Europe’s politicians nowadays are desperately looking for someone to blamefor the euro crisis. Germany blames France, and vice versa. Even lawyersare getting into the act, trying to identify legal responsibility for themonetary union’s design flaws.

Meanwhile, as the crisis has deepened, a new consensus about Europe’smonetary union has emerged. The euro, according to this view, was devised in a fit of giddyand irresponsible optimism – or, alternatively,panic at the prospect of German hegemony overEurope – in the wake of the fall of the Berlin Wall.

Nothing could be further from the truth. The Report on economic and monetary union in the EuropeanCommunity, which laid out theeuro blueprint, was presented in April 1989 – a time when no one (with thepossible exception of some Kremlin strategists)was thinking about German reunification. Moreover, the salient issuesconcerning monetary unions were well understood, and remedies for the mostsignificant obstacles were proposed at the outset.

The committee that drafted the report – now known as the Delors Report,after its chairman, Jacques Delors – was a fundamentally rather conservativegroup of central bankers, with even the governor of the Bank of England (BoE)signing on. Its internal debates highlighted two problems of the potentialmonetary union.

First, the committee explicitly discussed whether the capital market wouldsuffice to impose fiscal discipline on thecurrency union’s members, and agreed that a system of rules was needed. Butthose rules were steadily weakened, and by the early 2000’s were widely derided (including by Romano Prodi, Delors’ successoras President of the European Commission), as governments found that they couldrun large deficits without paying higher market interest rates.

The second problem was more serious. In the original plan for the EuropeanCentral Bank, the proposed institution would have had overall supervisory andregulatory powers. Indeed, the drafters of the ECB statuteproduced an astonishingly far-sighted approachto banking supervision. Their 1990 version of the Maastricht Treaty’s Article25 on Prudential Supervision included the following provisions (placed in square brackets to show that they were not completely consensual): “The ECB may formulate, interpret, andimplement policies relating to the prudential supervision of credit and otherfinancial institutions for which it is designatedas competent supervisory authority.”

The demand that the ECB should be the central supervisory authority in anintegrated capital market met strong resistance, above all from Germany’sBundesbank, which worried that a role in maintaining financial stability mightundermine the Bank’s ability to focus on price stability as the primary goal ofmonetary policy. There was also bureaucratic resistance from existingregulators. Most important, supervision suggested some potential responsibilityto recapitalize problematic banks, and thus involved a fiscal cost.

The most energetic actor behind the early thinking on banking supervisionwas a BoE official, Brian Quinn. But his credibility was sapped in the wake of criticism of the BoE’s handlingof the collapse in 1991 of the Bank of Credit and Commerce International – anepisode that anticipated later issues in managing the failure of large,cross-border institutions.

A legal vestige of the original plan mayoffer an easy path to a greater ECB supervisory role today. According toArticle 25 of the Maastricht Treaty, the ECBmay “offer advice to and be consulted by” the Commission or the Council on thescope and implementation of legislation relating to prudential supervision.

When that phrase was inserted in the Treaty, it appeared as if the hurdlesto effective European banking supervision could hardly be set higher. The ECBwas not given overall supervisory andregulatory powers. And, until the outbreak of the financial crisis in 2007-2008highlighted the connections between financial and fiscal health, no oneconsidered that a problem. They do now.

Nevertheless, fiscal rules and common banking supervision are stillregarded in many quarters as an illegitimate encroachmenton member states’ sovereignty. After all, the European Union has avoidedbecoming a focus of heated contestationprecisely because it never got much of a share of what Europeans produced (itsbudget, at just over 1% of the EU’s GDP, has barely changed in relative termsfor the past 40 years). It was the member states that did politics and budgets.

Delors had a different vision. At the time of his report, he concludedthat the European budget would amount to some 3% of GDP – identical to thepeacetime US federal budget’s share of GDP during the country’s first stage ofmonetary union, in the nineteenth century.

Moreover, as in Europe today, when Alexander Hamilton proposed a centralbanking system, the Bank of the United States, alongside consolidation of states’ Revolutionary War debt into federaldebt, the implementation of his sensible plan was imperfect. In the Americancase, the principles of federal finance were not worked out until the CivilWar, and the Federal Reserve System was established even later, coming only in1913.

Europeans can learn from the United States and implement a fundamentallysound plan. But they must also recognize that political backlashes and setbacks areinevitable – and thus that the road from vision to reality may be longer thanexpected.