A4-0374/96

Resolution on the impact of monetary policies on the real economy, inflation, interest rates, growth and employment in the third stage of EMU, and the economic function of convergence criteria

The European Parliament,

- having regard to its resolutions of 27 October 1993 on EMS plus 1992 Programme: Lessons to be drawn for the Implementation of EMU ((OJ C 315 of 22.11.1993, pp. 91-94.)), 15 December 1993 on the independence of the national central banks in the context of the second and third stages of EMU ((OJ C 20 of 24.1.1994, pp. 97-98.)), 25 October 1995 on the Commission Green Paper on the practical arrangements for the introduction of the single currency ((OJ C 308 of 20.11.1995, pp. 54-57.)) and 30 November 1995 on economic and monetary union ((OJ C 339 of 18.12.1995, pp. 65-66.)),

- having regard to Rule 148 of its Rules of Procedure,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0374/96),

A. whereas the fundamental issues relating to the centralised monetary policy in stage three of EMU are:

(a) the planning, internal structure, decision-making procedures and objectives of the ECB,

(b) the potential role of the ECB in influencing the rate of GDP growth in the medium-term or the risk of recession,

(c) the coordination of a centralised monetary policy pursued by a single monetary authority, the ECB, and the decentralised economic policies conceived and implemented by the governments of at least fifteen Member States,

(d) the coordination of a centralised monetary policy implemented by a single authority and an exchange rate policy consisting of an exchange rate arrangement with third countries, the adoption of common positions by fifteen governments and the as yet undefined representation of the EU in international bodies,

B. whereas the institutional structure of EMU reflects what monetary policy can and cannot achieve, namely a stability-oriented monetary policy using an intermediate policy target - such as a money supply target - which leaves the following questions to be addressed:

(a) how to maximize the benefits of independence in monetary policy by better coordinating the fiscal policies of the Member States;

(b) how best to achieve a situation where the policy of an independent monetary authority pursuing the primary objective of price stability and the policies of decentralized fiscal authorities pursuing the primary objective of growth reinforce each other mutually;

(c) what are the policy consequences of the independent monetary authority also co-determining exchange rate policy;

C. whereas it is in the manifest interest of the European Union that the Euro achieve reserve currency status; whereas reserve currency status will depend upon the share of the volume of world trade of the Euro 'group' of countries and upon the stability of the Euro, and whereas an optimal balance has therefore to be sought between the trade-enhancing effect and the stability effect of the Euro,

D. whereas the principles of legitimacy, transparency and accountability are indispensable elements of an appropriate institutional arrangement for EMU, ensuring thus central bank independence,

E. whereas the political, legal and economic independence of the ECB is guaranteed by Article 109b of the EC Treaty and Article 15 of the ECB statute, yet it has meant that:

(a) the business cycle due to election considerations is not an available political option,

(b) the capacity of national governments to finance new expenditure without raising taxes or reducing other expenditure will be limited,

(c) the capacity of national governments to alleviate the burden of national debt by inflationary practices will not apply,

F. whereas the independence of the ECB as well as that of the national central banks of the Member States are guaranteed by the EC Treaty (Article 107),

G. whereas coordination of a single monetary policy with decentralised fiscal policies should be assured by secondary Community legislation, independence of the ECB should be strengthened by the appropriate framework of accountability reassuring the public of the ECB's mission to serve the public at large, prudential supervision should be reconsidered and be strengthened, and the international aspects of EMU should be seen as contributing towards a new world monetary order,

1. Underlines the necessity to realize EMU under the conditions of the Treaty on European Union and within the calendar, in order to reach an appropriate policy mix supporting the real economy, with a view to raising the confidence of economic operators and to employment-intensive investment and growth;

2. Believes that, while preparing the third stage of EMU and prior to deciding the monetary instruments with which the single monetary policy will be implemented, the principle 'what monetary policy can or cannot achieve' should be reconsidered by taking account of:

(a) the serious structural changes in capital and finance markets brought about by deregulation, information technology and greater economic interdependence,

(b) the process of 'disintermediation' where lenders and borrowers come together without making use of financial intermediaries,

