European Payments Union

an intergovernmental organization of 17 capitalist nations of Europe (Austria, Belgium, Denmark, France, the Federal Republic of Germany, Great Britain, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Turkey, Sweden, and Switzerland), formed to conduct multilateral offsets of mutual claims arising from trade and other current operations. It functioned from 1950 to 1958.

Officially, the chief goal of the European Payments Union was the expansion of mutual trade of member countries through the abolition of trade and currency restrictions and the introduction of general convertibility of currencies. The union was set up through the initiative of the USA, which was interested in developing multilateral clearing payments and convertibility of currencies of capitalist countries into dollars; this facilitated American economic expansion abroad. Offsets in the European Payments Union were conducted monthly in payment units equated with the dollar in gold content and were implemented by the Bank for International Settlements. Payments to countries that headed currency zones included payments to the members of these zones as well. The bank determines an unfavorable or favorable balance of payments for each member country with other members; this was subject to regulation by the Union. Part of an unfavorable balance of payments was recovered from debtors in gold or in US dollars (up to the middle of 1954 this share amounted to 2 to 40 percent; from mid-1954 to 1955, 50 percent; and from 1956 to 1958 it was raised to 75 percent); the remainder was paid off through credits from the union. In turn, countries with a favorable balance of payments credited the union.

The European Payments Union could not provide for equalization of payments balances. From 1952 on, West Germany headed a stable group of creditor countries (Belgium, the Netherlands, and Switzerland). France and Great Britain were the principal debtors. The sharp imbalance in payments reflected the aggravation of the competition of member countries of the union for markets. After the creation of the Common Market and the introduction (December 1958) by European countries of the foreign convertibility of their currencies, the European Payments Union was replaced by the European Monetary Agreement.