2.2.94 OfficialJournaloftheEuropeanCommunities NoC34/25
OpinionontheanalysisofpoliciestobepursuedintheCommunityduringthetransitional
stageofEMU
(94/G34/11)
On19October1993theEconomicandSocialCommittee,actingunderthethirdparagraph
ofArticle20ofitsRulesofProcedure,decidedtodrawupanOpinionontheanalysisof
policiestobepursuedintheCommunityduringthetransitionalstageofEMU.
TheSectionforEconomic,FinancialandMonetaryQuestions,whichwasresponsiblefor
preparingtheCommittee'sworkonthesubject,adopteditsAdditionalOpinionon26
October1993.TheRapporteurwasMrMeyer-Horn .
Atits310thPlenarySession(meetingof24November1993)theEconomicandSocial
CommitteeunanimouslyadoptedthefollowingAdditionalOpinion.
jeopardy.Theunderlyingconditionsforreducing
unemployment andbringingaboutaneconomic
recoverycouldworsendramaticallyif,underthe
effectsoftherecession,MemberStatesadopted
devil-take-the-hindmost policiesandfloutedthe
objectivesagreedinMaastricht .
1.1.2.WiththeInternalMarketandfreedomofcapi­
talmovementslargelyinplace,economicinterdepen­
denceandinterpenetration issogreatthatanyMember
Statewhichgoesitaloneoneconomicandmonetary
policyhurtsbothitselfanditsneighbours .Therefore,
economicandmonetarypolicymustbecloselycoordi­
natedwithintheCommunityandmultilateralsurveil­
lancesteppedup.Theconvergenceprogrammesmust
beadjustedtoreflecttherecessionandbedeveloped
intoconvergence-and-recovery programmes .Ifecon­
omicpolicyiscoordinatedatCommunitylevelwithin
theframeworkofmultilateralsurveillance ,prep­
arationsforEMUcanalsocontinue.1.Generalcomments
TheEconomicandSocialCommitteediscussedthe
policieswhichitdeemedtobemostsuitableforthe
transitionalstageofEconomicandMonetaryUnion.
AttheendofOctoberitissuedaseparateOpinion
ontheeconomicpoliciesneededtorecoverfromthe
recession,takingintoaccountthedecisionsadoptedat
theEuropeanCouncilmeetinginCopenhagen(*),
whilstthepresentOpinionwillconcentrateonpolicies
consideredtobeappropriateforthetransitionalstage
ofEconomicandMonetaryUnionbutwhicharebeing
hamperedbytherecession.Chapter1containsgeneral
commentsonthepolicy.Individualpolicyareasare
dealtwithinChapter2.
1.1.Compatibilityofshort-termeconomicpolicywith
convergencepolicy
AllMemberStatesoftheCommunityneedtopursue
morevigorousandparalleleconomicpoliciesinview
oftheunacceptablyhighlevelofunemployment and
thepersistenceoftheeconomicdownturn .Ifeconomic
policiesarenotnowharnessedtolaunchanenergetic
andurgentassaultonunemployment (2),theresultmay
beasituationwhichleavesEconomicandMonetary
UnionlookingUtopian.If,however,theeconomicpoli­
ciesneededtotackletherecession,andtheconvergence
programmeswhichwillhavetotakeintoaccountanti­
recessionarypolicies,arecoordinated ,theeconomic
policies,andinparticularthebudgetpoliciesofthe
MemberStateswillhaveafirmerfoundation .
1.1.1.Clearly,economicpolicyfacesadilemma:
—ontheonehand,unemployment mustbecutand
therecessionendedassoonaspossible;
—ontheotherhand,theprocessofintegration,which
hashithertobeensuccessful,mustnotbeplacedin1.2.CommonEuropeanstrategy
Falteringorevennegativeeconomicgrowth,investment
cut-backsand,aboveall,alevelofunemployment
whichclimbedfrom8.3%in1990to10.5%inmid­
1993requireacommonEuropeanstrategy.Thismust
gofurtherthantheEdinburghgrowthinitiativeand,in
accordancewiththedecisionstakenattheCopenhagen
summitof21-22June1993,beexpectedtocovernot
onlyemploymentbutalsoinfrastructuredevelopment
inthelowerincomeMemberStates(Greece,Ireland,
Portugal,Spain)(3).Theresourcesandoperating
methodsoftheStructuralandCohesionFundsmustbe
(3)ThetrendinpercapitaGDP*(asapercentageoftheEC
average)isasfollows(Source:ECCommission ,DGII,II
396-93,Table3,page28):
1986 1992
GR 50.6 47.4 (')ESCOpiniononGrowth,Competitiveness andEmployment
—Medium-term considerations (CES1010/93). IRL 60.1 70.5
P 50.6 57.5 (2)Itsactuallevelishigherthanindicatedinstatisticssince
figuresdonotincludeworkersbeingretrained,inshort-term
workoronjob-creationschcmcs.E 70.6 76.7
*atpurchasingpowerparity.

NoC34/26 OfficialjournaloftheEuropeanCommunities 2.2.94
1.3.2.Thefollowinglessonshould,therefore,be
learntfromtherecession :tailoredtothisobjective,particularlywithaviewto
therapiddeploymentofresources.
1.2.1.Growthinitiativesmust,however,inthe
mediumtermhelpenhancetheCommunity'scompeti­
tivenessvis-a-visnon-Community countries,eliminate
theeconomies'structuralweaknessesandpermita
returntosuccessfulanti-inflationary policies.
