatility. To achieve this aim, an intervention mechanism for the participating countries’ currencies and additional and credit mechanisms were used to equalise the economic level. The Exchange Rate Mechanism (ERM) was based on agreements among the Member States’ central banks. Another feature of the system was the new European Currency Unit (ECU), which replaced the European Currency Unit of the European Monetary Cooperation Fund.