WRITTEN QUESTION E-3825/98

by Gérard Caudron (PSE) to the Commission

(22 December 1998)

Subject: Commission charged on payments in euros

The introduction of the euro is a historic step forward for the European Union.

Most citizens seem to have welcomed the single currency because of the part which it is expected to play in the economy and in everyday trade.

Nevertheless, certain financial establishments seem to be determined to charge commission on any purchase made in euros where that purchase is made outside the Member State in which they are established, no matter what method of payment is chosen, whether cheque or banker's card.

If such practices become established, they would be certain to cast doubts as to whether the euro is actually any use, since a strong argument for introducing it was indeed that the single currency would remove all the uncertainties over the exchange rates applied when paying for goods bought outside their country of origin.

Does the Commission therefore intend to take action against such measures, which distort the very purpose of the euro?

Answer given by Mr Monti on behalf of the Commission

(25 March 1999)

The Commission fully agrees with the Honourable Member that one of the main arguments for the introduction of the single currency was the elimination of exchange rate. This has been achieved by the irrevocable fixing of the conversion rates between participating currencies, effective from 1 January 1999.

The Honourable Member will no doubt be aware that the Commission issued its Recommendation 98/286/EC(1) on banking charges for conversion to the euro in April 1998. The Commission also made public an initial evaluation on 8 December 1998(2), which indicates that banks throughout the euro area intended to implement the Recommendation. This means that banks will not charge for converting accounts from the national currency unit of the individual participating Member State to the euro unit (e.g. from French franc to euro in France) or for converting payments to and from the euro and the national currency unit. Furthermore, the Recommendation provides that banks cannot charge a different fee for services in the euro unit than that for otherwise identical services in the national currency unit. This is an important and significant contribution to public confidence in the changeover to the euro.

Neither the Recommendation, nor indeed the introduction of the euro, require that banks cease to charge for the services they provide. The processing of cross-border payments, whether carried out by cheque, payment card or credit transfer, is a service for which banks are entitled to charge. The Recommendation does, however, require that full transparency be provided for all conversions and exchanges by showing clearly the application of the fixed conversion rates and identifying separately any charges of any kind.

Prior to the introduction of the euro, it was possible for banks to hide, partly at least, the charges for services such as banknote exchange in the (variable) exchange rate which was applied. In other words, banks were able to charge customers the difference, or "spread", between their buying rate and their selling rate for a currency. Application of a "spread" was a non-transparent method of charging, which the Commission has long called on banks to discontinue.

With the introduction of the euro, banks are no longer able to calculate their charges within an exchange rate "spread", for transactions involving the currency units of participating Member States. This is because of the fundamental requirement that the fixed conversion rates are applied for all conversions and exchanges between participating national currency units. Banks had therefore to alter their method of charging with effect from 1 January 1999 at the latest.

On 12 February 1999 the Commission wrote to the main European banking federations requesting them to provide information comparing the level of charges before and after the introduction of the euro.

On 5 February 1999, the Commission issued a press statement calling on banks further to increase transparency by making publicly available information showing changes in the total level of charges (before and after the introduction of the euro) for exchanging euro zone banknotes and cross border cheques, transfers and card payments. Banks in the euro zone were requested to report the state of play to the Commission before 31 March 1999 through their European associations. The Commission has also recently launched investigations of possible infringement by banks of competition policy. The Commission will keep the Parliament informed of the results of these reports and investigations. However, the Commission's expectation is that the overall level of these charges should fall, since the banks will no longer face the costs associated with exchange rate risk, and transparency will intensify competition between financial institutions. The Commission shares the Parliament's concerns that initial feedback and analysis from some banks in some Member States suggests the contrary.

On the issue of credit transfers, the Commission recognises the continued existence of substantial differences in the level of charges for cross-border transactions compared to domestic transactions. The Commission believes that the transitional period, up to the date of introduction of euro notes and coin, provides a window of opportunity to create the conditions in which charges for cross-border transfers can be tackled. This means dealing effectively with weaknesses in cross-border payments infrastructure and the removal of other structural obstacles to cross-border competition. It requires that financial institutions in particular see the political importance and commercial opportunity that call for increased investment in cross-border linkages between domestic retail payment systems. In addition to exercising moral suasion, public authorities at national and Community level also have a role to play in tackling administrative requirements which add to the burden of banks when processing these transactions. The Commission firmly intends to be a catalyst for all these developments and plans to issue a communication in the spring of 1999 covering the policy relating to payment systems in economic and monetary union. This will set out a detailed framework, which is aimed at achieving the goal of a single payments area.

The implementation by Member States by 14 August 1999 of Directive 97/5/EC of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers(3) will partially improve the situation by providing for transparency of charges, a ban on double charging and a money back guarantee in case the transfer is not successfully carried out within a certain period. On 8 February 1997, the Commission urged Member States to meet their commitment to timely implementation of the directive as delays would be unacceptable in the Commission's view.

The Commission's press release IP/99/90 issued on 5 February 1999 contains further details on these matters.

(1) OJ L 130, 1.5.1998.

(2) Available on the Internet at http://europa.eu.int/comm/dg15.

(3) OJ L 43, 14.2.1997.