1.2.2.Therecessionmustbecounteredbycoordi­
natedeconomicactioninalltheMemberStates.This
isapre-requisiteiftheCommunityistomakeprogress
onconvergenceofeconomicconditions,evenintimes
ofrecession.1.3.2.1.Effortsmustbesteppedupinthefieldsof
economicpolicycoordinationandmultilateralsurveil­
lanceinordertoassurejoint,coordinatedactionto
tackletherecessionand,simultaneously ,tangiblepro­
gressonconvergence .Theinadequatecoordinationof
economicpolicyonthebasisofcommonguidelineswas
oneofthereasonsfordivergenttrendsineconomic
fundamentals fromoneMemberStatetoanother.The
resultwasthatcurrencyparitieswerenotalwaysinline
withthemarket,thusunderminingtherealfoundation
foranarrowexchangeratefluctuationband.Inthe
properlycoordinatedeconomicpolicywehopetosee
infuturemeasurestocounterunemployment andthe
recessionareapreconditionfor,ratherthananalterna­
tivetotheconvergencepolicyrequiredduringthetran­
sitionalstageofEMU.Thiswill,ofcourse,onlybe
possibleifcurrencyparitiesareinlinewiththemarket
andarenotmaintainedforpoliticalreasonsatlevels
whichcurtaileconomicgrowth.1.3,LessonstobelearntfromtheEMScrisis
1.3.2.2.Thebreathingspaceobtainedfromthe
wideningoftheERMfluctuationbandsmaybeused
toadjustparitiesinthewakeofcompletionofthe
InternalMarket,inlinewithindividualMemberState's
progressonconvergence .Withthenew30%fluctu­
ationbanditistobehopedthatparityshiftswill
bepossiblewithoutpoliticaldramaortheimmediate
speculativetestingofthenewparity.Thiswouldfacili­
tategradual—andhopefullycoordinated—stabiliza­
tionatnewparities.AtfirstsighttheEMScrisisoflateJuly1993seemed
tounderminethecredibilityofEMU.Itisnowseenas
avaluablelesson,however.
1.3.1.Ithighlightedthefollowing:
1.3.1.1.Achievingconvergenceoftheeconomicfun­
damentals (inflationrate,employment ,progressonpro­
ductivity,trendsinwagecostsandinterestrates)of
twelvecountriesisalwaysdifficult.Itbecomesstill
moredifficult,however :
—ifexternalpressuresoccursuchasrecession,col­
lapseoftheEasternEuropeaneconomicsystemand
itsmarkets,thestrainontheGermaneconomy
arisingfromtheintegrationofthenew'Lander',
andtheeconomicconsequencesofdisarmamentfor
thearmsindustry,and
—iftheseextraordinary eventscoincidewithaserious
recession,whichinadditionhassomestructural
causes.1.3.2.3.Thetemporarywideningofthefluctuation
bandswillthushelpestablishacorrectsystemofpariti­
es,whichwillbeirrevocablyfixedinthethirdstageof
EMU.
1.4.WideningoftheEMSfluctuationbands
OurreactiontothedecisiontakenbytheEconomics
andFinanceMinistersandCentralBankGovernorson
2August1993towidentheERMfluctuationbands
temporarilyfrom2.25or6%to15%ineitherdirection
isasfollows:1.3.1.2.Undertheseconditions,theMemberStates
haveceasedtoconvergeandhaveinfact,attimes,
divergedtosomeextent.Butconvergence isaprecon­
ditionforEMU.Withoutprogressonconvergence ,a
systemofstablebutadjustableexchange-rates may
repeatedlyfallpreytospeculation,
—ifthepoliticalwillislackingtoadjustparities
promptlytoreflectdivergenttrendsineconomic
fundamentals ,
—if,instead,exchange-rates whichthemarketregards
asmisalignedareretainedfortoolong,
—and,finally,ifpoliticalstatementscastdoubton
theimplementation oftheMaastrichtTreaty.1.4.1.Paritiesalreadyovertakenbymanifestlydiver­
genteconomictrendsandnolongersupportedbythe
marketwere,inthepast,sometimesretained,notleast
forreasonsofpoliticalprestige.Givenfreemovement
ofcapital,theresultwasabruptdevaluationsandcur­
rency-marketinstability.Withfluctuationbandswid­

2.2.94 OfficialJournaloftheEuropeanCommunities NoC34/27
enedtoatotalof30%,thereisnownoneedtodefend
paritiesassoonasanexchangerateslidesbyoneor
twopercentagepoints.floatingexchangerates.Itis,rather,aprioritydecision
tocounterescalatingspeculationandtomaintainthe
EMSassuch.Themaintenance oftheEMSisessential
iftheECistocontinuedowntheroadtoEMU;this
hadbeenindoubtsincetheEMStensionsofAugust
1992.
1.4.9.Thetemporarywideningofthefluctuation
bandshouldnotbeseenasaninvitationtorelax
economicpolicyefforts.Onthecontrary:economic
policyshouldbesosuccessfulthatthewidermarginfor
exchangerateadjustmentsisusedaslittleaspossible.1.4,2.Thewideningofthefluctuationbandsgives
theMemberStatesacertainamountofscopeinecon­
omicpolicy.Iftheneedtopreservemonetarystability
sodictates,interestratescanbekeptrelativelyhighfor
atimeinonecountry,whilstothercountriespursue
lowerinterestratesinordertocombatrecessionand
highunemployment .Withwiderfluctuationbands,
suchinterest-ratedifferentialsarepossible,without
everychangeintheinterest-ratestructureimmediately
givingrisetospeculative'testing'ofthesustainability
ofagivenexchangerate.However,insomeMember
Statesthedefenceoftheexchangerateseems,atleast
attimesandwithincertainlimits,totakeprecedence
overchangesininterestratepolicy.1.4.10.Thecentralbanksshouldcontinuouslymoni­
tor—from1994onwardswithintheframeworkofthe
EMI—theextenttowhichtheenlargedfluctuation
bandsareactuallybeingusedandconsiderthetimescale
withinwhichgradualcoordinatednarrowingcouldbe
envisaged. 1.4.3.Inthepast,currenciessometimesenteredthe
ERMatparitieswhichwerealreadyregardedbythe
marketasoutofdate.Undertheold,narrowfluctuation
bands,amistakeofthiskindsoonmadeitselffelt.The
30%fluctuationbandallowsacurrencyscopetofind
itsrightlevel.
