25. 9. 79 Official  Journal  of the  European  Communities No C 240/1 
I 
(Information) 
COUNCIL  AND  COMMISSION 
TWENTIETH  REPORT 
ON THE  ACTIVITIES  OF THE  MONETARY  COMMITTEE 
FOREWORD 
The purpose  of this  report  is to give  a brief  account  of the activities  of the Monetary 
Committee  in the course  of 1978. 
During  the year,  the Committee  held  11 sessions  and  the working  parties  drawn  from  its 
own members  or set up at its initiative  met  on many  occasions. 
At its session  of 9 December  1977  it had  elected  its officers.  It elected  as chairman  Mr 
J. van Ypersele  de Strihou,  Office  of the Prime  Minister,  Brussels,  and  as vice-chairmen, 
Mr S. Andersen,  Joint-Governor  of Danmarks  Nationalbank,  Mr  N. Jordan-Moss, 
HM Treasury,  London  and  Mr P. Jaans,  Banking  Control  Commission,  Luxembourg. 
The terms  of office  of the new  members  will  expire  on 31 December  1979.  A list of 
members  as at 31 December  1978  is annexed. 
At its meeting  of 5 and 6 June  it celebrated  the twentieth  anniversary  of its first  meeting, 
held on 4 June  1958.  To celebrate  this occasion,  the present  chairman,  Mr van Ypersele, 
invited  the Committee  and  its former  chairmen  and  vice-chairmen  to a reception  held  on 
5 June  1978.  The  written  contributions  of the former  chairmen,  and  the speech  given  by 
the present  chairman  are collected  in a small  brochure  entitled  'Twenty  years  of the 
Monetary  Committee',  which  is available  on request  from  the Committee's  Secretariat. 
The report  was  adopted  as at 31 December  1978. 
INTRODUCTION 
1. The  expansion  of world  economic  activity 
continued  to be moderate  in 1978.  Growth  rates  both 
of production  and  world  trade  were  similar  to those 
of 1977.  The  structure  of balances  of payments 
altered  greatly:  on the one  hand,  the OPEC  surplus 
fell markedly,  and  the  deficit  of the  non-oil 
producing  developing  countries  increased  and,  on the 
other  hand,  the  OECD  countries  went  back  into surplus.  Among  these  latter,  developments  were  not 
homogeneous:  the  United  States'  deficit  worsened 
further,  but  was  more  than  compensated  by the 
improvement  in the balances  of other  countries,  parti-
cularly  the Community  and Japan. 
2. The  economic  situation  in the Community  again 
presented  rather  a contrast  in 1978.  On the one  hand, 
No C 240/2 Official  Journal  of the  European  Communities 25. 9. 79 
the results  for  growth  and  employment  were 
deceptive:  growth  of output  remained  mediocre, 
barely  above  , the level  of 1977,  and  unemployment 
continued  to increase  throughout  most  of the  year. 
On the  other  hand,  further  progress  was  achieved  on 
prices  and  external  payments:  the  slow-down  in the 
rate of inflation  continued,  and  was  particularly marked  in those  countries  where  it has  been  highest; 
similarly,  there  was  a substantial  increase  in the 
Community's  current  account  surplus,  and  this 
movement,  which  is primarily  due  to the improvement 
in the  terms  of trade,  was  particularly  marked  in a 
number  of countries  which  had  been  in a relatively 
weak  position  in previous  years. 
COMMUNITY  ACTION  AND  THE  ACTIVITIES  OF THE  COMMITTEE 
3. 1978  was  a significant  year  for the Committee, 
which  played  a vital  role  in the  preparation  and 
development  of the  European  monetary  system,  and 
during  the  second  half  of the  year  devoted  its time 
almost  exclusively  to this  question. 
4. On  17  November  1977  the  Commission 
presented  a communication  to the European  Council 
of 4 and  5 December  1977  on the  prospects  of 
economic  and  monetary  union,  and  at its meeting  of 
19 December  1977,  the  Council  had  requested  the 
Committee,  along  with  the  Economic  Policy 
Committee  and  the  Committee  of Governors,  to 
examine  this  communication.  To  this  end,  the 
alternates  met  on several  occasions  and  submitted  a 
report  to the  Committee  at its meeting  of 4 April 
1978,  who  then  held  an exchange  of views  on this 
subject. 
5. On  6 and  7 April  1978  the  European  Council 
met in Copenhagen,  and  the  conclusions  of the 
Presidency  set out  a list of objectives  relating  to the 
economic  and  social  situation.  In particular,  it stated: 
'2. The  European  Council  has  examined  the 
need  for  increased  monetary  stability  both  in the 
Community  and  at world  level.' 
It requested  the  Council  to take  the  necessary 
measures  to achieve  these  objectives. 
The Council  therefore,  at its meeting  of 17 April 
1978,  requested  the  Monetary  Committee  and  the 
Committee  of Governors  to continue  their  work  on 
the monetary  problems  in the  Community  and  to 
report  back  in May  or June. 
6. In  response  to this  request,  at its meeting  of 11 
and 12 May,  the Committee  held  a wide-ranging  and 
detailed  exchange  of views  on ways  of promoting 
greater  stability  in  exchange  rate  relationships 
between  EC member  countries.  This  examination  was 
based  on the  following  assumptions  about  any  new 
exchange  rate  system: 
(a) It would  be  applicable  to  all  Community 
currencies. 
(b) It would  be  symmetrical  with  regard  to the 
burden  of adjustment. (c) It would  be  supported  by  substantial  credit 
facilities. 
The chairman  presented  an oral  statement  to the 
Council  of  22  May  which  summarized  the 
Committee's  conclusions  to date. 
7. At  its meeting  of 5 and  6 June  the  Committee 
continued  its examination  and  drew  up a report  to 
the Council  and  the Commission  which  contained  the 
so-called  'three  variants',  which  were  in fact,  sets  of 
variants,  for achieving  exchange  rate  stability.  These 
were,  in essence: 
(a) The  'strict'  variant,  involving  obligations  to 
defend  a nominal  market  rate  vis-a-vis  each 
partner  currency.  Two  alternatives  were 
envisaged  here.  Firstly,  the re-entry  of all member 
currencies  into  'the  snake',  but with  an element  of 
flexibility  in the  form  of a transitional  period 
during  which  wider  margins  or  a flexible 
procedure  for  changing  central  rates  could  be 
applied.  Secondly,  a similar  new  system  could  be 
created,  but  with  additional  features  such  as a 
simplified  procedure  for small  changes  in central 
rates,  provision  for  temporary  leave  of absence 
and elements  of a common  attitude  to major  third 
currencies. 
(b) The  'weighted  index'  variant,  whereby 
intervention  obligations  would  be  defined  by 
reference  to a weighted  index,  constructed  either 
on the  basis  of the  European  unit  of account 
(EUA)  or  effective  exchange  rates  (weighted 
according  to the  geographical  distribution  of 
foreign  trade).  Participating  countries  would 
commit  themselves  to maintaining  the  index 
within  a given  margin. 
(c) The  'flexible'  variant,  involving  a system  of 
concerted  fluctuations  represented  by a 'reference 
zone'  for the three  currencies  which  were  floating 
individually  and  'the  snake'  as a whole.  There 
were  no commitments  to defend  margins,  the 
only  obligations  being:  firstly,  to abstain  from 
25.9.  79 Official  Journal  of the  European  Communities No C 240/3 
measures  likely  to cause  the  exchange  rate  to 
move  out  of its reference  zone  and,  secondly,  for 
countries  to submit  to a consultation  procedure 
which  would  be triggered  automatically  if the 
reference  zones  were  breached  or abandoned. 
8. On  6 and  7 July  the  European  Council  met  in 
Bremen  and  examined  a proposal  for  the creation  of 
closer  monetary  cooperation  (through  the  setting  up 
of a European  monetary  system)  leading  to a zone  of 
monetary  stability  in Europe.  The  main  principles  of 
the EMS  were  laid  down  in the  Annex  to the 
conclusions  of the Presidency,  known  as 'the  Bremen 
Annex'. 
9. The  Committee  was  requested  by the  Finance 
Council  of 24 July  1978  to examine  the system  set out 
in the Bremen  Annex  and  report  back  to the Council 
of 18  September.  After  three  meetings  of  the 
alternates  and  two  meetings  of the  Committee,  on 
7 September  1978  it adopted  an interim  report  on the 
European  monetary  system,  which  dealt  essentially 
with  the problems  linked  to the numeraire  — such  as 
the definition  of central  rates  and  margins,  the 
characteristics  of the  various  systems  (parity  grid  and 
basket  systems)  and  changes  in central  rates  — and 
interventions  —  such  as  intervention  currencies, 
width  of margins,  and  symmetry  of intervention 
obligations  — and  which  also  contained  preliminary 
considerations  on  the  European  Monetary  Fund 
(EMF). 
10. This  report  was  considered  by the  Council  at 
its meeting  of 18  September,  which  requested  the 
relevant  Committees  to continue  their  work  in the 
light  of the  discussions  which  had  taken  place  in the 
Council.  Following  preparation  by the  alternates,  on 
12 October  1978,  the Committee  adopted  a report  on 
the European  monetary  system,  which  carried  further 
the examination  in its interim  report,  in particular,  on 
the assumption  that  the  EMS  would  be based  on a 
combined  use  of the  'parity-grid'  formula  and  the 
'ECU  basket'  formula,  the  latter  being  used  to 
determine  the  'degree  of divergence'  of participating 
currencies. 
