In the early 1970s, the Werner Committee debated the creation of monetary support mechanisms to hold funds that a weak currency country could draw upon to maintain its currency in the exchange rate mechanism (ERM). For some governments, the creation of such mechanisms was seen as vital to the success of European monetary arrangements. Support mechanisms contributed to an appropriate sharing of burdens in the context of massive current account imbalances, the preservation of an element of national sovereignty and, in turn, the legitimacy of European monetary integration. Other governments saw a limited role for these mechanisms, placing emphasis upon macro-economic convergence to achieve exchange rate stability. The support mechanisms created to bolster the Snake mechanism and the ERM of the European Monetary System were of a limited scale, contributing to the frustrations of weak currency governments participating in these arrangements. The Economic and Monetary Union (EMU) project was noteworthy for the absence of support mechanisms. The single currency would eliminate the kind of speculation that afflicted national currencies. The possibility of speculation in bond markets was seen as a limited cause for concern, especially given required fiscal consolidation and macro-economic convergence. This article examines the creation of the European Support Mechanism (ESM) and other recently created funds in terms of longstanding debates on the legitimate design of European monetary cooperation.