1.5.TheconvergencecriteriaandtheEMUdeadline
1,4.4.Widermarginswillmakeiteasierforthose
currencieswhichlefttheERMattheendof1992,
becausetheirfluctuationbandsweretoorestrictive,to
rejoin.Returnoughtclearlytobeaccompanied by
suitableeconomicpolicymeasures.Thesameapplies
toapplicationsforERMmembershipbythecurrencies
oftheEFTAcountrieswishingtojointheCommunity
in1995.TheMemberStatesshouldsticktotheconvergence
criteriaagreedinMaastrichtandtheEMUtimetable.
Thisrequirespoliticalwill.InalltheMemberStates,
theresultofeconomicpolicyeffortswilldependon
visibleprogressincuttingunemployment ,promoting
economicgrowth,andatthesametime,achieving
nominal,andultimatelyreal,convergencebetweenall
theMemberStates.
1.4.5.Retainingthenarrowfluctuationbandsin
August1993mighthaveforcedothercurrenciesto
leave.AnEMSeffectivelycomprisingonlyahandful
ofcurrencieswouldhaveundermined confidencein
progresstowardsEMU.1.5.1.Adjustmentoftheconvergencecriteriaatthis
stagewouldundermineconfidenceinthefeasibilityof
EMUandinhibiteffortstoachievegreaterconvergence ,
e.g.inrespectofbudgetdisciplineandconsolidation .
Ontheotherhand,keepingtotheEMUdeadline(as
inthecaseofthe1992InternalMarketproject),despite
therecession,wouldbeapositivesignal.Thiswould
makeitclearthattheprospectofEMUhasnotbeen
allowedtorecedeasaresultoftherecession.1January
1999nowseemsamoreachievabledeadline,however,
than1January1997.1.4.6.Thetemporarywiderfluctuationbandsdis­
couragespeculation,asupperandlowerintervention
points30%apartpermitsmuchgreaterfluctuations
nowbeforeacurrencyneedstobede-orrevalued.
1.4.7.Theburdenofintervention onthecentral
bankshasbeenlightened;sometimestheywererequired
tocommittheirentireforeignexchangereservesto
supportacurrencywhichhadwithinashorttimefallen
toitsfloorinthenarrowfluctuationband.1.5.2,Well-founded confidenceintheabilityofa
successful,properlycoordinatedpolicytopromote
employmentandeconomicgrowth,andatthesame
timeconfidenceinthefeasibilityofEconomicandMon­
etaryUnion,arepsychologically importantforcon­
sumerconfidenceandtheinvestmentclimate.Confi­
denceratherthanuncertaintymaycontributetoa1.4.8.Temporarywideningofthefluctuationbands
shouldnotbeconstruedassupportforasystemoffully

NoC34/28 OfficialJournaloftheEuropeanCommunities 2.2.94
revivalintheeconomiccycleandfinallytorenewed
progressontheconvergenceofeconomicconditions.MemberStateisresponsibleforimplementing itscon­
vergenceandrecoveryprogramme .Socialdialogue
shoulddealwiththecompatibilityofthevarioussectors
ofeconomicpolicywiththeconvergenceandrecovery
programmes .Thisappliesinparticulartotax,wages
andsocialpolicies,Thesepoliciesmustbecompatible
witheachotherandwiththeconcentration ofeconomic
policyoncombattingunemployment anddefending
monetarystability.Withoutsuchasocialdialogueand
effortstoachieveconsensus,itwillbedifficulttopro­
gresstowardsnominal(andparticularlyreal)conver­
gence.1,6,PublicinformationandconsultationoftheESC
1.7.Cooperationonmonetarypolicyandsupervision
intheEMIPoliciesforthetransitionalstageofEMUshould
includeadequatepublicity,theappropriatebriefingand
involvementoftheeconomicandsocialinterestgroups,
includingthesocialpartners,andconsultationofthe
EuropeanParliament,theEconomicandSocialCom­
mittee,andthefutureCommitteeoftheRegions,There
hasbeenanextraordinary lackofofficialcommenton
thecrisisintheEMSandtheprospectsforEMU,as
agreedatMaastricht .Thepsychological component
ofconsumerbehaviourandthepropensitytoinvest,
referredtoinpoint1.5.2above,alsomakepublicity
important .Closercooperationonmonetarypolicywillrequire
bettercoordinationofmonetarypolicydecisions,inthe
frameworkoftheEuropeanMonetaryInstitutefrom
1994onwards;thiswillincludethejointassessmentof
theappropriateness ofexchange-rate parities.
1.6.1.Itwouldbehelpfulduringthetransitional
stageofEMUifsuitablypresentedpublicinformation ,
e.g.aCommissionWhitePaper,weremadeavailable
onthecausesoftheEMScrisisandtheconsequences
ofEMU,inparticularthedisappearance ofnational
monetarypolicy—andconsequentlyofinterestrate
policy—andthereplacementofnationalcurrencies
byasingleEuropeancurrency,theECU.Toavoid
disappointment itwouldhavetobemadeclearthat
EconomicandMonetaryUnionwillnotsolveallprob­
lemsfromonedaytothenext,particularlyunemploy­
mentandincomedifferentialswithintheCommunity .
Whenthetimeitripe,thehelpofnationalmedia
shouldbeenlistedinordertoprovideacomprehensive
explanationofEMUandboostconfidenceinthenew
system.1.7.1.Evenwithwiderfluctuationbands,theprob­
lemofspeculationwillnotgoawayentirely;closer
cooperationisthereforeneededbetweenthecentral
banksoncurrency-market intervention .Thelarger
banksactiveontheforeignexchangemarketsshould
perhapsalsobeinvolvedinthiscooperation .Cooper­
ationbetweenCentralBankswillbemadeeasierif,as
providedforintheMaastrichtTreaty,theybecome
independentassoonaspossible.
1.7.2.Thefasterthecurrencymarketsreact,and
thegreaterthefinancialflowsresultingfromcapital
movementfreedom,themoreimportantclosercooper­
ationbetweenCentralBanksbecomes.Accordingto
statisticsoftheBankforInternationalSettlements,such
capitalmovementsamountonaveragetoabout880,000
milliondollarsperday,i.e.morethanthreetimesthe
combinedforeigncurrencyreservesoftheCommunity's
CentralBanks(approximately 300,000milliondollars).
