A4-0053/96

Resolution on the strengthening of world monetary cooperation to ensure better regulation of monetary and financial markets

The European Parliament,

- having regard to the statement issued by the Group of Seven at their meeting in Halifax (Nova Scotia) from 15 to 17 June 1995,

- having regard to its resolution of 15 December 1993 on international monetary cooperation within the framework of the easing of restrictions on capital markets ((OJ C 20, 24.1.1994, p. 74.)),

- having regard to its resolution of 22 September 1995 on its recommendations to the Commission concerning a legislative proposal on financial derivatives: their present role on capital markets, their advantages and risks ((OJ C 269, 16.10.1995, p. 217.)),

- 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 (A4-0053/96),

A. whereas, following the collapse of the Bretton Woods system, the main structural changes within the international economy have been, inter alia, the rapid expansion and integration of international financial markets, the removal of restrictions on the movement of capital and the change from a system of fixed but adjustable exchange rates to a mixed system in which countries are free to choose the exchange-rate system they wish to apply,

B. noting that there is a trend towards the globalization of financial and capital markets on account of the deregulation of domestic financial markets, the liberalization of international capital movements, financial innovations and technological advances in data processing and telecommunications,

C. observing that the liberalization of capital movements progresses side by side with schemes, such as the Baker and Brady plans, for recycling capital into countries from which it fled,

D. recognizing that the liberalization of capital movements brings certain benefits for citizens and the economy since greater competition increases the efficiency of the financial system,

E. taking into account that derivative financial instruments, when properly used, may help enterprises to manage more effectively financial risks but may also, under certain conditions, increase such risks by reinforcing trends of cumulative instability in financial markets,

F. stressing that the trend towards financial market globalization has reduced the ability of governments to act in accordance with traditional economic policies; consequently governments should invent new cooperative policies and join forces to restore, on a global scale, their capacity of conscious control of the economic process lost on a national scale, as well as impose a measure of rational order on the elemental forces released by globalization,

G. whereas a globalized capital market, provided that it operates properly, exerts a disciplinary effect in that it encourages the implementation by governments of economic policies with a sound economic basis,

H. noting that, according to a recent OECD study, countries whose economic policies depart from the economic fundamentals are penalized by real interest rates which in the long term are higher,

I. noting, therefore, that, in accordance with the above study, countries with a large fiscal deficit, a large current account deficit or a tradition of high inflation are burdened by higher real interest rates,

J. whereas, if the global capital market penalizes governments which relax their economic policies by introducing higher interest rates, such governments will be more willing to implement policies in accordance with the economic fundamentals,

K. recognizing that the discipline imposed by the globalized market does not mean that the latter always operates properly since it may exercise its discipline erratically, with exaggerated short-term reactions which may have serious social and economic implications, which may extend into the long-run and turn into permanent distortions,

L. whereas, therefore, the role of governments should be to implement economic policies which prevent destabilizing market reactions and ensure that the markets are better informed, so that they are able to play their disciplinary role more effectively,

M. aware that the aim of government action should be to use the efficiency of the global capital market to ensure better implementation of sound economic policies, which in the long term would be to the benefit of businesses, workers, savers and pensioners,

N. whereas the German mark has the reputation of being a safe currency and whereas the consequence of the current weakness of the US dollar is that capital is invested in the mark, which leads to the appreciation thereof to the detriment of weaker currencies,

O. whereas the US dollar currently accounts for 60% of world currency reserves and approximately half of all private financial wealth, and whereas these figures do not correspond to the importance of the US economy, which accounts for only 20% of total production and 14% of world trade,

Cooperation in relation to economic policies

1. Stresses that, to this end, the authorities of the three main industrialized countries (United States, Japan and Germany) should avoid damaging inflationary or deflationary cycles, achieve sustainable positions as regards taxation and the current account balance and carry out appropriate structural reforms for this purpose;

2. Calls, therefore, for cooperation and coordination with regard to economic policy as part of an agreed regulatory policy which responds to the challenge posed by globalized markets, and supports an international economic council comparable to the UN Security Council which would create the necessary conditions for improved monetary cooperation;

3. Concludes that the objective of international monetary and financial cooperation will be to implement monetary and fiscal policies which, boosted by the globalization of the capital market, will lead to lower long-term interest rates and sustained economic growth;

Cooperation in relation to exchange rates

4. Notes that experience shows that case-by-case coordination of economic policy measures between the three major economies (United States, Japan and the European Union) without an institutional framework is politically impracticable since the governments concerned are not prepared to subordinate national economic policies to an international objective;