11. This  report  was  examined  by the Council  at its 
meeting  of 16  October,  which  concentrated  its 
discussion  on  the  intervention  rules  and  the 
strengthening  of credit  mechanisms  and  requested  the 
Committees  to continue  their  work  and  clarify  certain 
outstanding  matters. 12. On  7 November  the  Committee  adopted  its 
final  report  to the  Council  and  the  Commission  on 
the European  monetary  system  (Annex  I) after  a long 
discussion  of the questions  still  pending. 
This  report  was  examined  by  the  Council  on  20 
November  and  on the  basis  of this  report,  that  of the 
Committee  of Governors  and  that  of the  Economic 
Policy  Committee,  the  Presidency  of the  Council 
prepared  an overall  report  to the European  Council. 
13. The  European  Council  met  on  4 and  5 
December  and  adopted  a resolution  on  the 
establishment  of  the  European  monetary  system 
(EMS),  which  was  to begin  on 1 January  1979. 
The Committee  is aware  that  the  lasting  success  of 
the EMS  requires  an improvement  in coordination  of 
national  economic  policies  and  it is prepared  to make, 
within  the  existing  framework,  its contribution  to 
secure  an improved  convergence  of economic  policies 
between  Member  States  as set out  in its report  to 
Council  and  the  Commission  of 28 February  1978 
(Annex  II). 
14. As  in previous  years  the Committee  carried  out 
regular  examinations  of the  economic  situations  in 
Member  States,  with  particular  reference  to monetary 
and exchange  rate  policy,  and  the  use  of monetary 
targets  as stated  in its report  of November  1976  (see 
nineteenth  annual  report,  paragraphs  8 to 10).  In the 
framework  of these  examinations,  the  Committee 
discussed  in particular  the policies  pursued  by France, 
Germany  and  the United  Kingdom. 
15. In  addition,  as  required  by  the  Council 
Decisions  granting  financial  aid by the Community  to 
Italy  and  Ireland,  the  Committee  was  consulted  on 
the situation  of these  countries.  In January  the 
Committee  took  note  of a report  prepared  by the ad 
hoc Working  Party  chaired  by Mr  de la Geniere, 
which  presented  an analysis  of the economic  situation 
in Italy  in 1977.  In May  the  ad hoc  Working  Party 
again  presented  a report  to the  Committee,  and  the 
Committee  adopted  a report  to the  Council  and  the 
Commission.  Finally,  another  report  to the  Council 
and the  Commission  was  approved  by the Committee 
at its meeting  of 18 and  19  July  1978  fixing  the 
fundamental  and  'instrumental'  objectives  for  1978 
and the fundamental  objectives  for 1979. 
16. In  February  the  Committee  adopted  a report 
drafted  by the  ad hoc  Working  Party  chaired  by Mr 
Andersen  on  the  economic  situation  in Ireland, 
prospects  for  1978  and  the  respect  of the  economic 
No C 240/4 Official  Journal  of the  European  Communities 25. 9. 79 
policy  conditions  in 1977,  which  was  submitted  to the 
Commission  for information. 
17. The  Committee  also  devoted  a significant  pro-
portion  of  its  time  to  international  monetary 
questions,  in preparation  for  the  interim  Committee 
meetings  in April  and  September  and  the  annual 
meeting  of  the  International  Monetary  Fund  in 
September. 
The two  principal  questions  with  which  the 
Committee  had  to deal  this  year  were  the  SDR  (new 
allocation,  improvement  of  the  characteristics  — 
valuation,  interest  rate,  reconstitution  obligation  — 
substitution  account)  and  the  review  of quotas. 
18. The  Committee  also  examined  various  other 
matters,  such  as a proposal  to amend  the  Community 
loan  mechanism,  a proposal  for  a draft  Third 
Directive  implementing  Article  67 of the  EEC  Treaty 
(Annex  III),  a proposal  for  refinancing  by the  Bank for International  Settlements  of claims  arising  from 
the medium-term  financial  assistance  mechanism,  and 
several  proposals  to change  the  conversion  rates  for 
national  currencies  into  units  of account  for  the 
purposes  of the common  agricultural  policy. 
19. Finally,  in the  framework  of the  setting  up of 
the EMS,  the  Committee  considered  the  Commission 
proposals  for  Council  Regulations  changing  the  value 
of the  unit  of  account  used  by  the  European 
Monetary  Cooperation  Fund;  on  the  European 
monetary  system;  and  on the  impact  of the  European 
monetary  system  on the  common  agricultural  policy, 
as well  as  a proposal  for  a Council  Decision 
amending  Decision  71/143/EEC  setting  up 
machinery  for  medium-term  financial  assistance.  It 
also examined  legal  problems  involved  in  the 
implementation  of the  EMS,  on the  basis  of a report 
prepared  by an ad hoc  Working  Party  set up for  this 
purpose. 
WORKING  PARTIES  OF THE  MONETARY  COMMITTEE 
20. The  Working  Party  on Securities  Markets  met 
five times  in  1978  and  continued  to  examine 
developments  in the  capital  markets  of the  Member 
States  and  in the international  bond  markets,  and  also 
discussed  capital  market  policies. 
At the  request  of  the  Monetary  Committee  it 
prepared  a draft  opinion  on the  proposal  for  a draft 
Third  Directive  for  the  implementation  of Article  67 
of the  EEC  Treaty,  which  the  Monetary  Committee 
adopted  at its meeting  of 5 and  6 June  1978  (see 
paragraph  18). 21. The  Working  Party  on the  Harmonization  of 
Monetary  Policy  Instruments,  a joint  group  of the 
Committee  and  the  Committee  of Governors,  met 
several  times  in 1978.  It continued  its  work  on 
intermediate  objectives,  with  a detailed  study  of the 
possible  obstacles  to their  harmonization,  and  had 
almost  completed  this  by the  end  of the  year.  This 
work  should  provide  the  corpus  of a report  which  the 
Working  Party  intends  to  present  to  its  parent 
Committees  at the very  beginning  of 1979. 
LIST  OF MEMBERS  AND  ALTERNATES  OF THE  MONETARY  COMMITTEE 
Chairman 
Mr J. van  Ypersele  de Strihou  Chef  de Cabinet  du Premier  ministre  (Brussels) 
Vice-Chairmen 
Mr S. Andersen 
Mr N. Jordan-Moss 
Mr P. Jaans Gouverneur  — Danmarks  Nationalbank  (Copenhagen) 
HM Treasury  (London) 
Commissaire  au controle  des  banques  (Luxembourg) 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/5 
Members 
Mr M. J. Balfour 
Mr F. Boyer  de la Giroday 
Mr J.-M.  Camdessus  (since  1 
September  1978 
Mr R. de la Geni&re 
Mr J.-Y.  Haberer  (until  31 August 
1978 
Mr K. Hansen 
Mr M. Horgan 
Mr G. Janson 
Mr R. Kirsch 
Prof.  G. Magnifico 
Dott.  U. Mosca 
Mr T. O'Grady  Walshe 
Dott.  S. Palumbo 
Mr K. O. Poehl 
Drs. A. Szasz 
Dr H. H. Weber 
Dr A. H. E. M. Wellink Bank  of England  (London) 
Director  in the Directorate-General  for Economic  and 
Financial  Affairs  — Commission  of the  European 
Communities  (Brussels) 
Chef  du service  des affaires  Internationales  a la direction 
du tr6sor,  ministere  de l'economie  et des finances  (Paris) 
Premier  sous-gouverneur  de la Banque  de France  (Paris) 
Chef  du service  des affaires  international  a la direction 
du tresor,  ministere  de l'economie  et des finances  (Paris) 
Det Okonomiske  Sekretariat Director  general 
(Copenhagen) 
Department  of Finance  (Dublin) 
Directeur  de la Banque  nationale  de Belgique  (Brussels) 
Conseiller  de  gouvernement,  ministere  des  finances 
(Luxembourg) 
Banca  d'ltalia  (Rome) 
Director-General  for Economic  and  Financial  Affairs  — 
Commission  of the European  Communities  (Brussels) 
Central  Bank  of Ireland  (Dublin) 
Dirigente  generate  al ministero  del tesoro  (Rome) 
Vizeprasident  der Deutschen  Bundesbank  (Frankfurt  am 
Main) 
Directeur  van de Nederlandsche  Bank  NY (Amsterdam) 
Ministerialdirektor 
(Bonn) Bundesministerium  der  Finanzen 
Thesaurier-generaal  bij  het  Ministerie  van  Financign 
(The  Hague) 
Chairman  of the alternates  of the Monetary  Committee 
Mr H. Baquiast Sous-directeur  a la direction  du tresor,  ministdre  de 
l'economie  et des finances  (Paris) 
Alternates 
Drs. D. H. Boot 
Mr P. J. Bull 
Mr H. Dalgaard 
Drs. F. A. Engering  (since  1 June  1978) 
Dr W. Flandorffer 
Mr M.  Emerson  (since  15 February 
1978) 
Mrs M. Hedley-Miller 
Mr G. Jennemann  (until  3 January 
1978) Onderdirecteur  van  de  Nederlandsche  Bank  NV 
(Amsterdam) 
Bank  of England  (London) 
Kontorchef  — Danmarks  Nationalbank  (Copenhagen) 
Ministerie  van Financien  (The  Hague) 
Ministerialrat,  Bundesministerium  fur Wirtschaft  (Bonn) 
Director  in the Directorate-General  for Economic  and 
Financial  Affairs  — Commission  of the  European 
Communities  (Brussels) 
HM Treasury  (London) 
Bankdirektor,  Deutsche  Bundesbank  (Frankfurt  am 
Main) 
No C 240/6 Official  Journal  of the  European  Communities 25. 9. 79 
Mr G. Lefort 
Dott.  S. Masera 
Mr D.  McCutcheon  (since  1 July 
1978) 
Mr G. Reynolds 
Dr. W. Rieke  (since  1 February  1978) 
Mr M. Schmit 
Mr B. Scully  (until  30 June  1978) 
Mr N. Ussing Directeur  general  des services  etrangers  de la Banque  de 
France  (Paris) 
