European Payments Union (EPU)

History

The European Payments Union emerged from the wartime and postwar breakdown of European payments. Under the Marshall Plan the Organisation for European Economic Co-operation (OEEC) took shape after the 1947 Conference on European Economic Co-operation, and the OEEC served as the channel for allocating and coordinating United States aid to Europe. The EPU was one of several postwar institutions of European economic cooperation tracing their origins to the Marshall Plan, which the U.S. used to foster European integration and which conditioned aid on dismantling intra-European trade restrictions, coordinating national recovery plans and agreeing how to allocate payments through the OEEC.

Members signed the founding agreement in Paris on 1 July 1950, and the union was dissolved in Paris on 27 December 1958. Its successor, the European Monetary Agreement, had already been signed by 17 European countries in Paris on 5 August 1955, but the actual succession came when the EPU ended in 1958. The EMA was administered by the OEEC and then the OECD; it remained multilateral but carried less interim finance, and its loan-granting and settlements were non-automatic and non-mandatory.

The Bank for International Settlements served as Agent for the European Payments Union, an operational rather than merely documentary role. The U.S. Economic Cooperation Administration helped design the EPU and provided it with $350 million in working capital, while intra-European trade expanded from $10 billion in 1950 to $23 billion in 1959.

Distinctions

The EPU's operating purpose was multilateral settlement: it accounted for trades but did not transfer money until the end of the month, replacing bilateral trading driven by outstanding debts with multilateral trade, and it forced liberalization by mandating that members eliminate discriminatory trade measures. Under the EPU, governments accepted the currency of any other member government in payment for exports, unsnarling the roughly 200 bilateral trade agreements under which inconvertible-currency trade had been conducted. The Americans insisted that EPU members adhere to an OEEC Code of Liberalisation (September 1950), binding them to a schedule for the progressive dismantling of quantitative barriers to intra-bloc trade.

The EPU used the European Unit of Account (EUA) as its internal unit of account. The EUA was defined when the organisation was formed in 1950 as 0.888671 grams of gold, one US dollar; its basket redefinition came only after the collapse of the Bretton Woods system, long after the EPU ended in December 1958. The EUA has a separate institutional lineage and is not another name for the EPU.

Examples

As an intra-European clearing arrangement, the EPU is functionally comparable to later regional clearing unions such as the Asian Clearing Union, established in 1974 at ESCAP initiative, which likewise settles eligible transactions among member countries on a multilateral basis.

Relations

The OEEC archival record describes the EPU and the OEEC as essentially European entities despite U.S. associate membership in the OEEC. They worked through mechanisms of peer pressure comparable to the multilateral surveillance of the ERM of the European Monetary System, whose descendant EMU is said to continue practicing the EPU's lessons.

On later invocations of the EPU, the archival record carries a retrospective judgement: proposals for an EPU-like arrangement after the fall of the Berlin Wall and the collapse of the Soviet Union were misguided, because Western European nations were drawing together into an economic community whereas the Soviet successor states were loosening regional ties in favour of stronger links with the rest of the world.

The Marshall Plan was designed as an instrument of geopolitical stabilisation, and the U.S. transferred US$13.3 billion under the ERP. It explicitly offered the same aid to the Soviet Union and its allies, who refused it under Soviet pressure, and it ended US aid to the Netherlands Indies in January 1949 over Dutch colonial policy.