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COM (84) 125 
 
 
 
Vol. 1984/0 047 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), t his file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februa r 1983 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 v om 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
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COMMISSION OF THE EUROPEAN COMMUNITIES
COM (84) 125 final
Brussels, 2nd March 1984
FIVE YEARS OF MONETARY COOPERATION IN EUROPE
(C o m m u n ic a tio n  fro m  th e  C o m m issio n  to  th e  C o u n c il)
COM(84) 125 final

FIVE YEARS OF MONETARY COOPERATION IN EUROPE
(March 1979 - March 1984)
Introduction
Before March 1979, monetary cooperation in the Community  
was organized under the relevant provisions of the Treaty and by  
Council decisions. But the introduction of the European Monetary  
System meant a new dimension and a new approach, with the expli­
cit purpose, clearly stated from the outset, of establishing  
"closer monetary cooperation leading to a zone of monetary sta­
bility in Europe". Indeed, the EMS has been so important to the  
history of monetary cooperation in Europe that, since March  
1979, the two are coterminous, and a review of one is necessari­
ly a review of the other.
This report is a review of the EMS. It begins by analys­
ing the system's contribution to the convergence on which stabi­
lity depends, i.e. by assessing the degree of convergence  
achieved through the workings of the EMS and by describing its  
results.
It then considers how the EMS mechanisms have ensured  
orderly exchange management, by seeking to analyse their adequa­
cy and assessing their scope.
•  ·  ·  /...
I

- 2 -
I. THE EMS, INSTRUMENT OF ECONOMIC POLICY CONVERGENCE
The success of the EMS should be measured in terms of  
the two-fold purpose assigned it :  its ability, on the one hand  
to induce a greater degree of economic policy convergence and,  
on the other, to achieve stability in the monetary variables.
A·  Convergence induced by the EMS
a)  The EMS has given substance to Community monitoring  
procedures
The introduction of the EMS did not lead to any official  
change or extension in the monitoring procedures gradually set  
up in the Community over the previous decade. But it did act as  
a powerful incentive to revive existing procedures and exploit  
them in pursuit of a coherent project.
During the 1970s, it became apparent that Community mo­
nitoring and coordination was in some ways a failure. That fail­
ure was, indeed, one of the main reasons why the first attempts  
to introduce a stable exchange-rate system in the Community (the  
"Snake") did not work out very well. Faced with a seriously dis­
turbed international environment where fixed exchange relations  
had been abandoned and oil prices were soaring, the member coun­
tries sometimes opted for economic policy choices which were  
fundamentally different; no one being really prepared to submit  
to an exchange-rate constraint if that entailed sacrificing a  
domestic aim.
The EMS was set up as a result of a defensive reaction  
against the disorderly movements of the dollar and against the  
danger of economic deterioration in the Community if uncoordi­
nated behaviour continued. Ap the system came,into operation,  
the soundness of this reaction gradually became more apparent.

3
- Attitudes converged on recognizing that the main thrust of na­
tional economic policies should be directed towards achieving  
price stabilization; and that the level to be desired was that  
of the most successful performer on this front. This was the  
approach that in fact prevailed in response to the second oil  
shock.
- Concertation in Community bodies is now active and systema­
tic. The constraints imposed by EMS rules have given a con­
crete and effective character to the regular examinations of  
economic and monetary policies by the Committee of Governors  
and the Monetary Committee.
- Disciplinary effects have resulted from the internal pressures  
generated by the system. Realignments now provide a privileged  
opportunity for a thorough examinination of national economic  
policies. Although this practice is not explicitly provided  
for in the rules governing the EMS ,  it has become usual since  
the realignment of February 1982. Earlier realignments had  
been essentially technical operations; changes in par values  
since then have been accompanied by back-up programmes in the  
countries requesting a devaluation of their currencies. In an  
inflationary environment, this method, although not symmetric­
al, is consistent with the aim of stability.
b)  However, convergence is still limited
Some progress has been made towards convergence, espe­
cially in the past two years; but not, so far, enough, and not  
sufficiently solid. The EMS has, it is true, made for closer co­
operation between participants in specific monetary policy  
areas; but the member States remain almost entirely free, and  
domestic reasons can lead them to deviate from the line most  
consistent with common objectives.
The adjustment experiences of the different member Sta­
tes, in response to the two oil shocks and the course of the 
dollar, have shown that convergence is primarily a result of the 
political will of governments to undertake the appropriate poli­
cies. In this, the EMS participants have been sustained by the 
discipline which an exchange rate obligation implies.
•  «  ·  / ·  ·  ·