1.7.3.Speculationhasbeenmadeeasierbyshort­
comingsintheharmonization ofprudentialbanking
regulations .TheEMIshould,therefore,attemptto
securerapidclosercooperationbetweenthecentral
banksandothersupervisoryauthorities,particularlyas
regardstheoff-balance-sheet transactionsreferredtoin
point1.8.2.1.1.6.2.Nationalparliamentsmustfollowtheexample
oftheEuropeanParliament'sMonetaryCommitteein
discussingthetransitionalstagepolicies.Implemen­
tationoftheeconomicconvergenceprogrammes
requiresthattheeconomicandsocialinterestgroups
affectedbeinformed,andthattheysupporttheprocess.
ItisthereforenotonlytheEuropeanParliamentwhich
shouldbeconsultedonthemultilateralsurveillanceof
economicandmonetarypolicyandthemonitoringof
theconvergenceprogrammes ;theEconomicandSocial
Committeeshouldalsobeappropriately involved,as
theinstitutionrepresentingeconomicandsocialinter­
ests.1.8.Guidelinesforactiontocountercurrencyspecu­
lation
1.6.3.Giventhescaleandseriousness ofthe
recession,socialdialogueshouldbeinstituted/stepped
upatnationalleveltoo.ThisisnecessaryaseachItwouldbewrongtoattempttocurbcurrencyspecu­
lationbyreintroducingcontrolsoncapitalmovements .
ThiswouldbeanunacceptablesetbackfortheInternal
Market.

2.2.94 OfficialJournaloftheEuropeanCommunities NoC34/29
EconomicandMonetaryUnionwereunderminedby
thediscussionoflessstringentconvergencecriteria
duringthegeneraleconomiccrisis.Itismoreimportant
toretaintheexistingconvergencecriteriaevenifsuch
criteriacannotbemetinthemannerhopedforduring
thepresenteconomiccrisis.Thisdoesnot,however,
meanthatthebudgetpolicycriteriadonotneed
interpretation .Thisappliesinparticulartothecriteria
concerningtheratiosofgovernmentdebtandnetbor­
rowingtoGDP.1.8.1.Themosteffectivewayoftacklingspeculation
isofcoursetoremovethereasonforit.TheMember
Stateswouldhavetodomoretobringtheircurrency's
exchange-rate intolinewitheconomicreality,and
ensuringthattheirsuccessfuleconomicpoliciesdonot
giverisetoover-orunder-valuation whichwould
encouragespeculation .Therehasattimesadmittedly
beenspeculationagainstECcurrencies,e.g.theFrench
Franc,whoseeconomicfundamentals—apartfrom
unemployment —hardlysuggestedanincorrect
exchangerate.
1.8.2.Insteadofcontrolsoncapitalmovements,rul­
estorestraincurrencyspeculationcouldbeenvisaged.
Themeasuresreferredtoinpoints1.8.2.1and1.8.2.2
belowcouldbecoordinatedwithmajornon-Com­
munitycountriesintheframeworkoftheGroupof
TeninBasel.1.9.2.Therecessionmakesthetimeallowedforcon­
vergencepolicyinpreparationforEMUseemshort,
eveniftheearlierdeadlineof1January1997isaban­
donedandthethirdstagebeginson1January1999.
Undertheconvergenceprotocol,eventhemajorecon­
omicvariablesneedtoconvergestronglyenoughby
1995-1996toenablecurrenciestofluctuatewithina
2.25%bandwithoutunduestraininthefinaltwo
years(1997-1998).Thiswouldrequireextraordinary
economicpolicyefforts. 1.8.2.1.Strictersupervisionofthespeculativeuse
ofswaps,futures,optionsandotheroff-balance-sheet
bankingtransactionsarerequired.Thevalueofsome
banks'off-balance-sheet transactionsexceedstheirbal­
ancesheettotals.
1.8.2.2.Compulsoryinterest-freedepositswiththe
centralbanktocoveropencurrencypositionscouldbe
considered .1.9.3.Theeffortsreferredtoinpoint1.9.2above
would,however,beworthwhile,astheeconomicinter­
dependencebetweentheMemberStates,achievedvia
integrationintheInternalMarket,mustbesecured
forthelongterm.Theopening-upofEasternEurope,
problemsof(partlystructural)unemployment ,demo­
graphicandstructuraldevelopment ,migrationand
environmentprotectionmeanthat,withouttheagreed
EMU(despitetheprogressmadetowardsintegration)
theECmightreverttotheclassicpursuitofnational
self-interest .WithouttheconstraintsofEMU,inflation­
aryfull-employment policies,basedonprotectionism
andexchangecontrols,mightbepursuedinsomeMem­
berStates.1.8.2.3.Theintroductionofatwo-tiercurrencymar­
ket,asusedtoexistinBelgiumwithoutanyrestriction
oncapitalmovements,hashadlittlesuccessinthepast
owingtotheconsiderableadministrative workinvolved
andtheloopholes.Thiswouldmeanhoweverthatmost
currencytransactionsnotdirectlyconnectedwithtrade
ingoodsandservices,i.e.includingmonetaryandcapi­
talmovements,werecarriedoutatanexchange-rate
freelysetbythecurrencymarkets,withacertainpre­
miumvis-a-vistheofficialrate.Withoutaffectingthe
exchange-rate forexternaltrade,thiswouldmake
cross-bordermonetaryandcapitalinvestments,includ­
ingspeculativeonestemporarilymoreexpensive.2.Commentsonindividualpolicies
2.1.Short-termeconomicpoliciesandconvergence
policies
1.9.Jointeconomicpolicyefforts
2.1.1.Theconvergencesoughtforeconomicand
MonetaryUnion,isnotfundamentally calledintoques­
tionbytheeconomicpoliciesdictatedbytherecession
andunemployment .Theeconomicandbudgetpolicies
requiredbytherecessionarenecessarilysimilarinall
MemberStatesoftheCommunity .Becauseofthis,the
conditionswhichneedtobemettoachieveEconomic
andMonetaryUnionarechangingalongsimilarlines
inallMemberStates.Sinceeconomicpolicymustnowbedirectedfirstand
foremostatcombattingunemployment andpromoting
economicrecovery,manypeoplehavebeguntohave
doubtsaboutwhetherthetimetableforachievingEcon­
omicandMonetaryUnioncanactuallybeobserved.
