A4-0186/96

Resolution on the interim report by the Commission to the European Council on the exchange rate relations between the Member states taking part in the third stage of Economic and Monetary Union and the remaining Member States (CSE(95)2108 - C4-0308/96)

The European Parliament,

- having regard to the Treaty on European Union,

- having regard to the interim report by the Commission to the Madrid European Council on exchange rate relations between those Member States taking part in the third stage of Economic and Monetary Union and the remaining Member States (CSE(95)2108 - C4-0308/96),

- having regard to the conclusions of the Madrid European Council of 15 and 16 December 1995,

- having regard to the informal ECOFIN Council meeting held in Verona on 12 and 13 April 1996,

- having regard to its resolution of 25 October 1995 on the Green Paper ((OJ C 308, 20.11.1995, p. 54.)),

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0186/96),

A. having regard to the irreversible nature of the entry into force of Monetary Union on 1 January 1999, which will enable the European Central Bank and the European System of Central Banks to begin to exercise their responsibilities to the full from that date, and whereas that entry into force was confirmed at the Madrid European Council on 15 and 16 December 1995,

B. whereas, on 1 January 1999, it is probable that only some Member States, the hard currency countries, will make the transition to the third stage of Monetary Union and will be involved in the establishment of the European Central Bank,

C. whereas the Treaty made explicit provision for the situation of Member States not meeting the conditions for the adoption of the single currency, terming them 'Member States to which a derogation applies', and whereas, further, due account must be taken of the provisions concerning the United Kingdom laid down in Protocol 11 and those concerning Denmark laid down in Protocol 12,

D. whereas Denmark has indicated its intention to exercise its right of non- participation in the third stage of EMU, and whereas a UK decision on participation is pending,

E. whereas, until such time as all the European Union Member States have joined the euro area, the smooth functioning of the internal market will be threatened by currency upheavals and difficulties, and whereas it will therefore be necessary to establish institutional cooperation as regards monetary and exchange rate policy, principally by providing a framework for relations between the single currency and the currencies of the Member States with a derogation,

F. whereas, further, the relations which will emerge between the euro area and the other Union currencies must be based on a model which will not jeopardize the stability and credibility of the euro and at the same time ensure genuine monetary solidarity vis-à-vis the other currencies with a view to their subsequent participation in the euro area,

G. whereas the European Parliament, in its resolution of 30 November 1995 on Economic and Monetary Union ((OJ C 339, 18.12.1995, p. 65.)), called for a common European Monetary System to continue during the third stage - i.e. following the entry into force of Monetary Union - with the single currency anchoring the Union currencies not forming part of the euro area from the outset,

H. whereas the Madrid European Council called for future relations between the Member States belonging to the euro area and those not forming part of that area from the outset to be laid down before the transition to the third stage of EMU,

I. whereas the Heads of State or Government have called on the Council, the Commission and the European Monetary Institute to examine, in their respective areas of responsibility, the questions raised by the fact that some Member States may not belong to the euro area from the outset; this examination should focus, although not exclusively, on questions relating to monetary stability,

J. having regard to the broad consensus reached at the informal ECOFIN Council meeting held in Verona on 12 and 13 April 1996 on the guiding principles for the establishment of a new exchange rate mechanism in the European Monetary System when the single currency is adopted,

K. whereas consideration should be given now to the monetary system of the Union with a view to future accessions,

L. whereas due care should be taken to safeguard economies to which a derogation applies from unjustified speculation shocks,

M. whereas Economic and Monetary Union is being implemented with due regard for the objectives of the Treaty on European Union, namely harmonious and balanced economic progress, sustained growth, a high level of employment and a high standard of social protection,

1. Takes the view that the situation which will result in the early days of Monetary Union from the coexistence of a euro area and the currencies of those Member States which have not yet adopted the single currency, and whose exchange rates may therefore fluctuate, might lead to distortions of competition whose consequences, in terms of competitiveness and trade flows, might hamper the smooth functioning of the internal market and thus have an adverse impact on overall growth in the Union;

2. Expresses concern that such a situation may lead to calls for new obstacles to trade within the Union; stresses that any such move should be resisted since it would lead to the gradual disintegration of the single market;

3. Reiterates, therefore, the need for the European Union to have, from the moment when the single currency is introduced, a monetary organization which can guarantee the credibility of the euro and the stability of exchange rates with the currencies of the other Member States with a view to their speedy integration into the single currency;

