The economics of european financial solidarity mechanisms from 1970 up to EMU

European Union financial solidarity between its member states has a 60 years-old history going back right to the origins of the European projects in the early 1950s. However, the first 20 years or so were dominated by the financing of projects in the context of rapidly rebuilding European economies. This early period has to be seen also in the broader context of the Bretton Woods system and in particular the creation of the IMF. The first severe test to the Union's financial solidarity mechanisms with a macro-fiscal dimension came during the oil shocks which led to peaks in macroeconomic imbalances in the mid-seventies and early- to mid-eighties. We explain the origins and motivations for the instruments created during that period including the European Monetary Cooperation Fund of 1973 and the Community medium-term financial assistance scheme created in 1975, and add some new elements to the literature on economic and financial history of European integration. Within our focus on the period from the early 1970s up to 1993, from the Werner Plan to the entry into force of the Treaty of Maastricht, we document the evolution of European macro-financial solidarity during that period by examining various episodes of activation of the instrument, filling a gap in the literature on the history of European financial integration as provided in Kindleberger (1965, 1984) and Ungerer (1997). Finally, we show that by revisiting the experience with macro-financial stability tools during the period between the Bretton Woods system of fixed exchange rates and the creation of Economic and Monetary Union we can also improve our understanding of the current financial solidarity mechanisms at the EU and global level.