WRITTEN QUESTION E-1812/96 by Joan Colom i Naval (PSE) to the Commission (5 July 1996)

Subject: Implications of the euro for the CFA franc zone and the Lomé Conventions

The process of introducing the single currency has advanced considerably since 1990 with many of the questions that at the time were only possibilities now having become certainties. In spite of the Commission's reply to a previous question I asked on the implications of EMU for the CFA franc (Question 119, H-832/90, answered on 21 November 1990 ((Debates of the European Parliament 396 (November 1990).))), many doubts remain on the matter, as emerged at the recent ACP-EU Joint Assembly in Windhoek. Will the Commission therefore say:

- What studies have been carried out on the impact of the introduction of the euro on the CFA franc and the Lomé Convention within the framework of the TEU and subsequent decisions?

- What are, in each instance, the studies' main conclusions?

- What are the consequences for the euro of France's guarantee of the convertibility of the CFA franc and the French franc, assuming that the euro will replace the French franc?

Answer given by Mr de Silguy on behalf of the Commission (18 September 1996)

The provisions of the EC Treaty do not affect the franc zone system. When exchange rates are irrevocably fixed at the start of the third stage of economic and monetary union (EMU), the exchange rate of the CFA franc (African Financial Community) will be fixed against the euro and the national currencies of the Member States taking part in monetary union. The CFA franc will be automatically defined by its exchange rate in terms of the euro when the French franc is replaced by the single currency. This change of reference unit will not entail any additional exchange constraints for the African countries concerned, in so far as a euro-denominated monetary policy will be based on the same principles as the current monetary policy denominated in French francs.

Accordingly, the CFA franc is not concerned by Article 109 of the EC Treaty, which organizes the monetary union's exchange policy in respect of other currencies. France will still be able to guarantee, via its budget, the convertibility of the CFA franc within the framework of the general EC Treaty rules on public finances (Articles 104, 104a, 104b and 104c).

The link between the CFA franc and the French franc (and subsequently with the euro) should not have any repercussions on the Community's monetary policy. The money supply of the franc zone countries is equivalent to no more than 2% of the French money supply, and their aggregate gross domestic product represents less than 4% of French GDP. In addition, as the integration process of the West African Economic and Monetary Union (WAEMU), including multilateral surveillance of economic policies, gathers pace, the risks of economic and financial disequilibria between the WAEMU countries will be reduced. If the Community's monetary policy were to be affected for exceptional reasons, the European Central Bank would have to take steps to ensure that the operation of the franc zone did not interfere with its own monetary policy.

To date, the Commission has not carried out any studies on the impact that conversion of the franc zone into the euro zone will have. However, work undertaken by it in connection with the WAEMU, in particular the introduction of multilateral surveillance arrangements designed to promote convergence of macroeconomic policies, suggests that there should not be any repercussions for EMU. The impact on the African countries concerned is expected to be fairly positive, as they will enjoy the advantages afforded by an extension of their currency zone, including lower transaction costs with their partners in the Community, access to a major international reserve currency, and a more efficient money market. Its international role will allow them to use the euro for invoicing their exports to the rest of the world, thereby limiting the exchange risks associated with the virtually exclusive use of the dollar.

The link between the CFA franc and the euro will provide the countries of the Euro zone with a stable, convertible currency, as is already the case within the franc zone. It will enable them to conduct a monetary policy designed to eradicate inflation, which deprives other developing countries of the benefits of growth.