The Commission’s influence reached its peak in the late 1980’s, no more clearly evident than in the 1988 decision to establish a committee under the direction of the Commission President Jacques Delors to explore the feasibility of a European Monetary Union as a complement to the increasingly integrated European marketplace. The resulting Delors Report recommended the creation of a European Monetary Union (EMU) for the member nations of the Community, and in December, 1991 in Maastricht, Netherlands the Treaty on European Union (TEU) was approved, subject to ratification by the citizens of each of the member nations. To this point, the European Commission stood as the dominant voice in Community policy-making, operating much like the strong executive in centralized federalism. Paradoxically perhaps, the approval of the Commission’s crowning achievement, the EMU, would begin the significant erosion of its powers and the evolution towards democratic federalism under Maastricht.

The Maastricht Treaty creating the Economic and Monetary Union seeks to continue the (now) Union’s move towards the free flow of goods, labor, and capital and to establish a common monetary policy for all member states through the introduction of a single European currency and a single European Central Bank. It remains a controversial objective. The promised benefits of the Monetary Union are fourfold: 1) Lower transactions costs of doing business in the Union because of a common currency; 2) Price stability because money supply will be controlled by politically independent European Central Bank; 3) Increased trade because of reduced currency risk from the common currency; and 4) Increased capital formation again because of reduced currency risk. However significant, and recent evidence suggests the economic benefits may be small (Eichengreen 1993), they come at a potential cost. Countries joining the Union will sacrifice their ability to use expansionary monetary policy to offset the adverse employment effects of negative economic shocks. If economic shocks affect all or most of the Union’s countries similarly, then the EMU’s common monetary policy can serve the same role as country-specific expansionary monetary policies during times of deep recessions. But if economic shocks are asymmetric across the potential members of the EMU, as the evidence seems to indicate (Bayoumi and Eichengreen 1993), then the loss of country-specific monetary policy imposes potentially large costs on members during economic downturns. The costs are likely to be largest in the larger countries of the Union, where domestic monetary policy now has significant stimulatory benefits during recessions.