Banca  d'ltalia  (Rome) 
Department  of Finance  (Dublin) 
Central  Bank  of Ireland  (Dublin) 
Deutsche  Bundesbank  (Frankfurt-am-Main) 
Inspecteur  des finances  (Luxembourg) 
Department  of Finance  (Dublin) 
Kommiteret  —  Det  Okonomiske  Sekretariat 
(Copenhagen) 
Drs. R. van Boven  (until  30 May  1978)  Ministerie  van Financien  (The  Hague) 
Mr R. Vanden  Branden  (since 
1 January  1978) 
Mr J. Vanormelingen 
Dr M.  Wegner  (until  14  February 
1978) 
Mr P. Zimmer 
Dott.  A. Zodda Chef  du Service  des accords  internationaux  de la Banque 
Rationale  de Belgique  (Brussels) 
Administration  de la Tresorie  (Brussels) 
Director  in the Directorate-General  for Economic  and 
Financial  Affairs  — Commission  of the  European 
Communities  (Brussels) 
Commissariat  au controle  des banques  (Luxembourg) 
Ministero  del Tesoro  (Rome) 
Secretariat 
Mr G. Morelli  (until  30 May  1978) 
Mr A. Kees  (since  28 November  1978) 
Mr G. Lermen 
Mr A. Chapman 
ANNEX  I 
FINAL  REPORT  TO  THE  COUNCIL  AND  THE  COMMISSION  ON  THE  EUROPEAN 
MONETARY  SYSTEM 
I. INTRODUCTION 
1. In  accordance  with  the request  from  the Council  at its 
session  of 16  October  1978,  the  Monetary  Committee 
hereby  submits  its final  report  on the system,  outlined  in the 
summary  of conclusions  of the Presidency  of the European 
Council  on 6 and 7 July  1978  and the Annex  thereto  relating 
to the creation  of closer  monetary  cooperation  between  all 
Member  States. 2. The  European  Council  envisaged  a durable  and 
effective  scheme  with  a European  currency  unit  (ECU)  at its 
centre  and  with  all the basic  features  of the system  outlined 
from  the outset.  The  Committee  has examined  a wide  range 
of issues  in the perspective  of the final  stage  of a European 
monetary  system  (EMS),  viz.,  the  numeraire,  intervention 
and the European  Monetary  Fund.  As a period  of up to two 
years  has been  provided  for the establishment  of the Fund  in 
its final  form,  the examination  of this  was  preliminary  and 
only the transitional  period  has been  treated  in detail.  It was 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/7 
considered  essential  that  as implied  in the Bremen  Annex, 
the exchange  rate  system  and  the appropriate  credit  facilities 
should  come  into  being  at the same  time.  The  Committee 
draws  attention  to the  fact  that  legal  measures  at 
Community,  and  possibly  at national  level,  will  be necessary 
before  the entry  into  force  of the system. 
3. The  EMS  must  be seen  in the context  of the range  of 
policies  needed  to achieve  a greater  amount  of convergence 
between  the economies  of the Member  States  and  equally  it 
cannot  be durable  and  effective  unless  it is backed  by 
complementary  policies.  As  there  are  still  important 
divergences  in the situations  of Member  States  it will  need 
great  effort  on the  part  of all,  both  surplus  and  deficit 
countries,  and  in all areas  of policy  if the system  is to be 
durable  and  effective.  Countries  must  as a matter  of 
principle  give  a high  priority  to internal  policy  measures 
rather  than  to exchange  rate  charges,  otherwise  the 
effectiveness  of the  system  would  be jeopardized.  The 
associated  questions  of economic  policy  coordination  have 
been  dealt  with  by the Economic  Policy  Committee. 
4. The  functioning  of the system  outlined  in the following 
paragraphs  will  require  regular  consultations  between  the 
competent  authorities,  including  the Monetary  Committee. 
II. NUMERAIRE 
A. DEFINITION  AND  USE  OF ECU 
5. The  Annex  to the Bremen  Communique  states  that  the 
ECU  will  be at the centre  of the system. 
6. The  ECU,  like  the EUA,  will  be defined  as a basket 
containing  specific  quantities  of the  Member  States' 
currencies;  but there  will  be a procedure  for re-examining 
the weights.  Some  members  suggested  that  the weights  of 
the currencies  in the ECU  be examined  before  the start  of 
the system.  Others  pointed  out  that  this  would  create 
problems  for its use in other  Community  sectors. 
7.1. The  Committee  is of the  opinion  that  a re-exami-
nation  should  take  place  every  five  years,  or when  the 
weight  of any  currency  has changed  by a significant  amount, 
for example  25 %, either  of which  examination  may  or may 
not result  in a revision. 
7.2. It  is agreed  that  any  revisions  must  be mutually 
accepted,  would  be made  in line  with  the  underlying 
economic  criteria  and  in such  a way  as not to change  the 
external  value  of the ECU  at the moment  of revision.  Also 
the process  of revision  should  be carried  out in such  a way 
as to minimize  any  interference  with  decisions  to change 
central  rates. 
8. The  ECU  will  be used: 
— as the numeraire,  i.e. each  currency  will  have  a central 
rate against  the ECU, — as a divergence  indicator, 
— as a denominator  of claims  and  liabilities  arising  from 
the intervention  system, 
— as a means  of settlement  between  monetary  authorities  of 
the EEC. 
B. CHANGES  IN CENTRAL  RATES 
9. While  the EMS  itself  ought  to contribute  to reducing 
divergences  in economic  performance,  it should  not prevent 
remaining  real  disparities  from  being  reflected  in exchange 
rates.  There  should  therefore  be sufficient  flexibility  in the 
system,  and,  in addition  to an appropriate  range  of credit 
facilities  (which  would  not themselves  be a sufficient  remedy 
in all circumstances),  there  should  be arrangements  for 
adjusting  central  rates  by mutual  agreement. 
10. The  credibility  of the  new  system  depends  upon 
progressive  convergence  of economic  performance,  making 
reliance  on exchange  rate  changes  gradually  less  important. 
In the  meantime,  however,  if they  do become  necessary, 
they should  not  be delayed  to the  point  at which  heavy 
speculative  pressure  builds  up. They  should  be implemented 
as far as possible  while  the exchange  markets  are calm. 
11. As  regards  the procedures  to be established,  it was 
observed  that  a set  of economic  and  technical  criteria 
implying  automatic  rules  for  central  rate  changes  would 
have  the  advantage  of rendering  the  decisions  formally 
objective.  But it would  be impossible  to devise  a set of rules 
which  removed  the need  for applying  judgement,  and  even  if 
it were  possible,  they  would  involve  the risk  of becoming 
known  and  of inviting  speculation  on  the  prospective 
realignment.  Since  this  would  not  be a tenable  course  of 
action,  changes  in central  rates  should  therefore  be made  by 
mutual  agreement  rather  than  fixed  rules. 
III. INTERVENTIONS 
A. INTERVENTION  OBLIGATIONS 
12. The  ECU  central  rates  would  be used  to establish  a 
grid of bilateral  exchange  rates  around  which  fluctuation 
margins  would  be fixed  by applying  a given  percentage 
margin.  The  resulting  bilateral  limits  define  the obligatory 
intervention  points.  These  would  be announced  to the 
market. 
13. The  envisaged  system  would  be based  on a combined 
use of the parity  grid  and  the ECU  basket  formula,  the latter 
being  used  to determine  'the  degree  of divergence'  of parti-
cipating  currencies  in order  to draw  certain  consequences 
for intervention  rules,  and/or  other  policies. 
14.1.  In  this  system,  obligatory  intervention  would  occur 
when  the bilateral  limits  were  attained.  Action  would  also  be 
No C 240/8 Official  Journal  of the  European  Communities 25. 9. 79 
taken  by the  monetary  authorities  as soon  as a certain 
spread,  measured  in terms  of ECU  had  been  exceeded. 
14.2.  The  use  of the  ECU  mentioned  above  would  be 
triggered  by the attainment  of a minimum  spread  (referred 
to as 'the  threshold  of divergence')  between  the central  rate 
expressed  in ECU  and  the rate  of the day  expressed  in the 
same  terms.  This  divergence  threshold  would  be calculated 
for each  currency  in such  a way  as to eliminate  the influence 
of disparities  of weight  on the probability  of reaching  the 
threshold.  It would  be established  in such  a manner  that  a 
currency  could  attain  its  divergence  threshold  before 
reaching  its bilateral  limit,  but would  not necessarily  do so. 
The divergence  threshold  in ECU  could  be fixed  at 75 % of 
its maximum  spread  for each  currency. 
14.3.  If  a currency  crossed  its divergence  threshold,  there 
is a presumption  that  action  must  be undertaken  by the 
monetary  authorities  of the country  concerned. 
14.4.  This  action  would  initially  consist  of diversified 
interventions  on the exchange  market.  The  object  of these 
diversified  interventions  would  be both  to check  divergent 
trends  and  to alleviate  the  burden  on currencies  furthest 
removed  from  a divergent  currency;  this  would  allow  a 
better  distribution  of intervention  burdens.  In the case  of 
persistent  divergence  other  more  basic  measures  would  have 
to be envisaged,  in consultation. 