4. Emphasizes, in that connection, the importance of monetary relations which are as stable as possible between the countries participating and those not yet participating in the single currency (stability being understood as oriented towards stable real exchange rates rather than nominal exchange rates), relations which will be feasible only if the European Union Member States all pursue a credible and sound economic, financial and monetary policy and if, in accordance with the Treaty, they deal with their exchange rate policies as a joint problem;

5. Points out that exchange rate stability hinges primarily on the long-term credibility of the economic and budgetary policy pursued by the Member States; recalls, once again, that exchange rate stability also depends largely on the relations and conduct of the European Union's partners throughout the world;

6. Emphasizes, therefore, the importance of applying the Union's economic policy instruments, in particular multilateral surveillance, the excessive deficit procedure and convergence policy;

7. Regards it as essential, therefore, particularly for those Member States participating in the euro, to develop from the start of Monetary Union the doctrine of stability which is already fundamental to the Treaty on the basis of the convergence criteria, in order to deal with all short-term economic developments without endangering monetary stability; stresses, however, that any such development must be based on a differentiated approach to public spending, with a clear distinction being made between current expenditure and investment expenditure;

8. Calls, nevertheless, for efforts also to be made to ensure that, after the introduction of Monetary Union, the Member States which do not yet form part of the euro area do not find themselves in an unfavourable position with regard to the assessment of compliance with the convergence criteria and regards it as essential that these states should receive support for the efforts they make with a view to achieving subsequent full participation in the euro;

9. Reiterates the demand formulated in its aforementioned resolution of 30 November 1995 for a new European monetary system in the third stage -i.e. on the entry into force of Monetary Union - with the single currency as an anchor for those currencies of the Union which do not participate in the euro area from the outset; considers that this system must take into account experience acquired with the EMS to date and must be simple, transparent and flexible and have broad margins of fluctuation fixed by collective decision, without ruling out the possibility that those Member States which so desire may fix narrower margins; considers furthermore that provision must be made for intervention mechanisms aimed at neutralizing speculative pressure;

10. Takes the view that the European Central Bank should have the right to trigger negotiations aimed at facilitating prompt and flexible realignments in order to guarantee the smooth functioning of the system;

11. Suggests that, in order to distinguish it clearly from the existing exchange rate mechanism, the new system should be given a name which highlights its distinctive characteristics; this name should make clear the purpose of the new system and should be readily comprehensible rather than technical;

12. Calls for exchange rate cooperation, regardless of the precise technical arrangements adopted for this mechanism, to be based on stability, credibility, flexibility and transparency and to guarantee monetary solidarity among the Member States;

13. Is of the opinion that the extensive powers of the ECB should be balanced by the obligation of democratic accountability, without, however, the ECB's independence being challenged. Democratic accountability will be achieved with the aid of the consultation mechanism enshrined in the Treaty, central to which is the European Parliament;

14. Takes the view that the intervention mechanism in support of currencies experiencing difficulties, which gives practical expression to the concept of monetary solidarity, must be designed in such a way that intervention measures are automatic when a currency reaches its fluctuation margin and possible before it does so, provided that such measures are justified by fundamental economic factors and that their volume does not run counter to the objective assigned to the ESCB of achieving price stability; takes the view that the new exchange rate system should include an asymmetrical intervention mechanism, with intra-marginal interventions not being excluded;

15. Calls on the Commission to devise new instruments capable of strengthening economic convergence, supporting the efforts made by the Member States and thus speeding up their integration into the euro area taking fully into account respective levels of economic development as well as the specific problems of each economy;

16. Points out, also, that the Member States not yet participating will be involved in the work of the General Council of the European Central Bank, which will contribute to the preliminary work needed to keep exchange rates in the European Union as stable as possible;

17. Regards it as essential that the guidelines both for the strengthening of convergence and for the future exchange rate mechanism should be drawn up before the end of 1996 in order to ensure that the preparatory work for the transition to EMU is fully credible and consistent;

18. Notes, further, that the adoption of the single currency will have consequences for the Community budget and financial relations between the Union and the Member States, since the beginning of the third stage will see the replacement of the basket ECU by the euro;

19. Takes the view, in particular, that very careful analysis is required of the consequences of the presentation of the Community budget in euro, which will take effect as from 1 January 1999, particularly as regards its implementation;

20. Is convinced that the Member States, supported by the European Union, will make all the efforts needed to ensure that a majority of them form part of the euro area when euro banknotes come into circulation on 1 January 2002;

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