-  4 -
To comply with the requirements of EMS mechanisms, the  
participants have been obliged to adopt more closely concerted  
monetary policies. Moreover, pursuant to the declared aim of in­
ternal and external stabilisation, quantified money supply or  
credit expansion targets have been defined in terms of a gradual  
reduction in monetary growth rates in most of the member Sta­
tes. Closer cooperation and tighter monetary discipline have  
raised effective defences against pressures on exchange rates  
and prices. But the pursuit of convergent quantitative aims has  
not, on its own, sufficed to guarantee lasting stability in the  
EMS. Compatibility between monetary policies on the one hand and  
exchange-rate objectives on the other depends on a complex set  
of interrelations that are in turn determined by the degree of  
openness of the economy concerned, the way in which the money  
supply growth target is met (excessive expansion of bank credit  
accompanied by capital outflows can have a similar effect on mo­
netary creation to that of controlled domestic credit expan­
sion), and especially the general stance of economic policy and  
the expectations it creates. From this point of view, the per­
sistence of sizeable budget deficits and the inability to keep  
the nominal trends of incomes and costs sufficiently under con­
trol has made it more difficult to maintain a restrictive mone­
tary policy stance.
The influence of the EMS on means of action not directly  
within the scope of monetary policy has been only intermittent,  
and generally delayed; two factors in particular contribute to  
weakening the impetus of general adjustment policies towards  
convergence.
- First, several member States have maintained restrictions on  
the free circulation of capital; these restrictions hamper the  
dissemination to the rest of the Community of effects induced
^  , I  1 ' /I I i ·»»/···

-  5  -
by national monetary and economic policies, and consequently  
reduce the scope of monetary cooperation, even if they only  
delay the emergence of pressures on exchange rates.
- Secondly, the opportunities and facilities for unconditional  
borrowing on international markets available to member States  
have rendered resort at an early stage to the short-term and  
medium-term borrowing facilities provided under the system un­
necessary. Since the EMS became operative, only the Community  
loan mechanism (which is in any case outside the system) has  
been called upon. Thus the capacity of the EMS credit facili­
ties to promote convergence has not been exploited, and conse­
quently the opportunities they afford to facilitate adjustment  
programmes have not been availed of.
B. Results on the stability front
a) The system has made a positive contribution to exchange-  
rate stability
Despite the instability of the international monetary  
environment, the EMS has managed to reduce the volatility of ex­
change-rate relations between the participating currencies and  
to impose order on their movements.
As expected, the requirement to maintain exchange rates  
within a narrow band has meant much more stability in the short  
run. Between 1979 and 1983, the average changes from one month  
to the next in the exchange rates of the other EMS currencies  
against the mark (taken as the standard reference currency)  
ranged from 0,5 % to 0,8 %; those of the three major non-parti­
cipating currencies, the dollar, the yen and sterling, were  
three times as wide :  between 2,4 % and 2,7 %· The average rate
•  ·  ·  /  ·  ·  ·

