WRITTEN QUESTION E-0567/97 by Amedeo Amadeo (NI) to the Commission (25 February 1997)

Subject: Italy in EMU

The recent comments of certain German bankers, which to say the least were strange if not entirely out of place, have revived controversy in the Italian Press about the practical possibility that Italy will be among the front runners of EMU, that is to say those Member States which will launch the third stage in January 1999.

Although much of the discussion has centred on the questions 'if' and 'when', what matters above all are the conditions of entry.

Can the Commission therefore say precisely how far the ability of the Maastricht system to foster the development of the European economy and European society will depend on the three essential points listed below:

1. harmonization of tax treatment (not just where proof of debt is concerned);

2. consistency of the 'target' forming the basis of monetary policy with the requirements of development. It is worrying that the EMI (European Monetary Institute) has not identified the remedies to be applied, but has asked the Board which will run the European Central Bank to do so in its place;

3. clarification regarding exchange rate policy for the euro in relation to strong currencies such as the dollar and the yen? The Treaty does not delegate any powers in this area to the European System of Central Banks, but a proportion of official national reserves will be allocated to the European Central Bank, which will be able to influence the euro rate and in effect determine the exchange rate arrangements to which Europe will be subject (dirty floating).

The conflicts which could arise between governments and central banks would paralyse monetary management.

Answer given by Mr de Silguy on behalf of the Commission (11 April 1997)

1. The harmonization of the tax system is not a prerequisite for the conduct of a common monetary policy for the euro area. In the field of monetary matters, there will be a harmonization of monetary instruments in the money market, the futures market and the bond market. This will increase transparency and could lead to further harmonization in tax treatment in this sense.

2. Article 105 of the EC Treaty sets out the objectives of the European system of central banks (ESCB) and the tasks assigned to it. It states that the primary objective of the ESCB shall be to maintain price stability. Without prejudice to this objective, the ESCB is required to support the general economic policies of the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2 of the EC Treaty. These include promoting 'throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States'.

Under Article 109f(3) of the EC Treaty, the European monetary institute (EMI) was required to specify by 31 December 1996, the regulatory, organizational and logistic framework necessary for the ESCB to perform its tasks in the third stage. In compliance with this requirement, the EMI presented its report entitled 'The single monetary policy in stage three: specification of the operational framework'. In this report, the options for a monetary policy strategy are reduced to monetary targeting and direct inflation targeting. The choice between these two options is left up to the governing council of the European central bank (ECB). This is in line with Article 12 of the ESCB and ECB statute, which gives the task of formulating monetary policy, including decisions relating to key monetary objectives, to the governing council of the ECB, and the task of implementing the policy to the executive board of the ECB.

3. The exchange rate policy will be defined in a framework of close cooperation between the monetary authority and the economic policymakers. The EC Treaty (Article 109) organises the cooperation on exchange rate policy in three levels:

- the definition of an exchange rate regime and the negotiation of international monetary and exchange rate policy agreements, which will be the responsibility of the political authorities;

- orientations for exchange rate policy, in the absence of a fixed exchange rate system, may be formulated by the political authorities;

- implementation of the exchange rate policy (interventions, daily management of exchange reserves), for which the ECB will be solely responsible.

The objectives of exchange rate policy and monetary policy are well defined in the Treaty. The Treaty states that activities of Member States and the Community shall include '...the definition and conduct of a single monetary policy and exchange rate policy, the primary objective of both of which shall be to maintain price stability and, without prejudice to this objective, to support the general economic policies of the Community...'. Article 109 also provides the structure for organising the dialogue necessary for resolving potential conflicts.

Article 109 only applies to Member States participating in the euro area. However, the Treaty takes the same cooperative approach concerning the exchange rate policy of non- participating Member States. According to Article 109m, those Member States shall treat their exchange rate policy as a matter of common interest.