More  specifically,  when  a currency  exceeded  its divergence 
threshold,  the central  bank  concerned  would,  in principle,  be 
obliged  to diversify  its intervention  practices: 
(a) if the bilateral  limit  had  not been  reached,  it would  have 
to commence  intervention,  either  in Community 
currencies  (see  (c) below)  and/or  in dollars,  to check 
the divergent  trend; 
(b) if the bilateral  limit  had  been  reached,  the obligation  to 
intervene  would  be not  only  in the currency  furthest 
removed  from  it but also,  to alleviate  the situation  of 
that currency,  in dollars  or in other  Community 
currencies  close  to their  bilateral  limit  in the opposite 
direction  (see  (c) below); 
(c) in order  to facilitate  the diversification  of intervention,  a 
central  bank  should  not oppose  stabilizing  interventions 
in its currency,  when  its currency  was  relatively  close  to 
a bilateral  intervention  limit. 
14.5.  If  a central  bank  did not take  action  in the manner 
indicated  under  (a) or (b) above,  it would  have  to give 
reasons  for failing  to do so in the context  of concertation 
arrangements;  it would  be required  to indicate  the whole 
range  of monetary  policy  measures  it intended  to take.  If a 
central  bank  as referred  to under  (c) above  wanted  to 
oppose  intervention  in its currency,  then  it would  have  to 
give reasons  for doing  so. 
14.6.  If,  notwithstanding  action  under  14.4  (a) or (b) 
above,  a currency  still  remained  beyond  its divergence 
threshold,  the  monetary  authorities  of  the  country 
concerned  would  be required  to give  an account  of measures 
it intended  to adopt  to overcome  this divergence.  A common 
assessment  of the situation  would  be made  in the framework of consultations  in the Monetary  Committee.  These  consul-
tation  procedures  should  be reviewed  periodically  to ensure 
that they  are operating  effectively. 
15.1.  All  members  indicated  that  the  arrangements 
outlined  in paragraph  14 above  could  provide  a basis  for 
agreement,  although  this  was  subject  to  certain 
qualifications. 
15.2.  Firstly,  since  this  system  is in some  respects  more 
strict  than  the  present  'snake',  certain  members  indicated 
that they  could  agree  as long  as crossing  the  divergence 
threshold  involved  not  only  intervention  by the divergent 
currency  but also  greater  symmetry  of obligations  by deficit 
and surplus  countries  alike  in general  adjustment  policies. 
They  believe  that  if the currency  of a creditor  diverged,  the 
credits  resulting  from  the interventions  of this  central  bank 
should  be governed  by special  rules,  more  favourable  to the 
debtor,  in so far as the currency  of this  latter  was  in itself 
not divergent.  Similarly,  in cases  where  the consultation  pro-
cedures  set in train  by the divergence  of the currency  of a 
deficit  country  had  not  led  to satisfactory  adjustment 
measures,  that  country's  access  to the short-term  facility,  at 
least  in respect  of the  portion  in excess  of a specified 
amount,  could  be limited. 
Some  of these  members  also  believe  that,  for the system  to 
work,  it would  be necessary,  at least  in a transitional  phase, 
to allow  for wider  bilateral  margins  for countries  presently 
floating  independently. 
15.3.  Secondly,  other  members,  who  are of the opinion 
that there  should  not be intervention  obligations  as soon  as 
the divergence  threshold  is crossed,  and  who  are  not 
inclined  to  consider  any  necessity  to  disprove  the 
presumption  to intervene,  are  prepared  to envisage  the 
following  procedure: 
— The  crossing  of the divergence  constitute  a presumption 
to act to correct  the situation.  The  actions  to be taken 
will be discussed  in the normal  concertation  procedure 
among  central  banks. 
— If, after  more  than  five  days,  the divergence  remains, 
central  banks  will  consult  formally  with  each  other  to 
form  a judgement  whether  one  or several  of the 
following  measures  appropriate  to the  situation  should 
be taken: 
— further  intervention, 
— monetary  measures, 
— drawing  on the credit  facilities, 
— other  external  and  domestic  policy  measures. 
Measures  beyond  the  competence  of  central  banks 
concerned  have  to be referred  to the appropriate  authorities 
for immediate  action. 
16. Whatever  the  solution  adopted  for  the role  of the 
ECU  as a divergence  indicator  it may  be that  intervention  in 
third  currencies  is carried  out  even  before  bilateral 
intervention  points  are reached.  A situation  might  also  arise 
in which  such  interventions  in third  currencies  would  also  be 
desirable  to supplement  obligatory  interventions  within  the 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/9 
EMS-  when  the  mandatory  intervention  points  have  been 
attained  for  instance  so as to avoid  imposing  on the 
currency  in opposition  an excessive  burden.  Regardless  of 
the currency  chosen,  these  interventions  should,  in principle, 
be subject  to prior  consultation.  There  should  be no 
automatic  or binding  rules  for  interventions  in third 
currencies;  in particular,  any  having  the effect  of pegging 
these  currencies'  exchange  rates  should  be avoided. 
B. WIDTH  OF MARGINS 
17. The  present  'snake'  margins  of 2-25  % would  in all 
casei  remain  unchanged  for the currencies  presently  in that 
system. 
More  generally,  there  was  broad  support  that  the maximum 
spot margin  between  two  currencies  should  be fixed  at 
2-25  % if the proposals  of paragraph  14 were  adopted. 
18.1.  However,  certain  members  considered  that  the 
maximum  spot  margin  should  exceed  2-25%.  This  would 
still be  in conformity  with  the  Bremen  principle  as 
interventions  would  normally  take  place  before  the bilateral 
margins  are reached,  because  of the divergence  indicator. 
18.2.  More  specifically,  according  to these  members,  the 
Bremen  principle  could  be satisfied  by a combination  of 
narrow  ECU  margins  for  all Community  currencies  and 
wide  general  bilateral  spreads.  The  present  'snake'  limits 
would  remain  fully  intact  for 'snake'  members,  but the ECU 
margins  would  be set in such  a way  as to be met,  in general, 
before  attainment  of all bilateral  limits,  including  those  in 
'the snake'.  There  would  thus  be two  possible  bands  of fluc-
tuation  in the EMS. 
19. Temporary  suspension  of defence  of margins  is to be 
seen as an emergency  provision.  It is a possibility  of last 
resort.  For  a country  to be able  to have  recourse  to this 
procedure,  there  must  be  the  assumption  that  the 
determining  factors  are of a temporary  nature.  A situation 
could  arise,  however,  in which  these  factors  were  not 
reversed  in which  case  a country  would  re-enter  with  a 
different  central  rate.  There  would  be  technical 
consequences  if any  currency  temporarily  ceased  to defend 
its margins.  One  possible  solution  for  dealing  with  such 
consequences  might  be to freeze  the rate  of that  currency  in 
the ECU. 
C. RELATIONSHIPS  WITH  THE  IMF 
20. The  system  of  intervention  and  the  type  of 
intervention  obligations  set up within  the EMS  would  have 
to comply  with  the IMF  Articles  of Agreement,  in particular 
as regards  the new  Article  IV. The  Community  will  supply 
the IMF  with  the appropriate  information  on the workings 
of the EMS. IV. RELATIONS  WITH  THE  ASSOCIATED 
COUNTRIES 
21. The  Annex  to the  Bremfen  Communique  states  that 
non-member  States  with  particular  close  economic  and 
financial  ties  with  the Community  may  become  associated 
members  to the system.  The  central  banks  of these  countries 
should  be given  the  opportunity  of participating  in the 
European  exchange  rate  system.  Details  of their  parti-
cipation  would  be negotiated  with  the central  banks  of the 
interested  countries.  In principle,  they  would  be required  to 
intervene  in the same  way,  and  would  participate  in coordi-
nation  mechanisms.  They  would  also  have  access  to very 
short-term  financing.  Transactions  between  the  associated 
central  banks  and  the EMS  could  be recorded  in accounts  in 
the name  of these  banks,  to be kept  by the Fund.  However, 
the associated  central  banks  would  not  participate  in short-
and medium-term  credit  mechanisms,  nor  could  their 
currencies  be included  in the  composition  of the  ECU 
basket. 
22. The  precise  nature  of the  links  interested  countries 
having  close  economic  and  financial  ties  with  the 
Community  would  have  to be considered  by the appropriate 
Community  bodies. 
V. THE  FUND  (') 
23. The  Committee  has considered  the Fund  in the light 
of the following  principles: 
— An initial  supply  of ECU  will  be created  against  the 
deposit  of US dollars  and  gold  (for  example,  20 % of 
the stock  currently  held  by member  central  banks)'. 
— A credit  system  based  on a comparable  sum  of member 
currencies  should  be established. 
— Not  later  than  two  years  after  the start  of the scheme 
these  arrangements  will  be consolidated  in a single  Fund. 
24. The  Committee  has  examined  the  problems  of the 
transitional  period  with  a view  to the rapid  implementation 
of the system. 
Transitional  period 
A. CREDITS 
25. During  the transitional  period  before  the setting  up of 
the EMF  in its final  form,  the credit  mechanisms  could  be 
extended  in the following  way: 
1. The  very  short-term  credit  mechanism 
26. For  settling  balances  within  the  Community  it has 
been  suggested  by some  members  that  it might  be useful  that 
(') In order  to take  account  of the  monetary  situation  of Luxembourg,  when 
setting  up the EMF,  it will  be necessary  to adopt  a formula,  which  assigns  a 
separate  quota  to Luxembourg. 