6
of change against; the mark of the French franc and the lira,  
which floated freely before Joining the EHS,  was reduced by more  
than half after 1979, in relation to 1974-78 :  for the French  
franc, it fell from 1,7 * to 0,8 *; for the lira, from 2,2 % to  
0,8 «.
As intra-Community trade is a major component of the  
member countries' foreign trade, more stable exchange relations  
between the EMS participant currencies have meant, on the whole,  
more stable effective exchange rates (the effective exchange  
rate is the average rate of exchange weighted for the composi­
tion of the global foreign trade of the country concerned). Ave­
rage changes from one month to the next in the effective exchan­
ge rates of the EMS currencies ranged .from 1,2 % to 1,5 % be­
tween 1979 and 1983, much lower than the range of 1,3 % to 2 %  
for the same currencies from 1974 to 1979, or the range of 2,3 %  
to 2,8 % for the major non-participants (the dollar, the yen and  
sterling) since the introduction of the EMS.
There have been seven realignments since the EMS was in­
troduced. That they should be so frequently required illustrates  
the limitations to medium-term stability in exchange rates be­
tween the currencies of economies where inflation rates and ba-  
lance-of-payments performances diverge. On each occasion, how­
ever, the par value changes were consistent with the development  
of fundamental economic factors, and prevented erratic fluctua­
tions of real exchange rates (i.e. effective exchange rates ad­
justed for the inflation differential between the country con­
cerned and its trade partners). From 1979 to 1983, the maximum  
deviation from medium-term underlying trends of the real exchan­
ge rate against the other EMS currencies of the mark, the French  
franc, the Italian lira and the Irish pound was only about half  
as large as that recorded during the previous five-year period.
Indeed, the rates of all the participating currencies against a  
/ ^  1 î ; ' ;set of major currencies deviated much less from the real
exchange-rate trend (with deviations ranging, from 8,2 % to
· / ·  · ·

- 7  -
13,1 *) than did those of the major non-participants (with 16,6%  
for the dollar, over 29 « for the yen and over 41 % for sterl­
ing) .  There is no doubt that the orderly management of exchange  
relations prevented protectionist reactions that might otherwise  
have emerged in response to marked fluctuations in rates or com­
petitive depreciation.
b) Price convergence ;  mixed results
Over the five-year period, achievements on the inflation  
front have been modest. Average inflation in the Community in  
terms of the consumer price index declined by 2,7 points, from  
8,9 % in 1979 to 6,2 % in 1983. Taking the countries actually  
participating in the EMS,  the average inflation rate declined by  
slightly less than 2 points from a lower initial level :  8 % in  
1979, to 6,1 % in 1983. The trend of inflation is expected to  
continue to slow down in 1984 to 5,2 % on average for the Commu­
nity and to 5 % for the countries participating in the ex­
change-rate mechanism of the EMS. Price trend differentials be­
tween Community countries narrowed only slightly over the five  
years (the mean absolute deviation fell from 4,3 percentage  
points in 1979 to 3,9 in 1983), and not at all (mean absolute  
deviation :  4,2 points in 1979, 4,4 in 1983) if the participants  
in the exchange-rate mechanism alone are considered. Substantial  
progress in reducing these differentials is, however, expected  
in 1984, when the mean absolute deviation should be down to 2,5  
points in the Community and 2,7 points for the participants in  
the exchange-rate mechanism.

-  8 -
The five-year period can be subdivided into two broad  
stages; considering in particular the price trends in the EMS  
participants, we note that :
- for the first two years of the EMS, the average rate of price  
rise in the area was gathering momentum; it reached 10,3 % by 
1980; at the same time, inflation rate differentials were wi­
dening;
- subsequently, inflation rates began to converge on a gradually  
declining path, especially from 1982.
Internal factors, but also the influence of the interna­
tional environment, help explain these developments.
From the internal point of view, and allowing for the  
divergences accumulated, there was no prospect of achieving sta­
bilization in all the countries within the same time span.  
France, Italy and Ireland joined the EMS with their currencies  
in a favourable relative position in terms of their real ex­
change rate, while the real exchange rates of the snake curren­
cies were fairly high. In the first stage, inflation differen­
tials could thus develop before the exchange-rate constraint  
became fully operative. As subsequent realignments only partial­
ly offset these differentials, the system gradually came to  
exercise discipline towards stability. In the second stage, that  
discipline became more deliberate and resulted in particular in  
remarkable convergence between monetary policy stances and re­
adjusted economic and fiscal policies.
^  l »
I ' I

