27. 11. 78 Official Journal of the European Communities No C 283/1 
II 
(Preparatory Acts) 
ECONOMIC AND SOCIAL COMMITTEE 
Opinion on the Community approach to the present international monetary disorder 
The opinion of the Committee is not based on any text. 
A. LEGAL BASIS FOR THE OPINION 
At its 154th plenary session held on 14 and 15 December 1977 the Committee decided to 
deliver an opinion on the abovementioned subject on its own initiative. 
B. OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE 
The Economic and Social Committee prepared its opinion on the above matter at ist 160th 
plenary session held in Brussels on 20 and 21 June 1978. 
The full text of the opinion is as follows: 
THE ECONOMIC AND SOCIAL COMMITTEE, HAS ADOPTED THE FOLLOWING OPINION 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 198 
thereof, 
Having regard to its Rules of Procedure, and in particu­
lar the fourth paragraph of Article 20 thereof, 
Having regard to the decision which the Economic and 
Social Committee took on 14 December 1977 to deliver 
an opinion on the abovementioned subject, 
Having regard to the opinion issued by the Section for 
Economic and Financial Questions at its 44th meeting 
held on 6 June 1978, 
Having regard to the report submitted by the rappor­
teur, Mr Charpentie, 
Having regard to the discussions at its 160th plenary 
session held on 20 and 21 June 1978 (meeting of 21 
June 1978), with no votes against and three abstentions: 
1. General considerations 
The Committee considers that the value of a country's 
currency is not unrelated to that country's economic 
situation without, however, being an exact reflection 
thereof. While the monetary system cannot be expected 
by itself to counterbalance serious economic disturb­
ances which inevitably have an effect on exchange rates, 
it is nevertheless vital to coordinate economic and 
monetary policies. It is with this in mind that the 
Committee has discussed the matter under review and is 
now proposing guidelines designed to restore economic 
and monetary equilibrium. 
2. The present monetary situation 
2.1. The worldwide situation 
2.1.1. International currency relationships are based at 
present on a number of factors of varying importance. 
The main factors are: 
No G 283/2 Official Journal of the European Communities 27. 11. 78 
— a system of short-term credit, inherited from the 
Bretton Woods Agreements, and operated by the 
International Monetary Fund (IMF). Nearly all the 
countries of the world, apart from the majority of 
the State-trading countries, are members of the IMF, 
— the dominant position of the United States dollar; 
this is not convertible into gold at a fixed rate, but is 
still widely used as a reserve currency by the central 
banks and as money of account or settlement for 
international transactions. As a result, the United 
States can pay for its imports — and in particular 
its oil imports — in its own currency without 
having to suffer any consequences of a balance-
of-payments deficit, 
— the absence since 1971 of any generally accepted 
monetary standard and of any mandatory rules 
governing the rates of exchange between currencies 
(general floating). This has led in recent years to 
serious disturbances in exchange rates, despite the 
considerable intervention by European central 
banks in particular, 
— the appearance of a new monetary reference unit: 
the Special Drawing Right (SDR), which is a new 
form of international liquidity, 
— widespread de facto convertibility and the disap­
pearance of exchange controls on current account 
transactions, at least in those countries which ac­
count for the bulk of world trade, 
— a very uneven distribution of exchange reserves 
between countries, some of which have an excessive 
debt burden, 
— a large volume of international liquidity held either 
by the central banks (estimated at 249 000 million 
SDRs or 270 000 million dollars at the end of 
September 1977), or by economic operators in the 
form of 'Euro-currencies'; this liquidity is being 
expanded in the main by the United States balance-
of-payments deficit and also, to a lesser degree, by 
other countries' deficits. 
2.2. The situation in the European Economic Com­
munity 
2.2.1. These features are also found in the European 
Economic Community, where currency relationships are 
likewise based on the following de facto or de jure 
factors: 
— convertibility of all the EEC currencies, — machinery for offsetting claims and liabilities and a 
short-term credit system, operated by the European 
Monetary Cooperation Fund (EMCF), 
— the agreement entered into by the members of the 
EEC in April 1972 not to allow their exchange rates 
to fluctuate more than 2-25 % against each other. 