No C 240/10 Official  Journal  of the  European  Communities 25. 9. 79 
the very  short-term  financing  of an unlimited  amount  be 
extended  to 90 days  from  the end  of the  month.  In this  way, 
there  would  be a greater  probability  for  a reversal  in the 
debtor  country's  position.  Among  these  members  some 
maintain  that  the  period  should  be  unlimited  for  a 
'persistently  divergent'  creditor.  This  prolongation  would 
allow  the  existing  'snake'  facilities  of automatic  renewal  and 
renewal  by mutual  agreement  to be abolished,  especially  as 
the extension  of short-term  credit  would  be complementary. ECU.  The  table  shows  the  present  situation  and  two 
solutions. 
30. The  first  (German  solution)  concentrates  on the  total 
of the  financial  obligations  of the  Member  States.  The 
creditor  quotas  and  extensions  would  be increased  as shown 
in columns  (a) and  (b) in the left-hand  side  of the  table.  The 
MTFA  would  also  be increased.  The  resulting  maximum  of 
credit  available  is given  on the  right-hand  side  of the  table. 
2. Short-  and  medium-term  credit 
27. According  to the  Bremen  Annex,  the  credit  facilities 
should  be an amount  of a comparable  order  of magnitude  to 
the deposit  of US  dollars  and  gold  (e.g.  20 % of the  stock 
currently  held  by member  central  banks,  which  amounts  to 
about  25 000  million  ECU).  The  use  of ECU  created  against 
member  currencies  will  be subject  to conditions  varying  with 
the amount  and  the  maturity;  due  account  will  be given  to 
the need  for  substantial  short-term  facilities  up to one  year. 
28. It  has  been  suggested  that  one  way  to achieve  the 
necessary  increase  in short-term  credit  would  be a system  of 
drawing  rights  without  conditionality  divided  among  the 
member  central  banks  according  to a key  which  could  be 
that of the  present  STMS.  Each  central  bank  would  be able 
to obtain  a non-automatic  credit  in excess  of its drawing 
right. 
If all or part  of these  drawing  rights  were  activated,  the 
drawing  country  would  be credited  with  the  agreed  amount 
of ECU  within  the  EMS.  These  ECU  would  be  usable 
for the  same  purposes  as the  ECU  created  against  reserve 
instruments.  These  operations  would  be done  through  the 
EMCF. 
The volume  of drawing  rights  which  could  be effectively 
drawn  under  this  system,  would  amount,  as long  as the 
credit  facilities  offered  by the  MTFA  were  not  increased,  to 
a total  of 20 000  million  ECU,  of which  about  45 % would 
result  from  an increase  in quotas  and  the  rest  from  an 
increase  in extensions.  Any  Member  State  could  semi-auto-
matically  draw  on its extension  up to 150  % of its quota. 
This  proposal  would  involve  an increase  in the  quotas  and 
extensions  by a factor  of about  3-3.  As soon  as the  MTFA 
were  increased  there  would  be a corresponding  reduction  in 
the volume  of these  drawing  rights. 
29.1.  This  proposal  which  is in line  with  the  Bremen 
Annex  met  with  broad  support,  but  certain  Member  States 
have  serious  objections  for  financial,  technical  and  legal 
reasons. 
29.2.  If,  for any  of these  reasons,  agreement  could  not  be 
reached  on  the  remaining  issues  before  the  start  of the 
system,  it would  therefore  be necessary  to consider  how  the 
existing  STMS  and  MTFA  could  be extended.  In that  event 
the credit  arrangements  would  not  be directly  based  on the 31. The  second  solution,  for  which  the  right-hand  side  of 
the table  is most  relevant,  is based  on the  assumption  that 
25 000  million  ECU  of  credit  should  be  available  on 
1 January  1979.  In so far  as the  MTFA  is not  increased 
within  the  time  available,  this  necessarily  implies  that  the 
whole  increase  will  provisionally  be borne  by the  STMS.  It 
will at least  temporarily  (until  the  MTFA  can  be increased) 
have  to be increased  up to 20 700  million  ECU  from  the 
current  total  of 5 800  million.  This  can  be achieved  through 
a combination  of increases  to debtor  quotas  and  extensions, 
one example  of which  is given  in the table. 
32. There  was  broad  agreement  that  short-term 
unconditional  credit  should  be extended  to one  year,  but 
some  members  thought  that  the  present  duration  of 
the STMS  (three  months  with  the  possibility  of  one 
prolongation)  could  in specific  cases  be  prolonged  for 
another  period  of three  months. 
33. If  it proved  necessary  to resort  to solutions  of the  type 
outlined  in paragraphs  30 and  31,  this  should  be without 
prejudice  to the  adoption  of a system  fully  conforming  to 
paragraph  2 of the  Bremen  Annex,  for  example  based  on the 
supply  of ECU  as in paragraph  27.  Work  should  continue 
and action  be taken  so that  such  a system  can  be set up as 
soon  as possible  and,  in any  case,  within  two  years  from  the 
inception  of the  EMS. 
34. Whereas  the  Committee  had  devoted  considerable 
attention  to the  working  of the  Fund,  the  considerations 
which  follow  and  those  in the Annex  concerning  the  Fund  in 
its final  form  are  only  of a preliminary  nature.  Although 
they  are  not  an agreed  position  of the  Committee  to the 
same  extent  as the  preceding  sections  they  are  nevertheless 
presented  here  so as to indicate  the extent  of the  problems. 
B. AN  ECU  SETTLEMENT  MECHANISM 
35. A  fund  of ECU  will  be set up. 
During  the  transitional  period  and  without  prejudice  to 
definitive  solutions  it could  be decided  that  each  country 
would  deposit  in the  form  of swaps  20 % of its gold  and 
reserves  in third  country  currencies.  This  arrangement  would 
have  the  advantage  of avoiding  the  questions  of exchange 
risk (see  Appendix). 
There  will  have  to be a periodic  procedure  for  ensuring  that 
each  central  bank  maintains  a deposit  of at least  20 % of 
these  reserves  with  the  system. 
Possible  formulae  for extending  Community  credit  to an amount  of 25 000  million  ECU 
(1 000 million  ECU  f1)) 
Total  financial  obligations 
of Member  States Maximum  available  credit 
Short-term  monetary  support 
(STMS) ! 
| Medium-term 
i financial  assistance Total 
STMS  + MTFA Short-term  monetary  support 
(STMS)  (2) . 
Total  STMS Medium-term 
financial  assistance Total 
STMS  + MTFA 
Quotas 
(a) Extensions 
(b) (MTFA) 
(C> (d) = (a) + (b) + (c) Quotas 
(a) Extensions 
(b) (c) = (a) + (b) (3) 
(d) (e) = (c).+  (d) 
Present  situation 6-5 3-6 i 
| 5-5 
1 15 6 22 3 6 58 43 100 
German  solution  (2) 106 5 8 ! 
| 8-6 
! 25-0 3-5 5-8 9-3 6-7 n 16 0 n 
Other  solution 294 110 1 
5-5 45-9 9 7 110 207 4 3 250 
(') 1EMUA=  1-20  ECU. 
(2) Optimal  equilibrium  creditors/debtors  (= creditors,  one  large  country  + NL  or Bel./Lux.  + DK  + lrl and  debtors,  two  large  countries  + Italy  + Bel./Lux.  or NL)  + complete  activation  of creditor  and  debtor  extensions. 
(3) Total  commitment  ceilings  less  that  of a large  country. 
(4) Only  available  after  increase  in MTFA. 
No C 240/12 Official  Journal  of the  European  Communities 25. 9. 79 
Appendix 
THE  FUND  IN ITS  FINAL  FORM 
A. THE  USE  OF THE  RESOURCES 
The use of ECU  created  against  reserve  assets 
1. Given  that  these  ECU  are  the  counterpart  of freely 
available  or employable  reserve  assets,  their  use will  be free 
and unconditional.  They  will  specifically  serve  as instru-
ments  for settlements  within  the EMS  by transfer  between 
debtor  and  creditor  central  banks.  It is understood  that  a 
central  bank  should  not  use  its ECU  to diversify  its 
exchange  reserves. 
2. For  settling  balances  within  the  Community,  it has 
been  suggested  by some  members  that  it might  be useful  that 
very short-term  financing  of an unlimited  amount  be 
extended  to 60 or 90 days  from  the end  of the month.  In 
this way  there  would  be a greater  probability  for a reversal 
in the debtor  country's  position. 
3. Technically,  the  deposit  of reserve  assets  by central 
banks  as a counterpart  to the  creation  of ECU  does  not 
fundamentally  alter  the  procedures  for  intra-Community 
settlements.  However,  this  mechanism  would  have  three 
main  possibilities  for development:  to facilitate,  for certain 
countries,  the activation  of reserve  assets  such  as gold;  to 
constitute  a Community  asset  guaranteed  by the  reserves 
made  available  to the Community  by the Member  States;  or, 
possibly,  to guarantee  loans  issued  by the Fund  outside  the 
Community. 
4. The  above  interpretation  given  to the  deposits  of 
reserve  assets  is considered  too  limited  by some  members, 
but others  think  that  it is an important  first  step  leading  to a 
development  of the Fund. 