-  9  -
The impact of the two oil shocks on the industrialized  
economies was broadly similar; on each occasion, it corresponded  
to a cut of about 2 % of GDP in the OECD countries. But the  
inflationary impact of the second oil shock on the EMS countries  
was much more successfully countered than that experienced in  
1974. The average inflation rate in the countries that are now  
in the EMS soared from 6,3 % in 1972 to 12,9 % in 1974; the  
acceleration was less pronounced in 1980, when the rate reached  
10,2 % compared with 6,7 % in 1978. The dollar was the cause of  
another external shock ;  its exchange rate against the ecu has  
appreciated by around 70 % since 1979. The rise in the dollar  
has fuelled inflationary pressures in the countries where prices  
were difficult to control, while high US interest rates had  
varying impacts on member States' current balance positions.  
However, the steady rise in the dollar has also helped to ensure  
stable exchange relations within the EMS by exercising downward  
pressure on the effective exchange rate of the system's major  
currency - a particularly useful contribution during the period  
when the notion and practice of convergence were gradually  
taking shape .

10 -
II.  '  THE EMS AS AN INSTRUMENT OF ORDERLY EXCHANGE MANAGEMENT
The stabilization of exchange relations between the EMS  
currencies has been achieved not only thanks to the policies and  
behaviour adopted as a result of the introduction of the system,  
but also to the actual working of the system itself. The EMS  
will be examined from the point of view of its daily functioning  
and in the light of the Resolutions of the European Councils of  
Bremen and Brussels and the provisions of the agreement of 13  
March 1979 between the central banks of the member States. The  
examination will be conducted from the two-folc^ standpoint of  
the use made of the EMS mechanisms - how well they fulfil their  
purpose - and of their scope - which fields they cover.
' A.  How well the mechanisms fulfil their purpose
a)  The use of the ecu
The ecus received by central banks in exchange for gold  
and dollar contributions are not put to extensive use. As an  
asset, they are precarious, on the one hand, because they are  
created by means of a temporary swap system with no indication  
as to what may happen after the transitional stage, and, on the  
other, because the volume in existence is unstable given that it  
depends on volatile variables :  the price of gold and the ex-  
change-rate of the dollar. Their attractiveness as an asset is  
further circumscribed by their limited_acceptability (creditors  
are under no obligation to accept ecus except in settlement of a  
claim maturing under the very short-term financing facility and  
only up to 50 ^ of that claim); accumulated creditor positions  
in ecu are not convertible; and the yield is low (being an aver­
age of official discount rates).  For all these reasons, ecus are  
only used on a small scale even in cases where debtors are ex­
plicitly entitled to do so. A new type of operation has, never­
theless, been introduced with swaps between ecus and national  
currencies being utilised in order to mobilise available ecus.
In practice, however, the ecu is considered not so much a reser­
ve asset as a means of credit that will eventually have to be  
settled using other assets.