(c) the need for an appropriate institutional arrangement that would ensure coordination of policies, strengthen the independence of the ECB via democratic legitimacy and render the appointment of members to the Economic and Financial Committee more accountable;

3. Insists on the need to improve the policy mix between centralized monetary policy and decentralized economic, employment and fiscal policies in order to contribute to growth and employment, and therefore calls for more policy coordination, being necessary for an optimum policy mix; calls in this respect for integrated structural policies as proposed in the Delors White Paper and for them to be expanded;

4. Is of the opinion that monetary policy cannot work in a fiscal or institutional vacuum, nor can it be freed from external influences and constraints, which implies a fine balance between monetary, fiscal and exchange rate policies; hence the financial, institutional and economic context would influence the effectiveness of the monetary policy; in such a context, monetary policy and credit allocation would mainly determine the rate of interest and consequently the accumulation of capital; it may influence the rate of private saving and investment and thus change the distribution of income and wealth as well as the incidence of taxation;

5. Is of the opinion that to prevent the danger posed by implementing a Union monetary policy in the absence of any real fiscal policy at the same level, there is a need to create the instruments for implementing a proper public spending policy for the Union, which will require gradually increasing the level of the Union budget, so that the Union is in a position to finance a series of policies for which it is already formally responsible but which cannot be effectively developed owing to the shortage of budgetary funds;

6. Repeats its view that, in any event, the move to the third phase of Monetary Union and development of the common monetary policy must be accompanied by increasingly close coordination of the economic policies of the Member States;

7. Is convinced that the interdependence of monetary policy and fiscal policies necessitates a strengthening of the application of Article 103 of the EC Treaty on the broad guidelines of economic policies but also the setting of detailed rules for the multilateral surveillance procedure; calls therefore on the Commission to submit the appropriate proposal as stipulated in Article 103(5);

8. Insists that the abovementioned proposal should be based on the logic of recitals B, C and G, and be geared to the attainment of the core principles stated in Article 2 of the EC Treaty;

9. Maintains its view that democracy and economic liberty give essence to the case for ECB independence; yet independence cannot be maintained unless it is based on democratic legitimacy, public support and transparency, in short accountability; believes therefore that independence and accountability are mutually interdependent and reinforcing;

10. Finds the Treaty provisions relating to independence of the ECB strong, but those relating to accountability timid; calls for the democratic accountability of the ECB, which should report to Parliament's committee and plenary on a regular basis and disclose the reasons for monetary policy decisions, and exprects to receive continuous, appropriate information;

11. Proposes therefore that an interinstitutional agreement be concluded between the European Parliament, the Council and the Commission in order to render the procedure of appointment of the Executive Board of the ECB and of the members of the Economic and Financial Committee transparent and democratically legitimate; the interinstitutional agreement would seek to clarify Article 109a(2) on the appointment of the ECB Executive Board, Article 109b(3) on the ECB annual report and Article 109c(2) and (3) on the appointment of the members and the composition of the said Committee;

12. Repeats its view that the monetary policies of the Member States during the process of convergence will have to take account of the need to offset the effects of contraction resulting from budgetary consolidation, and bearing this in mind, draws attention to the need for the Commission and the EMI, in their respective reports called for in Article 109j(1), to acknowledge the indicators stipulated in the said paragraph and, in particular, the following:

(a) the gross fixed capital formation and investment patterns,

(b) the development of unit labour costs,

(c) the balance of current account,

(d) the unemployment rate,

(e) the progress in the completion of the internal market;

13. Expresses its confidence that implementation of the single currency will have a positive effect, in so far as a climate of price stability and lower interest rates will prevail; this will create better conditions for public and private investment (with regard to both the volume and the purpose of investment decisions) and will accordingly have a positive impact on growth and employment;

14. Requests the Commission and the EMI to present to Parliament and the Council a report on whether the Treaty provisions (Article 105(5) and (6) and ECB Statute (Article 25)) concerning prudential supervision of credit institutions are apt to face the external shocks originating in global financial markets, the blurred separation between traditional banking and securities business and insurance, and the changing nature of the risks facing financial intermediaries;

15. Instructs its President to forward this resolution to the Council, the Commission, the European Monetary Institute and the parliaments of the Member States.