The use of ECU  created  against  national  currencies 
5. The  EMS  will  also  have  at its disposal  credit  facilities 
based  on ECU  created  against  national  currencies.  The  ECU 
so created  would  be indistinguishable  from  the ECU  created 
against  reserve  assets;  they  would  be used  as means  of 
settlement  within  the Community  and  would  be convertible 
into other  currencies,  including  non-Community  currencies. 
In this  connection,  a liquidity  or 'scarce  currency'  problem 
could  arise  within  the  EMS  to the  extent  that  the distri-
bution  of the financing  provided  by the Fund  would  differ 
systematically  from  that  of contributions. B. CONSTITUTION  OF RESOURCES 
By the deposit  of reserve  assets 
6.1. There  are  four  elements  here:  the basis  for calcu-
lation,  the instruments,  the amount  and  the legal  nature  of 
the deposits. 
6.2. The  basis  for calculation:  considering  the  very 
different  composition  of monetary  reserves  in the various 
Member  States,  the  basis  for  calculating  reserves  to be 
deposited  in the Fund  could  include  all reserve  elements, 
including  SDR  and  reserve  positions  in the IMF.  A practical 
formula  to determine  this  basis  could  be to refer  to figures 
for official  gross  reserves  published  by national  monetary 
authorities.  Another  possible  solution  could  be that  the basis 
for calculation  be the same  as the elements  to be deposited, 
i.e. at the beginning  and  provisionally,  only  third  country 
currencies  and  gold.  Gold  assets  would  naturally  have  to be 
valued  at the same  price  for all countries  and,  as there  is no 
obvious  price,  any  method  chosen  could  be considered 
arbitrary.  Deriving  the price  from  the market  price  would 
however  avoid  anything  that  might  be interpreted  as the 
setting  of a new  official  price  for gold  and  the central  banks 
would  still,  of course,  be free  to value  their  gold  at any price 
they chose  in their  balance-sheets. 
According  to one  proposal,  the basis  for calculation  should 
be determined  individually  for each  country  in the measure, 
for example,  of 20 % of the  relevant  reserve  assets.  This 
proposal  has the advantage  of being  simple,  but is not unani-
mously  shared.  Another  proposal  is that  the basis  for calcu-
lation  be determined  generally  for  the  Community  as a 
whole.  This  second  proposal  would  require  a key  of distri-
bution  for  which  different  solutions  are  conceivable  (e.g. 
quotas  in short-term  monetary  support,  weight  in the ECU 
basket,  GNP,  shares  in intra-Com^nunity  trade),  which 
would  all mean  that  the  various  countries  would  each 
contribute  a different  fraction  of their  reserves. 
6.3. Instruments:  According  to the Bremen  Communique 
the reserve  instruments  to be deposited  should  include  third 
country  currencies  and  gold.  The  depositing  of gold  does 
however  raise  certain  problems.  Besides  the  evaluation 
difficulties  already  mentioned,  the fact  that  gold  earns  no 
interest  implies  certain  problems  for  the  remuneration  of 
ECU.  Finally,  according  to some  there  could  be the risk  of 
creating  the impression  of restoring  a monetary  role  to gold. 
The question  of the  respective  proportions  in which  gold 
and dollars  are to be deposited  could  be solved  by setting 
them,  for example,  at 20 °/o of the stock  of each  instrument 
currently  held  by individual  member  central  banks  (though 
this solution  would  not be applicable  if the chosen  basis  for 
calculation  included  all reserve  assets);  a more  complex 
solution  would  be to determine  the amounts  individually  for 
each  instrument  and  each  country.  Reserve  positions  in the 
IMF cannot  be deposited  with  the EMF,  nor,  at least  in the 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/13 
immediate  future,  can  SDR.  It has,  however,  been 
emphasized  that  the Community  should  take  the necessary 
steps  to obtain  for the EMF  the status  of 'other  holder',  so 
that it may  receive  deposits  in SDR. 
6.4. Amount:  If 20  % of the  relevant  reserves  are 
deposited  initially  in the  Fund  (the  figure  given  as an 
example  in the  Bremen  Annex),  then  according  to some 
members: 
— under  normal  circumstances  the  requirements  for 
possible  settlements  could  be  accommodated,  even 
though  precise  calculations  on the  amounts  effectively 
necessary  are not available  and  there  furthermore  is no 
precise  relationship  between  the amount  of reserves  of a 
country  and its financing  requirements, 
— public  opinion  will  be shown  that  this  step  towards 
European  monetary  unification  has  real  significance. 
Indeed,  20 % of the  Community's  reserves  at present 
means  25 000 million  EUA  (1). 
There  will  furthermore  have  to be a procedure  for perio-
dically  adjusting  the amounts  of ECU  held  by the various 
central  banks  as the reserves  of the Member  States  change 
and possibly  as ECU  are created  within  the system  of credit 
mechanisms. 
There  are two  possible  systems  that  might  be considered: 
Either: 
— the amount  to be held  in ECU  would  be adjusted  solely 
on the basis  of variations  in the amounts  of reserve  instru-
ments  originally  deposited.  This  would  mean  creating  or 
returning  ECU  worth  20 % of the  amount  of any 
increase  or decrease  in a country's  holdings  of these 
instruments.  The  ECU  created  within  the  system  of 
credit  mechanisms  would  be distributed  among  member 
countries  according  to rules  governing  the use of these 
ECU; 
or: 
— each  central  bank  would  be required  to hold  at least 
20 % of its reserves  in the form  of ECU,  which  could  be 
the counterpart  either  of reserve  instruments  or of credit 
operations. 
6.5. Legal  questions:  These  will  largely  depend  on the 
powers  conferred  on the Fund,  particularly  its powers  over 
the use of the assets  deposited. 
By deposit  of national  currency 
7. The  national  currency  element  of the Fund  constitutes 
the credit  facilities  in the system,  which,  as stated  in the 
Bremen  Annex,  should  be of a comparable  size  to deposits 
of reserve  instruments. 
C. THE  WORKING  OF THE  FUND 
8. The  following  problems  should  be distinguished  and 
studied: 
(') Calculated  by applying  the  dollar/EUA  conversion  rate  as of 7 July  1978 
(US$  1 = 0.80047  EUA). The Fund's  administrative  infrastructure 
9. It  has  been  suggested  that  the present  administrative 
structure  of the EMCF  should  be used  for the Fund.  For 
some  members  however  it will  be necessary  either  to make 
major  changes  to the  EMCF's  administrative  structure  or 
else to create  a special  new  permanent  organization, 
depending  on the functions  of the Fund. 
The exchange  risk  and  interest  rates 
10. Three  Community  solutions  to the  exchange  risk 
problem  have  been  examined. 
The first  would  be to ignore  the consequences  of any  fluc-
tuations  between  national  currency  and  the  ECU,  and  to 
make  all conversions  on the basis  of the ECU  rate  of the 
day. 
The second  would  be to allocate  shares  of gains  and  losses 
among  the  participants  according  to an apportionment 
formula  — for  example,  that  used  for  budgetary  contri-
butions,  if exchange  gains  and  losses  were  included  in the 
Community  budget.  If the exchange  gains  and  losses  were 
put in a special  account  to be kept  by the Fund,  another 
formula  might  be used. 
The third  solution,  which  would  apply  as long  as deposits  of 
reserves  were  considered  deposits  in the strict  sense,  would 
involve  each  country  individually  bearing  the consequences 
of all its deposits  and  transactions  with  the  Fund,  which 
would  keep  accounts  for each  country  with  settlement  of 
balances  at regular  intervals. 
11. On  the matter  of interest,  rates  on ECU  created  by 
deposits  of reserves  should  be distinguished  from  rates  on 
ECU  created  as a counterpart  of deposits  in national 
currency. 
12. For  rates  on ECU  created  by deposits  of reserves,  it 
has been  suggested  that  there  should  be only  one  rate  of 
interest,  and  also  that  contributing  reserves  to the  Fund 
against  ECU  should  not  result  in member  countries 
foregoing  gains  that  could  have  been  realized  elsewhere.  In 
the case  of gold  deposited  with  the  Fund,  the  problems 
could  be solved  by stipulating  that  all countries  should 
deposit  gold  and  third  country  currencies  as reserve  instru-
ments  in the same  proportions.  Another  solution  might  be to 
pay the  same  rate  on all reserve  ECU,  with  the  member 
countries  paying  a 'commission'  to the Fund  on the basis  of 
the amount  of gold  deposited. 
Relations  with  other  Community  bodies 
13. The  extent  to which  independence  is judged  necessary 
for the Fund's  operations  will  determine  whether  the EMS, 
and in particular  the  EMF,  can  be set  up within  the 
framework  of the EEC  Treaty.  It shall  be studied  how  the 
EMCF  might  manage  the system  in the initial  stages,  taking 
on such  tasks  as the creation  of ECU  and  the surveillance  of 
No C 240/14 Official  Journal  of the  European  Communities 25. 9. 79 
their  use  under  its  present  powers  or  with  wider 
responsibilities  conferred  on it by an amendment  to Regu-
lation  (EEC)  No  907/73  of 3 April  1973.  In any  case,  the legal  problems  of setting  up and  of organizing  the  Fund's 
relations  with  other  Community  bodies  will  have  to be 
examined  in detail. 