-  1  1
From 1979 to 1983, about 80 % of very short-term financ­
ing operations were unwound without recourse to the ecu through  
offsetting or advance repayments with creditor currencies. The  
cumulative amount of settlements in ecu is in the order of 2  000  
million ecu over the whole period. This figure compares with a  
total ecu stock of' 53 000 million at end-1983. Voluntary trans­
actions have resulted in net repurchases of ecu, which is also  
indicative of central banks' efforts to hold down the level of  
net ecu balances.
b)  Exchange—rate mechanism and intervention «  ·
Intra-marginal interventions, carried out before the  
compulsory intervention limits are reached, have accounted for  
four fifths of total interventions by EMS central banks.
When the original idea for the exchange-rate mechanism  
was worked out, it was not intended, or expected, that intra­
marginal interventions would be so important. Only one rule was  
imposed for such interventions in 1979 :  the use of a Community  
currency (and subsequent eligibility for very short-term financ­
ing) requires the prior agreement of the issuing central bank.  
The main Community currency of intervention has been the mark,  
since the Bundesbank has agreed to its use for sizeable inter­
ventions by other central banks. But the bulk of intra-marginal  
interventions have been effected in dollars, for no restrictions  
whatsoever apply to their use.
In general, the use of the dollar for intra-marginal in­
terventions has represented no major inconvenience, given the  
dollar's strength over most of the period under review and the  
sizeable balance-of-payments deficits of the EMS countries with  
the rest of the world. But it does seem a little odd, for exam­
ple, when the dollar is overvalued, to purchase it in order to  
bring pressure to bear on a relatively strong EMS currency -  
and, on the other hand, it would be equally illogical, if the  
dollar were undervalued, to sell dollars in order to support an

-  1 2  -
EMS currency whose position in the system was weakening. Besi­
des, the effects of interventions in dollars on the position of 
an EMS currency in the band are as a rule less pronounced than 
those of interventions in Community currencies.
In practice, the management of exchange rates within the 
EMS band has been determined by various considerations :  main­
taining a given exchange rate against some other participating 
currency; protecting domestic money market conditions and inte­
rest rates; and smoothing erratic fluctuations' in the national 
currency. These are legitimate aims; but the repeated interven­
tions they have implied have not always been in the best inte­
rests of coherence in the system.
c)  The indicator of divergence
The indicator of divergence was intended to‘identify de­
viations and elicit corrective action, but it is no longer ful­
filling its purpose efficiently. It has lost much of its signi­
ficance, and has often failed to give the expected signal for 
two main reasons ;  first, its technical shortcomings, due to the 
impossibility of taking full and accurate account of different 
weights in the ecu, and of entirely eliminating the influence of 
component currencies that are not subject to the narrow band;  
and secondly, the bias introduced because certain bilateral re­
lations within the system have been considered, in practice, 
more important than others. What is more, the call for action 
when the divergence threshold is crossed does not carry the same 
weight as the one that results from the respect of the bilateral 
spreads.

- 13 -
d)  Credit mechanisms
Apart from drawings oq the Very Short Term Facility, 
neither of the system's other two credit mechanisms, short-term 
monetary support and medium-term financial assistance, has been 
used. To some extent, this omission may have enhanced the finan­
cial credibility of the system. Nevertheless, recourse to these 
mechanisms could, in certain cases, have led to the earlier in­
troduction of adjustment measures.
e)  Changes in central rates :  when and how
One of the means of action provided for under the system 
is that of changing central rates. Changes, decided by common 
accord on the occasion of a realignment and by a procedure that 
has gradually emerged, serve to correct the effects of insuffi­
cient convergence. Realignments were supposed to be infrequent 
and small :  they have in fact been fairly frequent (there have
been seven), and the agreed changes in bilateral central rates 
on occasion ranged from 8 to 10 %. They have not always been 
carried out in ideal conditions of calm, because of speculation 
in anticipation of sudden breaks in the continuity of exchange 
market trends. Experience has shown, however, that under the 
present exchange-rate mechanism, speculation can be costly and 
has proved not to be a one-way-bet.

