A4-0338/97

Resolution on the Commission's working paper on external aspects of economic and monetary union (SEC(97)0803 - C4-0265/97)

The European Parliament,

- having regard to the Commission's working paper (SEC(97)0803 - C4-0265/97),

- having regard to Article 109 of the EC Treaty,

- having regard to the Presidency Conclusions of the June 1997 Amsterdam European Council,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinion of the Committee on External Economic Relations (A4-0338/97),

A. whereas the degree of internationalisation of a currency depends on its acceptance at home and abroad as a means of payment, a unit of account and a store of value,

B. whereas the introduction of the single currency will complete the creation of the world's largest unified market, with a degree of openness higher than that of the United States and Japan (share of exports of EU GDP 15.1% compared to 11.9% for US and 10.6% for Japan), albeit much lower than the present values for individual Member States (which average 29.2%),

C. whereas the single currency will create one of the world's largest financial markets, with a trend towards the elimination of e.g. 10-year government bond yield disparities,

D. whereas the global position of the euro, as an international transactions currency and as an official reserve currency, will depend on the one hand on the size, strength, stability, openness, and associated volume of global trade of the underlying economy - all these being factors which emerge automatically from the simple adding-up of the existing magnitudes of plausible EMU members - and on the other hand on the breadth, depth, and liquidity of the euro capital markets, which will have to be developed after the inauguration of the monetary union,

E. whereas, given that the other determining factors already exist, albeit in a dispersed order at the moment, the global position of the euro crucially depends on the consolidation of an integrated euro capital market possessing the above characteristics,

F. whereas the consolidation of such a market on a European scale presupposes efforts by both private banking and securities companies and by public regulatory authorities in the area of interconnection and interoperability among the existing capital markets in Europe,

G. whereas the single currency will reinforce the trend towards the synchronisation of economic cycles, because of the convergence criteria for accession to the single currency zone and because of the stability-oriented policies that the European Central Bank (ECB) and the Member States will be committed to following, and whereas the single currency will for this reason be less susceptible to exchange rate fluctuations,

H. whereas in the period immediately after its introduction, the euro may be subject to exchange rate instability owing to the unpredictable behaviour of worldwide institutional investors:

- whereas there is the risk that this period of instability will last for some considerable time, because the disappearance of the volatility of intra-European exchange rates will probably be offset by increased volatility in the exchange rate of the euro,

- whereas the euro must have a high degree of credibility in order to deal with this risk,

- whereas such credibility is based on compliance with the convergence criteria laid down in the Treaty, on compliance with the rules established by the stability and growth pact, and also on the firm institutional commitment of the ECB to price stability,

- whereas it is therefore unnecessary for the ECB to pursue an unduly restrictive monetary policy in order to ensure the credibility of the euro,

I. whereas in the longer term the exchange rate of the euro will depend on fundamental economic factors (growth, inflation, the balance of payments and the state of public finances) and expectations about the development in these factors, in the Union but also in the other major currency zones, especially the dollar zone,

J. whereas it is therefore very important that the exchange rate of the euro with the dollar and the yen be maintained at a level corresponding to a long- term fundamental balance, without triggering recessionary effects (owing to too high a rate) or inflationary effects (owing to too low a rate),

K. whereas this precludes competitive policies of manipulation of the exchange rate by the EMU, but equally rules out 'benign neglect' with respect to disturbances caused by external agents or events; and whereas in practice, in the absence of any systematic international coordination, such disturbances arise continually,

L. whereas the foregoing poses the problem of responsibilities for the necessary corrective interventions, it being evident that short-run fluctuations should be dealt with by the ECB whilst longer-lasting misalignments are the overall political responsibility of the Union,

M. whereas Article 109 of the EC Treaty provides only very vague prescripts for how a euro exchange rate policy should be formed, concentrating on the procedures for entering into exchange rate systems with non-Community countries and empowering the Council - acting by a qualified majority and after consulting the ECB but not the European Parliament - to formulate general orientations for exchange rate policy without detailing specific responsibilities,

