WRITTEN QUESTION E-0884/97 by Nikitas Kaklamanis (UPE) to the Council (11 March 1997)

Subject: Implications of economic and monetary union

The introduction of the single European currency is currently a highly topical issue. Nevertheless, a large number of questions remain, concerning not only the countries which are to join the EMU but also those which do not wish to join or plan to join at a later stage.

The issue is an extremely important one, giving rise as it does to a number of questions and metaphysical issues, for example, what would the EU founding fathers have thought of EMU? In view of this, can the Council reply to the following:

1. Have the consequences of the loss of macroeconomic instruments, such as the possibility of devaluation, been assessed, particularly in respect of the smaller countries?

2. Has consideration been given to ways of compensating for the loss of competitiveness of products from - again - the smaller countries, which will be unable to make even limited adjustments to their currency parities?

3. Is it believed that a fall in the productivity of the smaller EU Member States and growing unemployment could cause their public finances to deteriorate to such an extent as to make increased taxation and drastic cuts in welfare expenditure inevitable?

4. Has the Council considered the possibility of multinational companies transferring their investments within the EU to the Euro zone, away from countries with faltering and industrially stagnant economies?

5. Has consideration been given to means of enabling the small EU countries not initially members of the EMU to participate successfully as soon as possible?

Answer (4 December 1997)

1, 2 and 3: The Council would point out that the primary objective of monetary policy in stage three of EMU is to maintain price stability.

Article 109j of the TEC has laid down four convergence criteria. Meeting these criteria implies, both for Member States adopting the single currency from the beginning and for those doing so later, a sustained effort to create macroeconomic conditions compatible with price and exchange-rate stability.

The Resolution of the Amsterdam European Council on the establishment of an exchange-rate mechanism in the third stage of EMU emphasizes that a stable economic environment is necessary for the single market to function properly and for higher investment, growth and employment. It is therefore in the interest of all Member States.

The same Resolution reaffirms that sustainable exchange-rate stability demands that Member States pursue disciplined and responsible monetary policies directed towards price stability and sound fiscal and structural policies.

The new exchange-rate mechanism which, from the beginning of the third stage, will replace the European monetary system which is now in force, will provide those Member States outside the euro area, but within the mechanism, with a reference for conducting sound economic and monetary policies.

At the same time, the mechanism will also help to protect all Member States from unwarranted pressures on foreign-exchange markets and will strengthen market confidence.

4: To date, no study examining the scenario described by the Honourable member has been presented to the Council.

5: The new mechanism will support Member States outside the euro area in their strenuous efforts to achieve a high degree of sustainable convergence of economic fundamentals and possibly to adopt the euro subsequently, within the framework of the convergence criteria set by the TEC.