14 -
f)  Transfers
in December 1978, the European Council, aware that the 
convergence of economic policies and of economic performance 
would not be easy to achieve, recognized the need for measures 
"to strengthen the economic potential of the less prosperous 
countries of the Community". Those measures took the form of in­
terest-rate subsidies (200 million ecu a year for five years) on 
EIB and NCI loans to finance infrastructure projects in Italy 
and Ireland. The choice of this form of transfer was determined 
by the intention to concretely reinforce structures in the less 
prosperous countries and to reconcile pre-existing ambitious 
growth and employment aims with the aim of stability introduced 
by the system. The Council is currently considering the renewal 
of these interest subsidies, which have made it possible to in­
crease considerably the volume of Community financing for Ire­
land and Italy, and thus to funnel a growing share of the Commu­
nity's lending resources to those two countries, and to contri­
bute to structural convergence.
B.  The scope of the mechanisms
The EMS does not cover all aspects of monetary relations 
of member countries of the Community. It is not yet a complete 
system, since there are two Community currencies that do not 
participate, and another is subject to temporary special arran­
gements. Moreover, there are vast areas of monetary relations 
over which it has no control, that is to say, the external as­
pects of the system and an allied development :  the extension of 
the private use of the ecu.

15 -
a) Non-participating currencies and special arrangements
The lira is in a special position in the EMS,  because of 
the widely divergent inflation rate prevailing in Italy when the 
system was set up, and the 6 % band has allowed a gradual de­
cline of its exchange rate and protected it from speculation. 
However, the Italian authorities have abstained from taking full 
advantage of the available margins for competitive purposes, 
and have even accepted a gradual rise in the real exchange rate 
as a weapon in the battle against inflation. On the other hand, 
the wider fluctuation band of the lira and its devaluations in 
the wake of others, have insulated the Italian economy both from 
spectacular exchange-rate crises and from the consequent compul­
sory reappraisal of its underlying economic policy stance. In­
deed, it is not inconceivable that, if Italy has been less suc­
cessful in achieving stabilization, this is partly because it 
was not subject to such strong EMS pressures to adjust as the 
other participants.
The absence of the pound sterling from the exchange rate 
mechanism was probably beneficial for the system at a time when 
a fundamental change was taking place in United Kingdom economic 
and monetary policy and when the country had to adjust to its 
new role as a net oil exporter. Now, however, the absence of 
sterling and the drachma is a clear sign that Europe as a mone­
tary unit is not coterminous with Europe as an economic unit.
But where sterling is concerned, non-participation is particu­
larly significant :  it hampers the EMS is achieving its full po­
tential and reduces the Community's weight in discussions on the 
shape of the international monetary system. Moreover, xt has ag­
gravated the polarization of the system around a single reserve 
currency that now in practice acts as a link between the EMS and 
the international monetary system. For sterling s inclusion, in 
view of its importance in international monetary relations, 
would necessarily have led to a more balanced share out of

- 16
responsibilities - and heavy responsibilities they are, as 
experience has shown· The absence of sterling has, moreover, 
complicated exchange rate management for EMS countries like 
Ireland with particularly close trading and financial links with 
the United Kingdom. It has also made association with the EMS a 
much less attractive proposition for non-Community countries.
b)  The system's external relations
The incomplete system and its currency unit, the ecu, 
have not proved attractive enough to incite any European country 
with particularly close economic and financial ties with the 
Community to conclude an agreement with the EMS. Although the 
stabilizing influence of the EMS has spread to such countries, 
the devaluation of the Swedish Krona in October 1982 drew atten­
tion to the real dangers involved in competitive devaluation in 
the immediate monetary environment of the system.
Although the system has no common policy towards major 
non-EMS currencies, there has been some improvement in the coor­
dination of participants' policies towards the dollar. Progress 
has been made in several areas, some more important than others; 
central banks are in touch round the clock to exchange informa­
tion; concerted action has been taken on specific occasions as 
part of the day-to-day management of exchange markets; and, more 
recently, thorough discussions have been held in the appropriate 
committees on common approaches in response to actual or fore­
seeable disturbing international developments in interest rates 
and exchange rates. All these developments have helped to a 
greater or lesser extent to give substance to coordination.
There have been two obstacles to further progress ;  the US 
authorities' indifference to the exchange rate of the dollar, 
and the difference in EMS participants' situations in relation 
to the dollar. The mark has become a reserve currency; the level 
and movenffents of the dollar fyave . «  not, equally affected all the