Only five of the nine Member States are still 
participating in the joint float — the 'snake' — 
introduced under this agreement; the others either 
have never participated or have withdrawn, 
— considerable disparities in the volume of exchange 
reserves held by the various Member States, and the 
worsening of exchange-rate divergences between 
some currencies, 
— use by the Community institutions and the Member 
States of different units of account which act as 
common denominators for evaluating the national 
currencies, and are linked to the latter by conversion 
rates (the European monetary unit of account 
(EMUA), the agricultural unit of account and the 
European unit of account (EUA), the value of which 
is determined every day on the basis of a basket of 
Community currencies). 
3. The effects and the dangers of the present monetary 
situation 
3.1. The international position 
3.1.1. The criticism now levelled at the way the IMF 
operates relates essentially to the absence of a clear-cut 
policy, i.e. it operates pragmatically. 
Thus, quotas are often expanded under pressure from 
certain countries, and there may be a permanent temp­
tation to creats SDRs in order to remedy, or postpone 
remedying, structural imbalances. 
3.1.2. The fact that many currencies are floating freely 
has had more serious effects: 
— lack of security in international transactions, which 
leads economic operators to cover themselves 
against exchange risks and even anticipate future 
exchange rates, 
— excessive appreciation or depreciation of the cur­
rencies of some countries, resulting in export or 
import problems and abnormal economic imbal­
ances, 
27. 11. 78 Official Journal of the European Communities No C 283/3 
— tendency for certain governments to take what 
seems to be an easy way out — at least temporarily; 
these governments believe that there is no need for 
them to act early to defend their currencies or 
restore their balance-of-payments equilibrium, 
— a temptation for some countries to deliberately let 
their currency depreciate so as to stimulate 
economic activity or strengthen their competitive 
position, and in this way increase their exports and 
reduce their imports, 
— reinforcement of inflationary tendencies. 
3.1.3. Lasdy, the disorder and dangers of the present 
situation are further aggravated by the existence of large 
volumes of liquidity. This encourages large-scale oper­
ations that may result in certain currencies being hit for 
more or less subjective economic or political reasons 
(acceleration of price increases, social trends, political 
uncertainty, etc.) The countries in question have no 
effective defence against these operations, since correc­
tive action takes time to work through. 
3.2. The position within the European Economic 
Community 
The harmful effects of the current international monet­
ary disorder are reflected in the EEC and are jeopardiz­
ing the common market. 
3.2.1. The exchange-rate fluctuations and the lack of 
any monetary standard show the absence of economic 
solidarity in the Community, and form barriers to the 
freedom of movement established by the Treaty of 
Rome. Cooperation between the Member States is also 
hampered. 
3.2.2. The protection afforded by the common exter­
nal tariff (average rate of 8%) is in danger of being 
cancelled out by the present wide fluctuations of ex­
change rates, which make agreements With non-member 
countries under the auspices of GATT ineffective. 
3.2.3. Despite the system of compensatory amounts 
which has had to be introduced to permit its operation, 
the common agricultural policy is feeling the effects of 
repeated and ever-growing monetary upheavals. 
4. The requirements for returning the international 
monetary system to normal 
4.1. The aims of a policy for a return to normal 
The monetary system cannot be expected to solve 
economic problems by itself and remedy the imbalances which have often been at the root of monetary dis­
parities. Nevertheless: 
— it must ensure a degree of security in international 
commercial transactions, and 
— it must not make the imbalances worse (inflation, 
recession, unemployment, balance-of-payment defi­
cits and surpluses). 
There are two requirements for achieving this; a gradual 
return to exchange rates which are stable but adjustable 
in the light of countries' economic situation, and a re­
turn to normal in movements of capital. 
4.2. The means of achieving a return to normal 
4.2.1. There are two major difficulties in the way of a 
gradual return to more stable par values: 
— the inadequacy of the rules laid down and the lack 
of any international monetary authority capable of 
enforcing them (as the IMF used to do) and, where 
necessary, of applying sanctions for undisciplined 
behaviour, 
— the lack of any monetary reference standard. Here, 
the role previously played by gold and the dollar 
could be taken over in theory by other standards. 
These two points are political rather than technical 
problems. It is unlikely that an early international 
agreement can be reached on them, mainly because of 
the differences between national rates of inflation. 
