WRITTEN QUESTION E-0089/02

by Erik Meijer (GUE/NGL) to the Commission

(24 January 2002)

Subject: Adverse impact of the use of the euro as a parallel domestic currency for the purchase of luxury services and durable consumer goods

1. Does the Commission anticipate that the acceptance of payment in euro outside the territory of the EMU Member States and other areas where the euro has been generally introduced will remain confined to department stores, tourist shops, hotels, cafés and restaurants frequented by people from the euro zone in centres of tourism in the three EU Member States which are not participating in EMU, or does it expect that the euro will soon be widely used on a large scale as a domestic currency in other states with considerably lower standards of living than the EU average and weak national currencies?

2. On 7 January 2002, Commissioner Verheugen stressed the expectation that candidates for membership of the EU would naturally introduce the euro after accession to the EU, despite the fact that at present most candidate countries cannot meet the Stability Pact criteria relating to annual government deficits and ceilings on state debt. Was this intended to increase the scope for using the euro as a domestic currency in those countries without their participating in EMU?

3. As a result of the replacement of twelve national currencies with the euro, is it likely that areas will come into being outside the EU and EMU territories where the wages of most low-paid workers will for a long time continue to be paid in the traditional local currency but prices particularly those of expensive consumer goods and luxury services will increasingly be quoted and charged in euro?

4. Does the Commission agree that, if people are compelled to change money for domestic consumption purposes, they will constantly run the risk of fluctuations in the exchange rate between their local currency and the euro, as a result of which their purchasing power will decline, a situation comparable to that which exists in some Third World countries where the American dollar has long played a similar role as a parallel currency?

5. What will the EU institutions do to prevent a widening gulf between rich and poor in third countries which are influenced by the euro and to prevent situations arising similar to that which occurred around New Year in Argentina due to the increasing use of the dollar instead of the peso?

Answer given by Mr Solbes Mira on behalf of the Commission

(16 April 2002)

As is the case with other major international currencies, such as the American dollar, it can be expected that the euro will be accepted as means of payment in

many areas outside the euro zone (for example: in tourist areas, by hotels, etc.), in addition to the national currency. Certain companies and large retailers, notably in pre-in countries, have already made announcements that they will accept payments in euros. This will in particular apply to areas, such as the Balkan countries, where Union currencies, and notably the Deutsche Mark, have been widely used in the past. It is not expected that the euro will be used as a domestic currency on a large scale, except for Montenegro and Kosovo.

After their accession, the candidate countries are expected to adopt the euro, but not immediately, and only when they fulfill the necessary conditions for its adoption, as set out in the EC Treaty. Full equal treatment will be applied to these countries compared to the initial participants in the euro area in deciding whether they have reached a high degree of sustainable convergence allowing them to adopt the single currency (see appendix for details on the institutional framework). The Commission has no position as to the use of the euro as an international currency by private operators in third countries.

The choice of the monetary policy and exchange rate regime in third countries is a domestic policy issue, which has to be seen as part of the wider economic policy framework. It is unilaterally decided by the countries concerned, and cannot give rise to particular obligations on the part of the Union. However, in addition to an active economic policy dialogue, the Union is supporting technically and financially in the context of its development and external relations policies the efforts of third countries to reduce poverty and to implement economic reform programmes.

Appendix: The institutional framework for EMU participation

The EU has entered the third stage of EMU on 1 January 1999. From the date of its accession, the new Member State will participate in Economic and Monetary Union and will assume the rights and obligations that constitute the third stage. According to the EC Treaty, and disregarding an opt-out status, a member State is either a Member State that has adopted the euro or a Member State with a derogation. According to the EC Treaty, the decision to adopt the euro is preceded by the procedure foreseen in Article 121(1) (former Article 109 j(1)). The new Member State cannot adopt the euro upon accession because this procedure, which requires inter alia an assessment of the sustainability of the government financial position in accordance with Article 104(6) (former Article 104 c(6)), cannot be applied before accession. Nor will the new Member State have participated in the Exchange Rate Mechanism, which is not open to the candidate countries prior to accession. According to the EC Treaty, a decision to grant derogation is taken in accordance with the procedure laid out in Articles 121 and 122. Therefore, the status of the new Member State as a Member State with a derogation, the implications of which are listed in Article 122(3) of the EC Treaty, must instead be determined in the Accession Treaty. Only after the application of Article 104 and participation in the Exchange Rate Mechanism, could a decision be taken on the new Member State's fulfilment of the necessary conditions for the adoption of the euro as referred to in the EC Treaty.