17
member economies; economic and monetary situations vary* from one 
member State to another; all this obviously complicates the at­
tempt to define the shared view of and attitude to the dollar 
that was explicitly called for in the Bremen annex and the Brus­
sels resolution.
c )  An associated development ;  the private ecu market
The ecu is becoming increasingly popular with private 
operators in a rôle that is quite independent of its rôle in the 
system and the official circuit. The short-term ecu market (in­
terbank market and short-term transactions) is at present estim­
ated at 10 000 million ecu; the volume of long-term issues to­
tals 3 300 million ecu - making the ecu the currency unit with 
the third largest share in euro-market borrowing in 1983; out­
standing medium-term syndicated bank credits amount to about 
2 000 million ecu.
This may be a promising development both for European 
monetary cohesion and for the resistance of the EMS to external 
shocks. Freer use of the ecu in commercial and financial opera­
tions in Europe could contribute to convergence, affecting both 
interest rates and financial integration. More extensive inter­
national use of the ecu for invoicing, settlement, borrowing and 
investment would also help to reduce the impact of external 
shocks, and spread it over the entire set of Community curren­
cies.
To date, the ecu's rôle on the markets has developed 
more or less spontaneously, with the varying discreet approval 
of the member States. But the ecu market has grown so large that 
a more uniform response to market needs is now required of the 
member States.

18 -
Conclusion
The situation as outlined is not unambiguous and the 
assessment must, therefore, be a qualified one. The most strik­
ing achievement recorded is surely the progress that has been 
made towards economic policy convergence :  there is no doubt 
that this, recent, progress was made possible by the EMS,  which 
provided the necessary framework. Achievements to date are, ne­
vertheless, fragile and must be consolidated and broadened but 
the requirements imposed by the introduction and operation of 
the system have at least given rise to conventions that are now 
part and parcel of accepted practice in running it.
On the whole, the mechanisms have worked satisfactorily 
even if they have not been used in practice in exactly the way 
intended. But this general assessment should not be allowed to 
overshadow the fact that certain aspects of the system's func­
tioning have been less than satisfactory. As a reserve asset, 
the ecu is very much a second-class instrument; intra-marginal 
interventions and their financing lack transparency. The in­
dicator of divergence has shown itself to be deficient. The 
scope of the system remains limited, something which has impli­
cations for its internal equilibrium, its solidity and its ex­
ternal aspects. As regards all these points, the review is 
broadly similar to that drawn up by the Commission two years ago 
and on the basis of which it proposed to the Council amendments 
regarding in particular the official and private use of the ecu 
and certain mechanisms of the exchange rate system.

Annex
FIVE YEARS OF MONETARY COOPERATION IN EUROPE 
Statistical data
1. Month to month exchange rate variability.
2. Medium term.real exchange rate variability.
3. Trends in real effective exchange rate/EMS weighting.
4. Evolution of dollar and yen against the ecu.
5. Changes in money stock :  annual rate and average absolute 
variance (average EC and EMS).
6. Changes in consumer prices :  annual rate and average absolute 
variance (average EC and EMS).
7. Changes in balances of payments on current account, in % of 
GDP.

1. Month to month exchange rate variability
(average % changes from end month to end month regardless of sign)
197419751976197719781974-78 197919801981198219831979-83
Against DM
FFr 2.80.81.91.11.71.70.50.81.01.00.70.8
Lit 2.21.04.41.51.82.21.00.61.20.80.60.8
HFL 1.10.40.60.60.40.60.50.40.40.60.40.5
FB Lux 0.80.40.50.50.40.50.50.30.81.30.40.7
$US 2.92.51.31.63.62.41.9(2.73.22.31.72.4
Yen 2.42.01.11.73.22.12.94.03.31.91.52.7
£ 1.72.03.11.32.42.12.22.53.11.72.52.4
Against all
major currencies
DM 2.11.41.91.32.21.81.31.51.91.41.21.5
FFr 2.41.52.01.02.11.81.21.51.91.71.31.5
Lit 1.91.33.81.11.92.01.31.62.01.61.11.5
HFL 1.81.21.61.11.81.51.11.21.61.31.01.2
FB Lux 1.51.01.51.01.71.31.01.01.41.80.91.2
$US 2.01.81.51.32.91.92.02.42.92.61.52.3
Yen 2.11.51.41.83.52.12.63.53.03.31.52.8
£ 1.72.02.81.32.52.12.42.43.22.02.32.5