4.2.2. Accordingly, it would be more realistic to aim at 
concerted international action in order to minimize 
excessive fluctuations in exchange rates and provide 
some control over the floating of currencies or groups 
of currencies (as in the case of the European 'snake'). In 
this way areas of relative currency stability could be 
created and gradually expanded. 
The joint floating of currencies is, in fact, only possible 
between those countries which have similar economic 
policies. 
Joint floating also presupposes a common political will 
to promote the stabilization of exchange rates by all 
appropriate technical means, such as: 
— intervention by the central banks, 
No C 283/4 Official Journal of the European Communities 27. 11. 78 
— coordinated variation of interest rates, 
— swap agreements. 
It should, however, be recognized that these means are 
not always effective in the face of the heavy speculation 
in certain currencies, in which increasing international 
monetary liquidity is an important factor. 
4.2.3. The second requirement for re-establishing in­
ternational monetary order is the prevention of specula­
tive movements of capital by limiting the inordinate 
increase in currency (and Euro-currency) liquidity and, 
if possible, gradually reabsorbing this liquidity under an 
overall agreement with the United States on the repay­
ment or consolidation of dollar holdings (almost half of 
which are in the hands of the central banks), and on 
future changes in this liquidity. 
In the immediate future, the monetary authorities of the 
countries in question will have to take concerted action 
to limit the undesirable effects of foreign exchange 
transactions which are not connected with commercial 
settlements or investments and which anticipate monet­
ary fluctuations, increase such fluctuations and jeop­
ardize monetary policy. 
4.2.4. There is also the problem of the growing in­
debtedness of the non-oil-producing developing coun­
tries and the settlement of their debts, which often ex­
ceed their ability to pay. (Third World indebtedness to 
the industrialized countries is currently put at 250 000 
million dollars). 
5. The role of the European Economic Community in 
moves towards a return to normal 
The EEC, like the rest of the world, is subject to the 
harmful effects of the present international monetary 
disorder. Can it play an active part in moves towards a 
return to normal? 
The Committee believes that the Community's first aim 
should be to reduce the exchange-rate fluctuations 
between Member States' currencies. Its second aim 
should be to work out a concerted policy for helping to 
restore the international monetary system to normal. 
Such a policy might embrace the following. 
5.1. Within the EEC 
5.1.1. Promotion of a strategy for aligning and coor­
dinating economic policies which (without being an essential precondition) could help to restore relation­
ships between Member State currencies to normal. 
5.1.2. Improvement in the consultation and decision­
making procedure of the EEC bodies responsible for 
monetary questions (the Monetary Committee, the 
Committee of Central Bank Governors, etc.) and, if 
necessary, extending their areas of responsibility and 
their powers of initiative to enable them to make an 
effective contribution to the drawing up and implemen­
tation of a Community monetary policy. 
5.1.3. Maintenance of the present European 'snake' 
for the participating currencies. The other Community 
currencies should (re)join the 'snake' within a 
reasonable period. To this end, transitional arrangements 
should be devised for these currencies. Account should 
be taken here of different inflation rates, while at the 
same time efforts should be made to reduce inflation 
at both Community and national level. 
5.1.4. Permanent cooperation between the central 
banks and the monetary authorities for the purpose of 
identifying and curbing short-term capital flows (e.g. by 
adjusting interest rates). 
5.1.5. If these aims are to be achieved, it will be necess­
ary to reform the European Monetary Cooperation 
Fund (EMCF), whose resources, authority and areas of 
responsibility will have to be increased so that it can 
take effective action. 
In the immediate future, the EMCF could act in the 
defence of par values by multilateralizing swap agree­
ments and by intervening on the European exchange 
market with currency or SDR credit lines. This would 
enable it to play a stabilizing role under the supervision 
of the Council of Ministers, which should draw up rules 
to be observed by the EMCF and the national monetary 
authorities with regard to: 
— parity changes, 
— the conditions for granting credit, and 
— interest rate policy. 
