EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

In 2019, France and the States of the West African Economic and Monetary Union (UEMOA) engaged in a discussion on the reform of their cooperation in exchange rate matters. Currently, their cooperation is based on a cooperation agreement of 4 December 1973 and a related guarantee agreement signed in 1973 and modified in 2005 and 2014. The purpose of this reform is to help modernise the UEMOA and to facilitate its progressive extension to other States of the Economic Community of West African States (CEDEAO).

The discussions between France and the States of the UEMOA regarding their existing cooperation have led to a common proposal for reforming the functioning of the UEMOA. The reform is premised on four axes. Firstly, a change to the name of the CFA franc in “ECO” somewhere in 2020. The second objective is to abolish the obligation for States of the UEMOA to centralise foreign reserves in an account of the French treasury; Thirdly, it concerns the withdrawal by France from decision-making bodies of UEMOA authorities. Fourthly, a parallel creation of a dialogue between the respective authorities and introduction of risk surveillance mechanisms takes place.

To make this reform concrete, France signed on 22 December 2019 a new cooperation agreement with its partners of the UEMOA, which is to replace the existing agreement of 4 December 1973 once it enters into force. This new agreement will be accompanied by a guarantee agreement to be concluded with the Central Bank of West African States (BCEAO). It is noted that the reform leaves the essential features of the existing cooperation in exchange rate matters between France and the States of the UEMOA unaffected. In particular, it concerns the maintenance of a convertibility between the euro and the CFA franc at a fixed parity supported by an unlimited and unconditional budget guarantee from France.

The existing and future cooperation agreement between France and the States of the UEMOA cannot be seen in isolation of Union law. Since the introduction of the euro, the Union has exclusive competence for monetary policy and exchange rate matters for Member States whose currency is the euro. France is a Member State whose currency is the euro since 1 January 1999. Pursuant to Article 2 TFEU, when the Treaties confer on the Union exclusive competence in a specific area, only the Union may legislate and adopt legally binding acts. The Member States are only able to do so themselves if so empowered by the Union. In accordance with Article 109(3) of the Treaty on the establishment of the European Community the Council authorised France in its Decision of 23 November 1998 (98/683/EC) to continue its present agreements concerning exchange rate matters with the UEMOA, the CEMAC and the Comores after the substitution of the euro for the French franc. While France was authorised to continue its existing agreements, it was not empowered to replace such agreements with new ones. This is even the case if the main object and legal regime governing the exchange rate cooperation between France and its partners of the UEMOA, CEMAC and the Comores would be similar, i.e. ensuring a convertibility between the currencies of those entities and the euro supported by a budget guarantee of the French State.

With a view to ensure compatibility with an exclusive competence under Union law and offer legal certainty, it is necessary to amend the Council’s Decision of 23 November 1998. This will authorize France to conclude a new cooperation agreement, which replaces the existing agreement of 4 December 1973. It will also ensure that the French Republic can conclude new agreements with other African partners replacing existing agreements. In addition, several other provisions of that Council Decision governing the information and approval regime should be updated to extend their application to any new agreements with the UEMOA or any other partners replacing the existing ones.