ANNEX  II 
REPORT  TO  THE  COUNCIL  AND  THE  COMMISSION  ON  IMPROVING 
COORDINATION  OF  THE  NATIONAL  ECONOMIC  POLICIES 
As requested  by the Council,  the Monetary  Committee  has 
studied  the  Commission  communication  entitled  'Improving 
coordination  of the  national  economic  policies'  (COM(77) 
443 final  of 5 October  1977).  It has confined  its study  to the 
proposals  falling  within  its terms  of reference,  which  are to 
be found: 
(a) in the  first  indent  of paragraph  3 (a) 'Indications  with 
figures  showing  how  the  budget  surplus  or deficit  for 
the coming  financial  year  is to be used  or financed'; 
(b) in paragraph  3 (b) 'The  fixing  of quantitative  guidelines 
. . . relating  to changes  in a significant  monetary 
aggregate'; 
(c) in paragraph  3 (c) 'Discussions  about  "exchange  rate 
guidelines"  '. 
In this  report,  the  Monetary  Committee  summarizes  the 
main  remarks  of  its  members,  and  puts  forward  a 
compromise  solution  which  might  be  the  basis  for  an 
agreement  in the Council. 
I. REMARKS  ON  COMMISSION  PROPOSALS 
Members'  reactions  to the  Commission  proposals  were  of 
two types: 
1. General  reactions  to the spirit  of the document; 
2. Specific  reactions  to  each  of  the  three  concrete 
suggestions. 
1. General  reactions 
General  reactions  may  be summarized  under  three  headings: 
(a) Generally  favourable:  the  Monetary  Committee  were 
unanimous  in  sharing  the  concerns  motivating  the 
Commission's  proposals.  They  apprpved  of the  general 
economic  motives  for  the  proposals  as well  as the  precise 
aim of strengthening  the coordination  of short-term  policies 
so as to reduce  the divergences  that  are hindering  economic 
and monetary  union,  and  improve  the  convergence  of 
economic  policies  in the present  situation. (b) An observation:  the  members  of  the  Monetary 
Committee  insisted  as does  the Commission  document  that 
progress  in monetary  cooperation  or coordination  should  go 
in step  with  progress  in general  economic  cooperation,  both 
when  analysing  the situation  and  when  adopting  a strategy 
to deal  with  the  actual  situations  of the  different  Member 
States.  If this  was  not  taken  into  account,  the  attempt  at 
harmonization  on the  monetary  level  alone  might  well  turn 
out to be an empty  formality,  or even  nuisance  if it 
introduced  constraints  that  were  ill-adapted  to the  actual 
situation  in each  State. 
(c) A suggestion:  the  Monetary  Committee  cannot 
recommend  that  the  mechanism  proposed  by  the 
Commission  be adopted  unconditionally  as described  in the 
reference  document  and  the attached  draft  conclusion  of the 
Council;  the Committee  has  reservations  about  some  of the 
components  of this  mechanism,  although  it fully  endorses  by 
a very  large  majority  the  general  policy  that  inspired  the 
Commission,  and  suggests  that  the Council  adopt  an alter-
native,  less  precise,  less  ambitious  in its essence  and  less 
binding  project  which  the  Committee  thinks  should  win  the 
approval  of  the  Member  States  and  answer  the 
Commission's  main  preoccupations.  This  is the point  of the 
compromise  described  below. 
2. The  specific  reactions 
The reactions  to each  of the  Commission's  three  monetary 
proposals  were  as follows: 
(a) On  the budget  surplus  or deficit:  almost  all the members 
of the Committee  thought  it was  impossible  to give  detailed 
figures  on the  various  ways  the  budget  surplus  or deficit 
might  be used  or financed.  They  gave  the  following  main 
reasons  for this: 
— government  loans  cannot  be announced  before  issue 
without  seriously  disturbing  the financial  market, 
— government  securities  are  often  the  main  instrument  in 
open  market  operations,  so the  net  volume  of issues 
cannot  be set beforehand, 
— the  other  methods  (monetary  or not)  of financing  the 
budget  deficit  (Treasury  bills,  Treasury  deposits  of State 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/15 
agencies,  calls  on saving,  recourse  to the  central  bank) 
cannot  be the  subject  of set  predictions,  and  must  be 
managed  with  as much  flexibility  as possible  to take 
account  of the  situation,  the  reactions  of agents  other 
than  general  government,  etc. 
However,  all members  agree  (although  with  varying  degrees 
of insistence)  that  it might  be useful  to indicate  beforehand, 
and to make  an effort  to coordinate  within  the Community, 
how far monetary  financing  is intended  to be used  for  any 
budget  deficit. 
(b) The  fixing  of quantitative  monetary  targets 
In 1976  the Monetary  Committee  considered  the problem  of 
fixing  quantitative  monetary  targets  for  monetary  policy, 
and submitted  a report  to the  Council  and  the  Commission, 
the main  conclusions  of which  were  approved  by  the 
Council  of  8 November  1976.  The  members  of  the 
Committee  would  like  to reiterate  these  conclusions.  They 
expressed  diverse  opinions  on the  proposals  now  submitted 
by the Commission: 
(i) For  some  members,  who  do not  apply  such  targets,  it 
would  seem  neither  possible  nor  desirable  to 
contemplate  extending  the  use  of  such  targets 
throughout  the  Community.  Within  this  group, 
however,  there  are  some  who  take  the  view  that  no 
form  of coordination  between  themselves  and  the 
countries  with  such  targets  is realistically  feasible 
whereas  others  advocate  the  use  of special  reference 
indicators  aimed  at promoting  joint  action  with  the 
countries  applying  such  quantitative  targets. 
(ii) For  yet  another  group  of members,  the  divergences  in 
question  ought  not  to be exaggerated.  Harmonization 
of monetary  policy  instruments  could  not  be regarded 
as a sine  qua  non  for  harmonization  of monetary 
policy.  It is possible  to pursue  common  policy  objectives 
by applying  different  instruments  each  of which  would 
be tailored  to  the  circumstances  obtaining  in the 
country  of application. 
(iii) For  others,  whose  countries  apply  quantitative 
monetary  targets,  the difficulty  is still  one  of comparing 
elements  the  bases  and  significance  of which  are  quite 
different.  These  members  believe  that  a prerequisite  to a 
concrete  effort  towards  harmonization  and  coordi-
nation  of monetary  policies  would  be a willingness  on 
the part  of member  countries  which  adopt  different 
types  of targets  to make  available  the  implicit  counter-
part projections  in terms  of a common  reference 
aggregate,  with  respect  to  internal  and  external 
components. 
(iv) Finally,  some  members  consider  that  since  economic 
policy  in Member  States  should  increasingly  aim  at 
achieving  the objectives  of growth  in economic  activity 
and employment,  monetary  policy  should  now  play  a 
greater  role  in assisting  the  recovery  and  that  interest 
rate manipulation  and  controls  over  the  channels  of 
liquidity  creation  should  be the main  instruments  used. 
Moving  on  from  this  general  discussion,  the  Monetary 
Committee  has  examined  various  technical  aspects  of the 
Commission's  proposal: 
— Should  the  quantitative  guidelines  chosen  take  the  form 
of a bracket  or a single  reference  indicator?  Many  of the 
Committee's  members  feel  that  a bracket  would  afford 
greater  flexibility  than  a single  reference  indicator,  even if coupled  with  a margin  of tolerance  either  way.  Some 
members,  however,  emphasized  the  drawback  of a 
bracket,  namely  that  it cast  an aura  of inviolability  over 
the limits  to the  margin  of fluctuation  authorized  under 
it. The  general  feeling  is that  this  technical  matter  can  be 
dealt  with  differently  in each  of the  countries  concerned 
so as to avoid  any  form  of rigidity. 
— Should  the  Council  of Ministers  or the  Committee  of 
Governors  be the Community  body  responsible  for join^ 
action  and  coordination?  Monetary  policy  is a matter  for 
the central  banks  in most  Member  States  but it must  also 
be seen  in the context  of general  economic  policy. 
— Should  the  Community  body  chosen  act  by  way  of 
decision  or merely  recognition  of the  situation?  The 
second  procedure  would  be more  acceptable  as regards 
the constitutional  set-up  in all Member  States. 
— Could  the  movement  towards  alignment  of national 
monetary  targets  or of the  indicators  that  would  be 
introduced  instead  result  in the choices  made  at national 
level  being  challenged  at the  end  of the  concertation 
procedure?  All  the  members  take  the  view  that  such  a 
development  would  be  a logical  consequence  of the 
coordination  exercise,  but do not  pretend  that  something 
which  can  only  be the  result  of strong  political  determi-
nation  and  improved  convergence  of economic  situations 
could  be achieved  overnight.  They  consider  that,  for the 
time  being,  substantial  headway  could  be  made  by 
exchanging  information  and  highlighting  any 
inconsistencies.  Some  even  feel  that  more  decisive  steps 
should  be taken  now. 
— Should  the  targets  be published?  A majority  of members 
on the Committee  is hesitant  on this  score.  Once  a target 
is decided  on,  it is published  at national  level.  To 
require,  on top  of that,  its publication  at Community 
level  would  not  serve  any  great  purpose  even  if it were 
achieved  and  would  underscore  the  futility  of the 
exercise  if it were  not  achieved.  Publication  at 
Community  level  would,  therefore,  be  a pointless 
constraint  that  could,  without  making  any  positive  contri-
bution,  prove  to be a sensitive  and  controversial  issue. 
(c) Exchange  rate  guidelines 
When  it examined  the  Dutch  proposals  for  establishing 
target  zones  for  Community  currencies,  the  Council,  on 
14 March  1977,  invited  both  Committees  to continue  their 
work  and  report  regularly  to it. The  present  Commission 
proposal  aims  at a regular  discussion  in Council  of the 
exchange  rate  guidelines  of Member  States. 
