WRITTEN QUESTION E-1030/98

by Nikitas Kaklamanis (UPE) to the Commission

(6 April 1998)

Subject: Devaluation of the drachma

In recent months, the Greek Government tried by every means at its disposal deliberately to deceive the Greek people by asserting that the drachma was not overvalued. Indirectly, though not overtly, it encouraged Greek businesses to borrow in foreign currencies as interest rates in drachmas were very high. Furthermore, the Greek Government claimed that the drachma did not necessarily have to enter the Exchange Rate Mechanism before Greece joined EMU. Finally, the drachma entered the Exchange Rate Mechanism after first devaluing by 14 %, while a few hours before devaluation the information was leaked to certain people who made huge profits.

Will the Commission say:

1. how much earlier negotiations had begun between the Union and Greece for the entry of the drachma into the Exchange Rate Mechanism,

2. what measures it will take to discover who was responsible for the leak a few hours before devaluation,

3. how it will respond to the Greek Government's repeated and spurious assurances that the drachma did not have to enter the Exchange Rate Mechanism before EMU,

4. what its response is to the insinuations by the Greek Minister for Economic Affairs, Mr Papantoniou, who attributed the responsibility for leaking the news about the imminent devaluation "to 200 Commission officials who already knew", as he put it,

5. what its views are on the deliberate deception of businesses in Greece which suffered huge losses in complying with the Greek Government's indirect bidding to take out loans in foreign currency, and

6. whether it is probable that the drachma rate will change again once the exchange rates in the euro zone are fixed on 2 May 1998?

Answer given by Mr de Silguy on behalf of the Commission

(20 May 1998)

With a view to avoiding market effects, procedures relating to decisions concerning the functioning of the exchange rate mechanism (ERM) are confidential and information is not disclosed to the parties concerned until the last possible moment, i.e. when the markets are closed. The Commission maintains permanently and updates continuously the relevant stand-by files, so as to be in a position to respond rapidly in such situations.

The decision to join the exchange rate mechanism of the European monetary system (EMS) was taken by the Greek government. On 14 March 1998, the ministers and central bank governors of the Member States decided by mutual agreement on the terms on which the Greek drachma was incorporated from 16 March 1998. These terms included a central rate for the Greek drachma of 357 to one ECU. The latter decision followed a common procedure involving the Commission and the European monetary institute (EMI) and after consultation of the monetary committee, all taking place during the same day, a Saturday when markets were closed.

The Commission considers that the level of the drachma following its entry in the ERM is sustainable and any talk of further parity changes is unfounded. Linked with ERM entry, a number of measures were taken by the Greek authorities, aimed at achieving the primary objective of keeping inflation under control and fostering the convergence process. The implementation of that programme is as important as ERM membership in itself.

The Commission considers that ERM membership is a Treaty requirement for the fulfilment of the relevant criterion.

The Commission is not aware of any complaints about a leak of information on the drachma. Therefore, the Commission does not intend to take any measures. Inside the Commission, only a handful of officials are involved in the ERM procedure and they are all aware of the confidentiality of the operation. The Commission is not aware of any "deliberate deception of businesses in Greece". It is clear that, in cases where a change in a currency's parity is envisaged, it is important for the success of the operation that confidentiality be maintained until the last moment.