Despitethis,consistentandcoordinatedeconomicpoli­
ciesareperfectlycapableofmakingconditionsmore
conducivetothecompletionofEconomicandMonet­
aryUnionbytheendofthecentury.
1.9.1.TheprospectsofachievingEMUwouldnon­
ethelessbediminishedifconfidenceinthefeasibilityof2.1.1,1.Someoftheconvergencecriteria,notably
budgetcriteria,caninthepresentrecessiononlybe
givenmedium-termpriority.However,insomeMem­

NoC34/30 OfficialJournaloftheEuropeanCommunities 2.2.94
berStatesthebudgetarypolicycriteriaareclearlystill
beinginterpretedveryrestrictively,whichlimitsthe
scopeforthenecessaryshort-termpolicymeasures.In
arecessionthebudgetarycriteriashouldnotbeallowed
toresultin,orevenbeusedasapretextfor,economic
measureswhicharelikelytoexacerbatethecrisiseven
further.
2.1.1.2.Bycontrast,thepoliciesneededeverywhere
inEuropetobringdownunemployment andstimulate
economicgrowthmayatthesametimehelplaythe
commonfoundationsforEconomicandMonetary
Union,providedsuchpoliciesarecoordinatedatCom­
munitylevelwithintheframeworkofmultilateralsur­
veillance.Furthercutsinlong-terminterestrateswill
beofcrucialimportancehere.Thisistheonlyway
forsomeMemberStatestomakeuplostgroundon
convergence—whichwasoneofthemaincausesof
thecurrencyrealignments .
2.1.2.Thereisacloselinkbetweenthepolicies
neededforcyclicalandstructuralreasonsandthose
neededforconvergence .Thiscanbeseenfromsome
oftheconvergencecriteriathemselves.Theseareinno
waygearedsolelyto'fineweatherperiods'.Rather,a
seriesofrelativeconvergencecriteriaaretailored,asa
precautionary measure,tothoseMemberStateswhose
economicandmonetarypoliciesarethemostsuccessful
incomparativeterms.Itisworthnotingthattheconver­
gencecriteria,particularlyinflationandinterestrates,
arecurrentlybeingmetbymanyECcountries.Conver­
genceispossibleeveninrecession.2.2.1.1.Aneconomicpolicyaimedatsustainedcon­
vergence[Article103(3)]istobecloselycoordinated
andsubjecttomultilateralsurveillance .Tothisendthe
convergence programmes ,tobeadjustedto
recessionaryconditions,someofwhichrununtil1996,
andthebanonbudgetdeficitfinancingbytheCentral
Banks[Article104(1)]mustbeputintoeffect.
2.2.1.2.Thedownturnhasrevealedanumberof
weaknessesoftheECeconomy:
—itsinabilitytogenerateandmaintainsufficientnew
jobs;
—itsrelativelackofprogressoninnovation,tech­
nologyandresearch;and
—theCommunity'scurrentlossofglobalcompeti­
tiveness,admittedlydeterminedinpartbyexternal
traderelations(1).
2.2.1.3.TheCommission shouldsubmititsforth­
comingWhitePaperonamedium-term strategyfor
growth,competitiveness andemploymentbytheend
of1993atthelatest.Anti-recessionary policyshouldas
faraspossibletakeaccountoftherequirementsof
convergencepolicy.
2.2.2.ThefactthattenMemberStateshavealready
submittedconvergenceprogrammesistobewelcomed.
ThetworemainingMemberStatesarealsoexpected
todoso.
2.2.2.1.Theconvergenceprogrammes mustbe
expandedtobecomeconvergence-and-recovery pro­
grammes.Cuttingunemployment musttakepriority
overstrictcompliancewithallconvergencecriterion.
2.2.2.2.Withthedrawing-upofconvergencepro­
grammesstilltheresponsibilityofindividualMember
States,thejointdiscussionandevaluationofsuchpro­
grammesintheCouncilofEconomicandFinanceMin­
istershelpstoensurethatMemberStatesaredissuaded
fromtakingisolatednationaleconomicpolicydecisions
whichwouldinanycasebeopentoquestiongiventhe
ever-closerenmeshment ofnationaleconomies .More­
over,coordinatedconvergenceprogrammesencourage
thegrowthofagenuinelycommonmoneymarket,as
wellasthegeneralformationofsavingsbeneficialto
suchamarket.Theconvergenceandrecoverypro­
grammesshould,therefore:
—bebasedoncommonassumptionsandforecasts:2.1.3.Budgetconvergencecriteriaareexpressedin
absolutepercentages,i.e.newgovernmentdeficittobe
nomorethan3%ofgrossdomesticproduct,accumu­
latedgovernmentdebttobenomorethan60%of
grossdomesticproduct.Articles104c(2)and104c(3)of
theTreaty,however,explicitlyprovideforadiscretion­
arymargininassessingwhethertheratioofgovernment
debttoGDP'issufficientlydiminishingandapproach­
ingthereferencevalueatasatisfactorypace'and,
subsequently ,'whetherthegovernmentdeficitexceeds
governmentinvestmentexpenditure',etc.
2.1.4.TheCommitteeendorsesthesuggestionmade
byCommissionPresident,MrDelors,thatadditional
criteriarelatingtoyouthandlong-termunemployment
beconsideredasindicatorsofrealconvergence .
2.2.Economicpolicy —beforthesameperiod;and
—bediscussedandassessedtogetheratEClevel.
2.2.1.ThesixthrecitaloftheTreatyonEuropean
UnionassertstheMemberStates'resolvetowork
towardseconomicconvergenceandanEconomicand
MonetaryUnion,includingasingleandstablecurrency.()Cf.ESCOpinionontheAnnualEconomicReportfor1993
(CES1011/93,point2.2.8).