The EMCF board would in future make an annual re­
view of each member country's economic and financial 
situations, paying due regard to the code of conduct laid 
down by the Council of Ministers. Where an appli­
cation is made for credit the country in question would 
have to give the EMCF every guarantee that its intended 
policy is in keeping with the Council's decisions on the 
27. 11. 78 Official Journal of the European Communities No C 283/5 
convergence of economic policies. The EMCF would 
then grant its credits with due regard to the economic 
. and financial policies of the applicant country. The 
EMCF would take its decisions on the granting of credit 
by a qualified majority based on the Member States' 
quotas, and in accordance with rules still to be estab-
Mshed. 
The EMCF would thus perform at Community level 
functions similar to those of the IMF. 
5.1.6. Encouragement should be given to use of the 
EUA as money of account for intra-Community busi­
ness transactions. Industry and trade would have to be 
briefed thoroughly beforehand for this to be possible. 
5.2. Within the international monetary system 
5.2.1. Assertion of a common EEC position in those 
international monetary institutions in which the EEC 
Member States together carry considerable weight (for 
instance the IMF) and of a common attitude towards 
non-member countries and other monetary blocs. 
5.2.2. Opening of negotiations with the United States 
aimed at consolidating the dollar balances held by 
Member States, particularly by encouraging the import 
of capital by the United States. 
5.2.3. Multilateralization of swap agreements, so as to 
include the other monetary blocs (dollar or yen). If there 
is no concerted action on the fixing of interest rates, 
however, care should be taken to ensure that this 
mechanism does not have any adverse effects. 
Done at Brussels, 21 June 1978. 5.2.4. Channelling of short-term capital flows, for 
example by international consultation on interest rate 
policy and by drawing up a monetary code of conduct 
for multinational enterprises in particular. 
5.2.5. Adoption of a common EEC position with 
regard to the indebtedness of the developing countries. 
5.2.6. Concerted action on the part of the Member 
States within the IMF to vet the creation of international 
liquidity (in SDRs, dollars or Euro-currencies). 
6. Conclusion 
The measures proposed can facilitate a return to a cer­
tain degree of normality in the international monetary 
situation in the short or medium term. The Community 
must not abandon the objective of complete economic 
and monetary union, in spite of the failures and set­
backs. In the present international monetary disorder, 
the EEC should gradually form an 'area of stability', 
which would help in restoring world monetary equi­
librium. 
The ESC will continue its work in this field, examining 
other aspects of economic and monetary union with the 
aim of determining the requirements for the creation of 
a common currency which can help restore equilibrium 
to the international monetary system. 
The Chairman 
of the Economic and Social Committee 
Basil de FERRANTI 
No C 283/6 Official Journal of the European Communities 27. 11. 78 
ANNEX 
to the opinion of the Economic and Social Committee 
The following part of the opinion of the Section was amended. 
Page 11, the last two subparagraphs of paragraph 5.1.5 
'In the longer-term future, credits would be granted by the EMCF by a qualified majority vote, in the 
light of the economic situation in the applicant Member States. The latter should give the EMCF 
every guarantee as to the policy they intend to pursue in accordance with the Council decisions on 
the convergence of economic policies. The EMCF board would make an annual review of the 
applicant's economic and financial situations, paying due regard to the code of conduct laid 
down by the Council of Ministers. 
Thus, the EMCF could act as a kind of IMF at Community level.' 
Opinion on the present economic situation in the Community 
The text referred to the Committee has not yet been published in the Official Journal of the 
European Communities. 
A. LEGAL BASIS FOR THE OPINION 
The Council decision of 18 February 1974 on the attainment of a high degree of con­
vergence of the economic policies of the Member States of the European Community. 
B. OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE 
The Economic and Social Committee prepared its opinion on the above matter at its 160th 
plenary session held in Brussels on 20 and 21 June 1978. 
The full text of the opinion is as follows: 
THE ECONOMIC AND SOCIAL COMMITTEE, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 198 
thereof, 
Having regard to the resolution of 22 March 1971 of 
the Council and the representatives of the Governments 
of the Member States concerning the realization, by 
stages, of economic and monetary union in the Com­
munity, Having regard to the Council Decision of 18 February 
1974 on the attainment of a high degree of convergence 
of the economic policies of the Member States of the 
European Community, 
Having regard to the opinion adopted by the Economic 
and Social Committee on 27 October 1977 on the 
annual report on the economic situation in the Com­
munity in 1977 0), 
(!) OJ No C 18, 23. 1. 1978, p. 1.