■  Medium term real exchange rate variability
(maximum % spread around trend)
a) Between EMS currencies
1974-78 1979-83
DM 16.8 8.5FFr 15.1 8.8Lit 16.9 7.0Hfl 6.7 6.5FB Lux 6.0 8.1
DKr 7.5 10.2
b IRL 14.3 8.4
b) Against alt major currencies
EMS currencies 1979-85
DM 13.1
FFr 8.2
Lit 10.1
HFl 11.2
FB Lux 11.6
DKr 12.2
b IRL 12.3
Other currencies
t US 16.6
Yen 29.1
b 41.5
SFr 18.4
NKr 9.7
Os 8.7

3.  REAL EFFECTIVE EXCHANGE RATE/EMS WEIGHTING

4. EVOLUTION DU DOLLAR ET DU YEN PAR RAPPORT A L*ECU  
(indice basé sur les taux de fin de mois)USD
YEN
4. EVOLUTION OF DOLLAR AND YEN AGAINST THE ECU  
(index· based on end~of~month rates)

R CHANGES IN MONEY STOCK 
° “ EVOLUTION DE LA MASSE MONETAIRE
a, AVERAGE EC 10 
MOYENNE CE 10
b. AVERAGE EM S 
MOYENNE SM E

CHANGES IN CONSUMER PRICES
'  EVOLUTION DES PRIX A LA CONSOMMATION
«.AVERAGE EC !Q 
MOYENNE CE 10
b, AVERAGE EM S 
MOYENNE SME

7. BALANCE OF PAYMENTS ON CURRENT ACCOUNT IN % OF GDP
1974 1975 1976 1977 1978 1979 1980 1981 1982 1983(1) 1984(2)
D 2,7 1,0 0,9 0,8 1,4-0,8 -1,9 -0,9 0,5 0,5 0,8
F -1,5 0,8 -1,0 -0 ,  1 1,5 0,9 -0,6 -0,8 -2,2 -1,0 -0,7
I -4,7 -0,3 -1,5 1  ,  1 2,4 1,7 -2,5 -2,3 -1,6 -0,4 -0,1
NL 3,0 2,3 2,8 0,5 -1 ,  1 -1,3 -1,8 2,0 2,5 3,0 3,7
B/L 1,7 0,4 -0,1 -0,9 -1,0 -2,8 -4,2 -4,1 -3,1 -1,6 -0,5
DK -3,1 -1,3 -4,6 -3,7 -2,6 -4,5 -3,7 -3,2 -4,0 -2,2 -1,5
IRL -10,0 -0,7 -4,1 -3,9 -4,1-11,0 -9,8 -12,5 -8,2(1) -2,6 -1,4
EMS 0,0 0,7 -0,2 0,3 1,1-0,3 -1,9
\-1,3 -0,9(1) 0,1 0,3
UK -3,9 -1,5 -0,7 0,0 0,6-0,4 1,5 2,6 1,9 0,5 0,3
GR -6,1 -4,2 -4,1 -4,1 -3,1 -4,9 -5,5 -6,5 -5,0 -5,1 -5,5
EC -0,7 0,3 -0,3 0,2 0,9-0,4 -1,3 -0,5 -0,4(1) -0,1 0,2
(1) Estimates.
(2) Forecasts.
Sources :  Eurostat "Balances of payments statistics" and Commission Departments.