A4-0180/96

Resolution on the Annual Report 1995 of the European Monetary Institute (EMI)

The European Parliament,

- having regard to the EC Treaty and, in particular, Article 109f thereof,

- having regard to Protocol No 4 to the aforementioned Treaty, on the Statute of the EMI,

- having regard to the Annual Report 1995 of the EMI which was prepared and addressed to the European Parliament and other bodies pursuant to Article 11.3 of its Statute (C4-0228/96),

- having regard to the hearing of the President of the EMI at the meeting of the Subcommittee on Monetary Affairs of Parliament's Committee on Economic and Monetary Affairs and Industrial Policy held on 15 April 1996,

- having regard to the EMI report on 'The changeover to the single currency¨ published in November 1995,

- having regard to the EMI report 'Progress towards convergence¨ published in November 1995,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A4-0180/96),

A. whereas the Annual Report 1995 of the EMI firstly analyses the economic,monetary and financial conditions in the European Union; whereas it then gives an overview over the preparatory work for Stage Three and, finally, it considers other tasks of the EMI,

B. whereas the broad analysis of the economic situation and perspectives does not provide significantly new information to the Commission's Annual Economic Report for 1996, while there are some contradictions between the two institutions' explanations of the current economic downturn, in particular as regards the impact of depressed consumer and business confidence,

C. whereas while a general decline in inflation has been achieved due to the concentration of monetary policies of the Member States on price stability as a primary objective, the economic downturn has been caused partly by a lack of coordination between insufficiently responsive monetary policies and tight fiscal policies throughout the EU, as has also been recognised in the Commission's Annual Economic Report for 1996,

D. whereas progress in the convergence of long-term interest rates has been encouraging, the rates being lower than in 1994, while short-term interest rates have been kept too high to act strongly enough against the slowdown in economic growth,

E. whereas exchange rate tensions, after some episodes of turbulence mainly in the spring of 1995 due to the US-Dollar's weakness following the Mexican crisis, have calmed down towards the end of the year,

F. whereas fiscal consolidation remains a crucial issue, the overall public sector deficit in the European Union in 1995 being at 4.7 % of gross domestic product and the general government gross debt being at 71 % of GDP, implying upward pressure on long-term interest rates and undermining exchange rate stability,

G. whereas according to the literature given by the EMI, fiscal consolidation is more likely in the short run - under the following conditions - to generate expansionary effects:

- the higher the perceived risk of a 'hard landing¨ scenario,

- the more the consolidation is based on cuts in current expenditure rather than on tax increases,

- the lower the reduction in productive expenditure,

- the greater the role of permanent measures,

- the more decisive the action,

H. whereas the EMI report mentions the important matter of the ageing of the population without analysing its impact on aggregate demmand and on income distribution,

I. whereas the proper definition of monetary policy, being central banks actions to affect monetary and fiscal conditions in pursuit of broader policy objectives as stipulated in Article 105 of the EC Treaty, for which the EMI is responsible for its preparation,

J. whereas the EMI has made further progress in the preparatory work for Stage Three in the areas of monetary policy, foreign exchange policy statistics, payment systems, issuing banknotes, accounting rules and standards and information systems,

K. whereas the EMI has so far not reached any conclusion as to whether the monetary policy in the EMU should follow the monetary targeting approach or an inflation targeting strategy,

L. whereas the basic set of monetary instruments agreed on by the EMI Council consists of standing facilities, a deposit facility and several open market instruments,

M. whereas as far as reserve requirements are concerned, agreement has been reached to pursue preparatory work in this field,

1. Welcomes the Annual Report of 1995 of the EMI as a useful and comprehensive document on the state of the preparation for the EMU;

2. Regrets that the European Parliament has only received the the EMI report at a fairly late stage and suggests that advance copies of the future EMI annual reports be forwarded to the European Parliament as soon as possible before the publication to ensure an intense and thorough discussion; in this respect welcomes the proposal made by President Lamfalussy to the European Parliament to issue half-year reports on the work done by the EMI on the above-mentioned tasks and on any other preparatory work it may be involved in in the future, which will contribute to rendering the EMI's activities more transparent;

3. Shares the EMI's view that 1996 is a decisive year for EMU, especially in view of the regulatory, organizational and logistical framework necessary for the ESCB to perform its tasks in the Third Stage, which the EMI is supposed to specify at the latest 31 December 1996 according to Article 109f of the EC Treaty;

4. Calls therefore on the EMI to present a respective specification as early as possible in order to allow an intensive discussion on the matter;

5. Calls on the EMI to ensure that the preparation of the instruments and procedures to conduct a single foreign exchange policy is accomplished by 31 December 1996 as laid down in Article 4.2 of the Statute of the EMI and to ensure closer cooperation with the other European institutions while fulfilling this task as well as the other tasks called for in Article 4.2;

6. Believes that the framework provided by Maastricht should be used more fully by the EMI in the interest of a more active role for the coordination of the EU Member States' monetary policy;

7. Urges that the cooperation and relations of the EMI with the respective international financial institutions must be stepped up as soon as possible, to ensure the efficient work of the future ECB in this field;

8. Points out that, while fiscal consolidation has to be viewed as a necessary condition for monetary union and sustainable economic policy making, this should not be at the expense of public and private investment in infrastructure and in human capital;

9. Calls on the EMI to adhere in 1996 to the timetable set out in the Treaty and to carry out in a precise, comprehensive and detailed manner its evaluation of whether a majority of the Member States fulfil the convergence criteria, setting out its interpretation of the existing evaluation criteria so as to provide a basis for further consultations in the European Parliament, the ECOFIN Council and the European Council;

10. Stresses the need for a balanced policy mix;

11. Wishes to be informed at the earliest opportunity of the results of the EMI's work on the monetary and exchange rate policy cooperation between the euro area and other EU countries, a subject which is only marginally treated in this report;

12. Affirms that the participation of all EU currencies in the European ERM is a necessary condition for safeguarding the proper functioning of the single market and for the transition to the EMU;

13. Calls for the next EMI annual report to contain a detailed analysis and evaluation of the effects of exchange rate fluctuations on trade, investment, growth and employment from both a micro-economic and a macro- economic perspective;

14. Calls on the EMI to pursue further its exchange of information and dialogue with the European Parliament, in order to promote the democratic accountability of the monetary institutions;

15. Stresses that as far as the production of Euro banknotes, due in 1998, is concerned, the public must be involved in the preparation process in order to guarantee the acceptance of the banknotes and considers a close cooperation with the information campaign in this field as very helpful; points out however that early circulation or publication of the chosen designs is undesirable if one wants to avoid counterfeiting before full introduction of the new notes (as has occured in some Member States in the recent past);

16. Calls on those Member States which have not yet made the requisite institutional adjustments to take the appropriate legal measures forthwith to ensure the independence of all the national central banks as soon as possible before the third stage of EMU;

17. Stresses the need to avoid the infringements of the prohibition in Articles 104 and 104a EC on monetary financing and privileged access which occurred in 1995, albeit not on a very large scale;

18. Welcomes, in view of its resolution of 22 September 1995 on Derivatives ((OJ C 269, 16.10.1995, p. 217.)), the EMI's work in the field of banking supervision and especially in the field of evaluating the adequacy of internal control procedures, and thereby stressing the need for general application of the most stringent and effective internal control procedures as possible;

19. Instructs its President to forward this resolution to the Council, the Commission, the EMI, the Governors of the Member States' central banks and to the governments and parliaments of the Member States.