All the  members  of  the  Monetary  Committee  have 
emphasized  the key  role  played  by external  factors  in market 
developments  and  in Member  States'  exchange  rate  policies. 
Coupled  with  the  differences  between  Member  States'  ap-
proaches  to exchange  rates,  this  does  not  make  it easier  to 
adopt,  at the  present  stage  or within  the  foreseeable  future, 
a common  stance  on exchange  rates.  Under  the  circum-
stances,  any  requirement  incumbent  upon  the  Council  to 
discuss  exchange  rate  matters  regularly  would  be of little 
use, not  to say  dangerous,  considering  the  possible  reper-
cussions  on  foreign  exchange  markets  that  Ministerial 
meetings  devoted  to these  matters  might  have. 
No C 240/16 Official  Journal  of the  European  Communities 25.9.79 
It would,  in practice,  be useful  to draw  a distinction  between 
coordination  and  information.  Coordination  of exchange 
rate policies  is already  discussed  by the Governors  of the 
Central  Banks  either  at their  regular  meetings  or, should  the 
need  arise,  by telephone.  As this  arrangement  worked  well, 
it would  not be wise  to tamper  with  it. Where  information  is 
concerned,  market  developments  are  known  to  all 
concerned.  Nevertheless,  the economic  context  within  which 
market  developments  take  place  is discussed  both  by the 
Committee  of Governors  and  by the Monetary  Committee, 
with the  members  of both  Committees  being  themselves 
quite  free  to inform  their  governments  of the  matters 
discussed. 
Lastly,  a majority  of the members  of the Committee  take  the 
view  that  the Commission's  wish  that  it be regularly  brought 
into discussions  held  by the Member  States  belonging  to 'the 
snake'  could  be examined  informally  by the  ministers  of 
these  countries  but should  not be referred  to the Council  as 
a whole  through  official  channels. 
II. A PROPOSAL  FOR  A COMPROMISE 
The Monetary  Committee  proposes  that  the Council,  in its 
consideration  of the convergence  of the overall  objectives  of 
economic  policy,  should  approach  the question  of coordi-
nation  of monetary  policy  in the light  of the three  following 
propositions: 
1. When  fixing  their  annual  budget  guidelines,  Member 
States  would  give  indications  — where  possible,  backed 
up by figures  relating  at least  to the order  of magnitude 
involved  — showing  how  the  methods  envisaged  for financing  the budget  deficit,  or the  use  of the  budget 
surplus  for the coming  financial  year,  are related  to their 
monetary  objectives. 
2. Member  States  in a position  to do  so would  set 
quantitative  guidelines,  in the  form  of a bracket  or a 
target  which  may  or may  not  incorporate  a margin  of 
tolerance,  relating  to changes  in a significant  monetary 
aggregate  for each  Member  State  concerned.  The  other 
Member  States  would  fix guidelines  — where  possible, 
quantitative  guidelines  — relating  to alternative  reference 
indicators  having  general  monetary  implications,  such  as 
the interest  rate  or exchange  rate  constraints.  These 
objectives  of monetary  policy  would  be analyzed  and 
discussed  annually  in the  Committee  of Central  Bank 
Governors  and  in the Monetary  Committee  who  would 
report  to the  Council  on  the  compatibility  of the 
monetary  objectives  of Member  States  with  each  other 
and with  the wider  economic  objectives  adopted  by the 
Council  for member  countries  and  for  the Community. 
The Council  would  consider  the  development  of 
monetary  policies  to assist  the  convergence  of the 
economies  of member  countries,  taking  cognizance  of the 
commitments  entered  into  by Member  States.  Separate 
publication  of  these  commitments  would  not  be 
envisaged.  Developments  in the  position  of member 
countries  with  respect  to the objectives  fixed  according  to 
the procedure  outlined  above,  will  be examined  perio-
dically  by the two  Committees  and by the Council. 
3. As for exchange  rates,  the Committee  of Governors  of 
the Central  Banks  and  the Monetary  Committee  should 
extend  their  consultations  on exchange  rate  trends,  taking 
account,  in particular,  of the incidence  on these  trends  of 
monetary,  budgetary,  credit  and interest  rate  policies. 
AMVEX/// 
OPINION  TO  THE  COMMISSION  ON  THE  PROPOSAL  FOR  A THIRD  COUNCIL 
DIRECTIVE 
1. At  the  request  of the  members  appointed  by the 
Commission,  the Monetary  Committee  at its session  of 5 
and 6 June  1978  examined  a proposal  for a Third  Council 
Directive  amending  the First  Directive  implementing  Article 
67 of the EEC  Treaty.  The  conclusions  of this  examination, 
which  were  prepared  by the Working  Party  on Securities 
Markets,  are presented  in this report. 
2. According  to the representative  of the Commission,  the 
proposed  Third  Directive  is an integral  part  of the  work 
currently  being  done  in the Council  on the proposal  for a 
Directive  for  the  coordination  of laws,  regulations  and 
administrative  provisions  regarding  collective  investment 
undertakings  for  transferable  securities  (CIUTS)  ('). This 
(') By  CIUTS  should  be understood  unit  trusts  and  investment  companies  who 
satisfy  the  conditions  laid  down  in Article  2 of the  proposed  coordination 
Directive  (Doc.  COM(76)  152  final). latter  Directive  is designed  to coordinate  national  legislation 
on CIUTS  which  still  varies  widely  within  the Community. 
It is because  of these  variations  that  the First  Directive  for 
the implementation  of Article  67 of the EEC  Treaty  dated 
11 May  1960  (added  to and  amended  on 18 December 
1962)  had  excluded  the liberalization  of securities  issued  by 
the majority  of CIUTS,  i.e. units  of unit  trusts  whether  or 
not dealt  in on stock  exchanges  and  shares  of investment 
companies  not dealt  in on stock  exchanges  (2). So that  the 
envisaged  coordination  of national  legislation  on CIUTS  has 
real meaning  it is essential,  that  in parallel  with  the 
implementation  of the coordination  Directive,  the necessary 
measures  to abolish  exchange  control  restrictions  on the free 
circulation  of securities  issued  by CIUTS  be taken.  The 
(2) Operations  in these  securities  which  are  currently  in List  C have  been 
unconditionally  liberalized  by Germany,  Belgium  and  Luxembourg,  while  the 
other  Member  State  have  maintained  exchange  control  restrictions  invoking 
Article  3 (2) of the First  Directive  of 11 May  1960. 
25. 9. 79 Official  Journal  of the  European  Communities No C 240/17 
liberalization  of these  operations  which  is the objective  of 
the proposed  Tljird  Directive  would  make  a significant  step 
towards  greater  inter-penetration  of national  securities 
markets.  The  Commission  therefore  emphasizes  that  without 
such parallelism,  the  progress  and  outcome  of the  work 
being  done  on coordination  could  very  well  be adversely 
influenced. 
3. Members  emphasize  their  attachment  to the objective 
of developing  a European  capital  market  which  was  recently 
reaffirmed  by the Commission  in its communication  to the 
European  Council  on  the  prospects  of economic  and 
monetary  union. 
4. Despite  this  unanimity,  opinion  was  divided  on the 
practical  measures  regarding  CIUTS  which  could  be taken 
immediately. 
5. Some  members  support  the proposals  contained  in the 
proposed  Third  Directive  without  reservation.  The  proposed 
liberalization  would  have  particular  significance  given  that  it 
would  be  a concrete  expression  of the  Community's 
willingness  not  to further  delay  the  implementation  of 
Article  67 of the  Treaty,  following  the numerous  checks 
which  the Community  has suffered  in this  field.  In addition, 
according  to these  members,  the  liberalization  Directive 
constitutes  an indispensible  complement  to the coordination 
Directive  given  that  the coordination  of national  legislation 
ort CIUTS  would  only  be meaningful  if the free  circulation 
of securities  issued  by these  organizations  occur  simul-
taneously  or within  a very  short  period:  in particular  they 
note that  the  maintenance  of existing  restrictions  would render  the provisions  of the coordination  Directive  on the 
marketing  of shares  of CIUTS  in the other  Member  States 
inoperative.  For  this  reason,  these  members  consider  that 
without  the  prospect  of a parallel  liberalization,  some  of 
these  provisions  would  no longer  be acceptable,  especially 
those  of a particularly  binding  nature. 
6. The  other  members  consider  that  coordination  can  be 
useful  in itself  but  also  recognize  the  existence  of links 
between  the two  Directives.  Because  of this  they  share  the 
opinion  that  as far as possible  the coordination  Directive 
and liberalization  Directive  should  be  implemented  in 
parallel.  It was  noted  that  on the one  hand  the coordination 
Directive  contains  a number  of definitions  and  rules  which 
will affect  the Third  Directive,  but that  on the other  hand 
the work  on the coordination  Directive  is far from  being 
completed.  Some  of these  members  also  think  that  the libera-
lization  Directive  raises  a number  of problems  and  uncer-
tainties,  particularly  with  regard  to balances  of payments 
and capital  markets.  Under  these  circumstances,  all these 
members  feel  that  it would  be premature  to pronounce  upon 
the proposed  Third  Directive  until  work  on the coordination 
Directive  is further  advanced. 
7. All  members,  although  recognizing  the  divergences 
which  arose,  emphasize  the importance  they  attach  to the 
objective  of liberalizing  capital  movements.  The  majority  of 
members,  however,  consider  that  a definitive  solution  to the 
specific  problem  submitted  to them  can only  be found  in the 
light  of the  progress  in the work  on the  coordination  of 
laws,  regulations  and  administrative  provisions  governing 
CIUTS.