2.2.94 OfficialJournaloftheEuropeanCommunities NoC34/31
2.2.6,Thetensionsitisalreadypossibletoforesee
betweenthecommonmonetarypolicyandnational
economicpoliciesleadtotheconclusionthatfurther
progresstowardspoliticalunionwillneedtobemade
inconjunctionwitheconomicandmonetaryunion.
2.2.7.Apolicywhichseekstoachievegreaterconver­
gencealsocallsforprogressintheharmonization of
directtaxationofcompaniesandhouseholds,particu­
larlywithholdingtaxesoninvestmentincome.TheEC
CommissionshouldpublishaWhitePapercontaining
proposalsatanearlyopportunity .
2.2,7.1,Harmonization ofdirecttaxesmustextend
totheentirefinancialareaoftheCommunity ,including
the'taxhavens'whichstillexistontheterritories
ofindividualMemberStates.Asfarasispossible,
harmonization mustalsoembracethirdcountries,in
effecttheOECDcountries,inordertocounterthe
exodusofcapitalfortaxreasons.Lowerdirecttaxation
wouldonlybeacceptablewhenagreedatEClevel
underthecommonregionalpolicyforthepurposeof
bolsteringeconomicandsocialcohesion.2.2.3.Inthecurrentrecessionthemonitoringof
nationalbudgetstoidentify'excessive'government
deficitstakesonadifferentmeaning[Article104c(2)].
2.2.3.1.Itisnowmoreaquestionoflimitingthe
unavoidablenewborrowingrequiredtofinanceextra­
ordinaryexpenditure,notonlybecauseoftheconver­
gencecriteria(cf.point2,3,5),butalsobecauseofthe
alreadyconsiderableburdenimposedbydebtservicing
onthebudgetsofsomeMemberStates.Ifthecostof
servicinggovernmentdebtabsorbsahighproportion
ofthebudget,thedebtmustbegraduallyreduced,quite
independently oftheconstraintsofEMU.
2.2.3.2.Theextraordinaryexpenditurereferredtoin
point2.2.3,1shouldbeconcentratedonpublic-sector
investment,which:
—createsnewjobs;
—promotestrainingandretraining;and
—makesspecificimprovements toinfrastructure ,thus
attractingadditionalproductiveinvestmentfrom
theprivatesector,
2.2.4.TheeconomicconstraintsaffectingGermany
areaspecialcaseforCommunityconvergencepolicy.
2.2.4.1,Germaneconomicpolicy,andaboveall
managementofthemoneysupply,arebeinghindered
byaneventuniqueinthiscentury:theintegrationinto
theFederalRepublicoftheformerGDR,aStatewith
apopulationof17million,ruinedby40yearsofcentral
economicplanning.Theresultantconsiderablestrain
onGermany'seconomyandbudgetcanbegaugedto
someextentfromthescaleofthefinancialtransfers
totheeastandthenewborrowingsoftheFederal
Government .
2.2.4.2.TheBundesbankhasreactedtorelatively
highinflationbyGermanstandardswithhigherinterest
ratesthanthedepressedstateoftheeconomywould
otherwisewarrant.TheBundesbank'sstability-orien­
tatedpolicybolstersconfidenceintheD-Mark.But
theresultantinterestratedifferentialscomplicatethe
economicandmonetarypoliciesofGermany'sneigh­
boursandimpedetheachievementofconsensusatEC
level,particularlyastheD-Markisstillseenasthe
EMS'anchorcurrency.
2.2.5.InthetransitionalstageofEMUapartnership
shouldbedevelopedbetweenCentralBanksand
Governmentsnotonlyinrespectofeconomicandmon­
etarypolicy,butalsoinrespectofsubsequentcooper­
ationbetweentheEuropeanCentralBankandthe
CouncilofEconomicandFinanceMinisters.Cooper­
ationwillbeneededasitscommonmonetarypolicywill
berunbytheEuropeanCentralBank,whilsteconomic
policyistoremaininthehandsofnationalgovernments
eventhoughtherewillbecoordination intheCouncil
ofEconomicandFinanceMinisters .2.2.7.2.Differences inthetaxationofinvestment
incomeandthedistinctionmadeinthisconnection
betweenforeignersresidentinacountryandnationals
residentabroad,andbetweenresidentsandnon-resi­
dentsofaparticulararea,havenoplaceinaSingle
Marketintherun-uptoEMU.Withfreemovementof
capital,thisdifferentialtaxationleadstothediversion
offinancialflows,usuallywithintheCommunity ,but
insomecasesalsotothebenefitofnon-Community
countries.ThereisnojustificationforthisinaEuro­
peanfinancialarea.Itdepressestaxrevenues,anunde­
sirabledevelopmentatatimeofbudgetconsolidation
andthecontrolofburgeoningbudgetdeficits.
2.2.8.Structural,InvestmentandCohesionFund
resourcesmustbeusedefficientlytosecurethedesired
multipliereffect,withtheinvolvementofnationalbodi­
esandthefinancialparticipationofregionallending
institutions,tobeencouragedbytheprovisionofpublic
guarantees .
2.2.9.ThespecificpromotionofSMEs,particularly
throughinvestmentincentives,isofparticularimport­
ance.SMEshaveamajorparttoplayineconomic
recoveryandespeciallyjobcreation.
2.2.9.1.ThepromotionofSMEsthroughincreased
globalloansbytheEuropeanInvestmentBankandthe
provisionofStructuralandCohesionFundfinance(e.g.
theInterimCohesionFund)isparticularlyimportant
tothoseMemberStateswithincomelevelsatlessthan
90%oftheCommunityaverage.Thesecountries

NoC34/32 OfficialJournaloftheEuropeanCommunities 2,2.94
broadlyinlinewiththeconvergencecriteria,oran
EMUopt-outclause)weretodoso.alreadyhavemuchgroundtomakeup,relativelyspeak­
ing,tomeetthenominalconvergencecriteria,andtheir
effortstobringtheireconomicfundamentals closerto
theaverageandtomakeprogressonrealconvergence
mustbesupported,i.e.byrecoursetotheStructural
andCohesionFunds.