N. whereas, in order to be fully effective, the monetary policy underlying exchange rate policy requires the fiscal policies of the countries belonging to EMU to be coordinated;

1. Welcomes the Commission document which provides a useful overview of the external aspects of the single currency;

2. Holds that the external value of the euro must necessarily be linked with the basic objective of stability of its internal value, which is the primary mission of the European Central Bank;

3. Notes the desirability, once the convergence criteria set by the Treaty on European Union and the subsequent budgetary policy rules introduced by the stability and growth pact have been complied with, of a monetary policy aimed at moderating long-term interest rates so as to encourage, from the start of the transition period stretching from the introduction of the euro to its consolidation, an exchange rate for the euro that is not overvalued vis-à-vis the dollar;

4. Considers that in general the ECB, in order to maintain an exchange rate with the dollar which reflects the relations between economic fundamentals (see recital J) as accurately as possible, should avoid interventions designed to manipulate the exchange rate for competitive purposes, but that it should, on the other hand, intervene to deal with occasional turbulence using normal monetary policy instruments;

5. Declares the necessity, in case of more substantial exchange rate disturbances caused by the monetary policies of our partners or by exogenous events, for the requisite measures in response to engage the general economic responsibility of the Union; this should include, in particular, in addition to the competence of the Council of Ministers, the exercise of a right of initiative on the part of the Commission;

6. Calls, therefore, on the Council and the Commission, in cooperation with the European Monetary Institute and after consulting the European Parliament, to examine the complex subject-matter of Article 109 of the EC Treaty with a view to reinterpreting it in unambiguous terms and, in particular, recommends more effective, streamlined procedures to be laid down to enable the Ecofin Council to exercise its key responsibilities for exchange rate policy;

7. Calls on the Commission to evaluate the dollar reserves that might be considered to be in excess of the amount required to protect the currency, and to produce ideas as to how such excess reserves may be used;

8. Requests that the Commission, in the context of the Single Market, speeds up measures to harmonize fiscal obligations, regulatory practices and financial instruments among the various European capital markets, so that they can start functioning as an integrated single market in the shortest possible timescale;

9. Calls on the Government of the United Kingdom to give proper weight to the consideration of the benefits of a unified European capital market, including the City of London, when taking the decision whether to join the European single currency and to facilitate moves by the British financial sector to prepare for the closest possible cooperation with the euro area pending the final decision of the UK government on the matter of euro membership;

10. Requests the governments of the Member States which will participate in the euro to consider converting into euros the whole stock of their respective public debt as soon as possible after the introduction of the Single Currency;

11. Considers that Member States who might temporarily have to remain outside the initial EMU core group should be protected within EMS II - on the basis of appropriate agreements between ministers of finance and central bank presidents - from exchange rate turbulence caused by speculation or fluctuations in other currencies, and hence unconnected with the performance of those countries;

12. Hopes that the currencies of the Member States which do not currently belong to the EMS exchange rate agreements will join as soon as possible, not least in view of the launching of EMS II;

13. Hopes that EMU will contribute decisively to curbing the economically destabilizing effects of speculation by establishing a major world currency area and deterring all forms of competitive devaluation in worldwide economic relations;

14. Calls on the Council and the Commission to cooperate with the monetary authorities of the United States in the coordination of exchange rate policies with a view to promoting stability and deterring speculation;

15. Stresses that monetary union will help to dampen the destabilizing, deterrent effects on investment and employment of economically harmful speculation and, in the medium term, to establish ideas of target bands between the leading global currencies which in the long run will rule out currency dumping as a means of competition in worldwide economic relations;

16. Considers that the replacement of the present global monetary system with a bi- or tri-polar system consisting of the euro, the US dollar and perhaps the yen actually presents a unique opportunity for stabilization and cooperation and offers the European Union a new and particularly responsible role in the worldwide monetary system;

17. Calls therefore for urgent consideration to be given to a means of representation of the Union in the relevant international fora that will better reflect the Union's new status as one of the world's largest unified currency zones;

18. Instructs its President to forward this resolution to the Commission, the Council, the Council of the EMI and the governments and parliaments of the Member States.