5. Stresses that a system of floating exchange rates may lead to a persistent medium- or long-term over- and undervaluation of exchange rates which, in turn, may cause genuine economic damage, and that such distortion may arise in cases where, over an extended period of time, the exchange rate moves away from a level which is compatible with the economic fundamentals or where the exchange rate reflects unsuitable or unsustainable policies;

6. Considers that, in the event of persistent over- and undervaluation between major currencies, exchange rates should be a principal objective of international political coordination, although the aim of such coordination is not to restrict exchange rates within fixed fluctuation bands;

7. Emphasizes that, where persistent exchange-rate over- and undervaluation is due to unsuitable and unsustainable policies on the part of governments, the pressure exerted through international coordination may help to redirect national policies along more appropriate lines;

8. Considers that official intervention as a means of currency market regulation will have only a limited impact unless the underlying economic fundamentals are sound;

9. Suggests that the current international monetary system based on the predominance of the US dollar should be developed into a system in which other currencies, including the single European currency, would have a more important role to play in international monetary cooperation;

10. Calls on the European Commission to submit a White Paper on

- the role of the EU, after the start of the third stage of EMU, in the IMF and World Bank,

- the financial support mechanism needed to provide for a system seeking to minimise the exchange rate fluctuations of the Euro, US dollar and the Yen within the IMF;

Cooperation in relation to external debt

11. Calls for international financial institutions with lending ability to take appropriate action to give developing countries, economies in transition and the poorest countries greater access to private international capital markets as a way of increasing the financial credibility thereof; debt relief and concessionary loans to Third World debtor-countries, to the extent justified by their level of income and lack of ability to pay, should form part of such measures;

Institutional cooperation framework

12. Agrees with the G7 countries that the best way of achieving exchange-rate stability is to implement fiscal and monetary policies in accordance with economic fundamentals and currency market cooperation by means of greater monitoring and coordinated responses;

13. Also agrees with the G7 countries that the prevention of financial crises should be a basic objective, for which reason only functioning, forward- looking analyses can help improve the early-warning indicators and thus international capacity for action in the event of crises;

14. Calls for this system to include better and more effective monitoring of national economic policies and developments on the financial markets and also a greater supply of such information to those operating on the markets;

15. Calls for the IMF to report twice a year on developments in financial and currency markets and to provide indications as to any area of economic policy in the three main industrialized countries in which coordination is defective and where such shortcomings are giving rise to undesirable trends on financial and currency markets;

16. Considers, however, that the G7 cooperation framework is restricted since it does not allow monitoring of the policies of emerging countries (which are of increasing importance in the world economy), economies in transition or the poorest countries;

17. Considers, therefore, that the multilateral monitoring procedure should be carried out by the IMF and that the prime objective of the procedure should be to improve the IMS by means of better economic policies and improved international coordination thereof;

18. Agrees with the conclusions of the 1994 UN report 'A Call to Action' by Ingvar Carlsson and Shridath Ramphal on the need for an international tax on currency transactions; calls therefore on the European Union to take steps within the UN to speed up the introduction of a global minimum tax on currency transactions;

19. Supports the reforms agreed on at the Halifax Summit by the G7, and, in particular, the following recommendations:

(a) to double the IMF's General Arrangements to Borrow in order to reinforce the means available for preventing Mexico-style crises,

(b) to develop concrete standards and safeguards for a more efficient regulatory cooperation intended to avoid the recurrence of Barings Bank- type collapses,

(c) to reform the multilateral development banks in order to demonstrate a clear commitment to poverty reduction,

(d) to establish within the IMF standard sets of data for the timely publication of key economic and financial data;

Calls upon the Commission to keep Parliament informed of the progress made in the implementation of the decisions taken at the Halifax Summit;

20. Requests the Commission to take action in support of strengthening the prudential regulation of derivative financial markets along the lines suggested in Parliament's abovementioned resolution of 22 September 1995;

21. Requests the Commission to investigate the possibility of introducing a tax on international speculative capital transfers and trading in derivatives (Tobin tax) in order to soften the destabilizing consequences of ever- growing international financial speculation;

22. Considers that cooperation between the central banks should be carried out under the auspices of the Bank for International Settlements in accordance with the example of the Basle Committee in the area of international banking supervision, the recommendations of which have been adopted by countries both inside and outside G10;

23. Considers that the European Union, particularly via the Commission and the future European Central Bank, should be a full member of all the above- mentioned international institutions and should be involved in the drawing up and taking of decisions;

24. Instructs its President to forward this resolution to the Council, the Commission and the European Monetary Institute.