2.3,Theconvergencecriteria2.2.9.2.Weneedofcoursetorememberthatthe
provisionoffinancefromCommunityFundswas
intendedfirstandforemosttomakeiteasierfor
countriestoadvancefurthertowardstheconvergence
necessarytopreparethewayforEconomicandMonet­
aryUnion.ThefinancingavailablefromsuchFunds,
however,issuchthatallitcandoiscomplementthe
measuresnowneededtofighttherecession;itcertainly
cannotreplacesuchmeasures.2.3.1,Theconvergencecriteriaweredrawnupin
bettertimes.Thisdoesnothowevermeanthatthey
shouldnowsimplybeadaptedtoreflectrecessionary
conditions .Itwouldbeaseriousmistaketowaterdown
theconvergencecriteriaand/orpostponethe1999EMU
deadlinebecauseofcurrentlyunfavourableeconomic
trends.Thiswouldundermineconfidenceinadeter­
minedpolicystanceonEMU,andinthefeasibilityof
EMU.Itisbynomeanscertainthatthehistorical
opportunityformonetaryunionwillcomeagainin
'bettertimes'withlessstringentconvergencecriteria.2.2.10.Economicandfinancialpolicymustbefra­
medinsuchawaythatthepriorityattachedtoecon­
omicgrowthinordertocutunemployment doesnot
leadinthemediumtermtoneglectoftheconvergence
criteria.Giventherecession,wecannotexpectgovern­
mentdebtandbudgetdeficitstobereducedandcome
rapidlyintolinewiththeconvergencecriteriareference
values(FifthProtocol,Articles1and4)(1).Thisis
alreadyimpossiblebecausemostMemberStatesdid
notusetheopportunityofthesustainedeconomicboom
inthe1980sforbudgetconsolidationanddiscipline,so
thatthereisnowlittlescopepersefordeficitspending.
Wemustalsotakeintoaccountthefactthat,because
ofthescaleofunemployment andthedepthsofthe
recession,MemberStateshavebeenlesssuccessfulthan
expectedinmeetingthegovernmentdebtandbudget
deficitcriteria,whilstsomeMemberStateshaveeven
startedtomovefurtherawayfromsuchtargets.How­
ever,acircumspectapproachisadoptedbytheMaas­
trichtTreaty[Article104c(2)]whichstipulatesthat
attainmentoftheconvergencecriteriaistobeassessed
inthefinalanalysisnotonthebasisofanexactpercent­
age,butratherintermsofsubstantialandcontinuous
progresstowardsthereferencevalue.Thisassessment
shouldtakeaccountoftheeconomicpoliciesdictated
bythescaleoftherecession.2.3.2.Ontheotherhand,itwouldalsobeamistake
toapplyalltheconvergenceyardstickssimultaneously
inthecurrentrecession.Thescaleofunemployment
andtherecession,alongwiththeeconomicandbudget
policiesneededtotacklethem,meanthat,withperhaps
oneexception,noMemberStateoftheCommunityis
currentlyabletofulfilthebudgetcriteria.Weshould
nothoweverleaptotheconclusionthattheconvergence
criteriacannotbefulfilledatalaterstageofthetran­
sitionalphaseandthatmonetaryunionby1999willbe
totallyoutofthequestion.Manywouldseizeonsucha
conclusionasawelcomepretextforrejectingmonetary
unionoutrighthereandnow.
2.3.3.Itwouldbeequallydangeroustouseasnap­
shotoftheconvergencecriteriaasabasisforspeculat­
ingastowhichMemberStateswillbeamongthe
foundermembersofamonetaryunioninfiveyears
time,andwhichwillnot.Thisblackandwhite
approachisinappropriate andunjustified.Statistics
coveringanumberofyears(oninflationrates,govern­
mentdebt,budgetdeficits,interestratesandexchange­
rates)giveaclearerimpressionoftheprospectsfor
progressonconvergenceinthenearfuture.Inassessing
thestatisticsandcalculatingtheconvergencecriteria
percentages,itshouldbeensuredthatthedataare
comparableandthatfinancialpolicydataincludeany
separategovernmentbudgetsandassets.2.2.11.Theconvergenceprogrammessofardrawn
upbynineMemberStatesmustbebroughtintoline
withtheCommission'srevisedgrowthforecastsand
expandedtobecomeconvergence-and-recovery pro­
grammes,Thisappliestocountrieswhichhavesubmit­
tedparticularlyambitiousconvergenceprogrammes ,
e.g.Greecewhichhasproposedaprogrammeaimedat
reducinggovernmentdebtfrom106%ofGDPin1992
to92%in1996.Itwouldalsobehelpfulifthetwo
countrieswhichhavenotyetsubmittedconvergence
programmes (invokingeconomicfundamentals sofar
2.3.4.Theconvergencecriteriaareimportantmainly
becausetheyhavebeen,andare,interpretedasaquality
standardforthefuturemonetaryunion,aguaranteeof
monetarystability,whichtheMaastrichtTreatymakes
themainplantoftheEuropeanCentralBank'smonet­(*)AccordingtotheCommission's1993AnnualEconomic
Report,averagebudgetdeficitsin1992rosefrom4.6%to
5.3%ofGDP,andgovernmentdebtfrom60.4%to62.8%.

2.2,94 OfficialJournaloftheEuropeanCommunities NoC34/33
rates.TheEMSwillbecalledintoquestionifthewider
fluctuationbandmeansthatadeterioration ofthe
relevanteconomicfundamentals simplyresultsinthe
exchangeratebeingallowedtofloatdownwards .On
theotherhand,isitrightforacentralbanktoopposea
slideintheexchangerate,therebyimposingexcessively
highinterestrates?
2.4.2.TheSectionwelcomesthedecisiontakenby
theFinanceMinistersandCentralBankGovernorsat
Koldingon21May1993oncloserjointmonitoringof
economicandmonetarypolicytomakeitpossibleto
examinetheneedforrealignmentsingoodtime.This
stillapplieswithwiderfluctuationbands.TheEuro­
peanMonetaryInstitute(EMI),whichisduetostart
workinJanuary1994,hasanimportantroletoplayin
thisrespect.arypolicy.MostMemberStatesendorsedtheMaas­
trichtTreatybecauseofthisconfidenceinthestability
ofaEuropeancurrency.Thismakestheinflationrate
criterionparticularlyimportant,eventhoughitisonly
arelativestandard,basedontheperformanceofthose
MemberStateswiththelowestinflationratesatany
givenmoment.
