WRITTEN QUESTION E-2983/00

by Raffaele Costa (PPE-DE), Antonio Tajani (PPE-DE), Jas Gawronski (PPE-DE), Gianfranco Fini (UEN), Umberto Bossi (TDI), Pier Casini (PPE-DE), Rocco Buttiglione (PPE-DE) and Francesco Turchi (UEN) to the Commission

(20 September 2000)

Subject: The fall in the value of the euro

The reports received over the last few weeks, and more particularly in the last few hours, concerning the declining value of the euro in relation to the dollar and other currencies have given rise to serious concern in the European Parliament.

In view of the often unduly optimistic statements made by individual Members of the Commission, the Council and the European Central Bank (ECB), we call on the Council to issue an official response to the problem explaining the economic, financial and monetary policy the European Union intends to adopt to address the difficult situation of its currency and reverse its hitherto apparently inexorable decline.

Answer given by Mr Solbes Mira on behalf of the Commission

(8 November 2000)

In assessing developments in the exchange rate of the euro, some important considerations are often unduly disregarded. The euro has already delivered substantial benefits to the participating Member States. Inflation and interest rates are low by historical standards, the new macroeconomic policy framework guarantees stability and growth, and the integration of financial markets is progressing rapidly. While the Commission maintains the view that the current level of the euro is not in line with the economic situation, it should be kept in mind that the recent fluctuations are not exceptional in an historical perspective of the floating exchange regime since the 1970s. In the case of a relatively closed economic area like the euro area, economic policy should generally not be directed to the exchange rate but rather at domestic objectives such as growth and inflation.

The scope of the Commission to provide an official response as to the economic, financial and monetary policy that the Community intends to follow to stop the decline in the euro is limited. It is worth pointing out that Member States are required by the EC Treaty to treat their exchange rate as a matter of common concern. The Commission provides analyses for the regular exchange rate surveillance carried out by the Economic and financial committee, the Ecofin Council and the Eurogroup, but has no direct responsibility for the monetary and exchange rate policies of the euro area.

The mandate of the Eurosystem to safeguard price stability in the euro area implies that monetary policy reacts to exchange rate developments only to the extent that they pose a threat to price stability. However, the European Central Bank (ECB) can intervene in foreign exchange markets, as it did on 22 September 2000 jointly with other group of seven most industrialised countries (G7) central banks, in response to a prolonged deviation of the euro exchange rate from economically-justified levels.

In a longer term perspective, the exchange rate is influenced by all economic policies and not only by monetary policy. Fiscal and structural policy have an indirect impact as they affect the expectations of economic agents. Structural reform improving the functioning of the labour market would raise the expected rate of return and thus attract investment in the euro area.

The economic policy strategy of the Community is developed in the broad economic policy guidelines for the Member States. It aims at policy actions that both safeguard stability and raise productive capacity in the economy. The key components of this strategy are the stability-oriented monetary policy conducted by the ECB and supported by rule-based fiscal discipline; an extensive programme of supply-side micro-economic reforms in product markets, capital markets and labour markets; and a set of policies specifically geared to promoting knowledge-based economic development.

The Commission considers that the prompt implementation of the strategy set out in the broad economic policy guidelines would improve the performance of the euro area economy and thus support the euro in the medium term.