2.3.5.Discussionsaboutreducingbudgetdeficitsand
consolidatinggovernmentdebtshouldnothoweverbe
reducedtoasimplereferencetothetworelevantcon­
vergencecriteriainthefieldofbudgetpolicy[Fifth
ProtocolandArticle104(c)oftheMaastrichtTreaty].
2.3.5.1.Themostimportantquestiononbudgetary
policyisthatofthestructuralproblemswhichresulted
fromcarefreepublicspendingduringtheboomyears(1).
Thelevelofexpenditureincurredduringthoseyears
cannotnowbesustainedinthecontextofacompetitive
worldeconomy.Thisistruenotonlyofsocialspending
butitalsoappliestootherareassuchasindustrialand
agriculturalpolicy,andtotheexpansionofspending
onpublic-sectoradministration .
2.3.5.2.Thestructuralproblemsofcentralbudgets
eventhrowupthequestionofhowfar,underthegiven
circumstances ,publicexpenditurecanactuallybring
downunemployment ,whichisalsotosomeextent
generatedbystructuralfactors.
2.3.5.3.Thecostofservicinggovernmentdebthas
risenbyseveralpercentagepointsonaveragethrough­
outtheCommunityinthelastfewyears.Irrespective
ofconvergencecriteriainthemonetarypolicysector,
thisisinitselfadangerousdevelopmentforwhicha
solutionhastobefound.2.4.3.Itisthereforeregrettablethatadecisionon
thelocationoftheEMIandonitsPresidentwasdelayed
untiltheEuropeanCouncilmeetingofOctober1993.
Thedelayintakingthisimportantdecisionhasitself
contributedtouncertaintiesontheforeignexchange
markets.
2.4.4.Anopen,reciprocalflowofinformationon
exchange-rate policyasrecommended bytheCom­
mitteeofGovernorsoftheCentralBanksoftheMem­
berStates,isneeded.Evengivenwiderfluctuation
bands,exchangeratepolicyremainsamatterofcom­
moninterest,astheEECTreatyArticle107states.A
priorreciprocalflowofinformationonexchange-rate
policywouldhelptopreventcompetitivedevaluation .
EMScooperation ,andconvergencetowardsthecon­
ditionsformonetaryunioninthetransitionalstage,
wouldbeseriouslyhamperedifthereweretobeeven
ahintofthekindof'beggarmyneighbour'policies
seeninthe1920s,whenindividualcountriessoughta
competitiveadvantagefortheirexportsbydevaluing
theircurrencies .2.4.Monetarypolicy
2.4.1.TheSectionconcurswiththeviewexpressed
inthesecondAnnualReportoftheCommitteeof
GovernorsoftheECCentralBanksthatEMSparity
changesmustremainpossibleduringthetransitional
stageofEMUintheeventofseriouseconomicimbal­
ances.
2.4.1.1.Butparitychangesalonearenotenough;
theymustbebackedupbystabilizationmeasures.Only
ifthishappenscantherebyanyguaranteethatthe
EuropeanMonetarySystemwillonceagaincometobe
regardedasanareaofrelativestability,
2.4.1.2.Thedisciplineimposedbytheexchange-rate
mechanismoftheEMShasinsomeECcountriesled
toadjustmentsininflationrates,productivity ,aswell
asproductionandlabourcosts,nothoweverininterest2.4.5.Thescopeforstillclosermonetarycooper­
ationfromJanuary1994onwardsundertheaegisofthe
EuropeanMonetaryInstituteshouldbefullyexploited.
Thiswillrequirethepreparationofacommonmonet­
arypolicyanduniformpolicymachineryformonetary
union.TheparticipationofalltheCentralBanksinthis
closercooperationandinpavingthewayformonetary
unionwouldbethebestwayofensuringthatasmany
MemberStatesaspossiblejoinmonetaryunionfrom
theoutsetandthatotherswillsoonflow.
2.4,6.Itwouldbeamistakeforahandfulof
countriestoformasortofmini-monetary uniononthe
basisofseparateintergovernmental agreementsoutside
thescopeoftheMaastrichtTreaty.Seriouslyplanning
forsuchastepwouldsplittheECandpossiblyeven(!)Cf.ESCOpinionontheAnnualEconomicReportfor1993
(CES1011/93,points2.2.1and3.1.2).

NoC34/34 OfficialJournaloftheEuropeanCommunities 2.2.94
necessitatetherenegotiationofa—different—EMU:
insteaditisimportanttoadheretotheprinciplethat
EMU,asagreedonintheMaastrichtTreaty,should
beopentoallMemberStatesonanequalfooting,
includingthoseEFTAcountriesjoiningtheCommunity
overthenextfewyears.
2.4.7.UnderArticles109gandhoftheMaastricht
Treaty,theEconomicsandFinanceMinistersandthe
EuropeanCouncilwilldecidewhichMemberStates
willparticipateinEMUfromthestart.Thisdecision
shouldnotdiscouragethejointeffortstoachievean
EMUembracingalltheMemberStates.AnEMUwithinitiallylimitedmembershipshouldencouragetheother
MemberStatestoconvergeandtojoinEMUthemselves
beforelong.Initstime,theEECitselfdemonstrated
thefeasibilityofaneconomiccommunity,whichsix
othercountriessubsequently joined.Similarly,the
InternalMarketandtheprospectofEMUhaveencour­
agedtheremainingEFTAcountriestoapplyforEC
membership .
2.4.8.Overthenextfewyearsitwillbecrucialfor
theMemberStatestocombinetheireffortstoreduce
unemployment andendtherecession,withouthowever
renouncingeconomicconvergenceinpreparationfor
EMU.
DoneatBrussels,24November1993.
TheChairman
oftheEconomicandSocialCommittee
SusanneTIEMANN