WRITTEN QUESTION E-1576/98

by Klaus Rehder (PSE) to the Commission

(25 May 1998)

Subject: Link between the French and CFA francs and the euro

The currency of 15 West and Central African states, the CFA franc, has been linked to the French franc by a fixed exchange rate since the end of the colonial period.

1. What effects would the replacement of the FF by the euro have on the exchange rate link with the CFA franc? Who is responsible for deciding this?

2. After the introduction of the euro, who will be responsible for deciding on the parities between the euro and other currencies, particularly the CFA franc? Who will be responsible for admitting new participants to this currency link or for creating new links? Should Article 105 et seq. of the EU Treaty be taken as meaning that all questions of monetary policy will henceforth be the preserve of the Community?

3. If the FF-CFA franc currency link were to be continued after the introduction of the euro, how would it be possible to guarantee the priority objective under Article 105, namely price stability, and to prevent inflationary tendencies in the CFA zone from spilling over into Europe?

4. If the CFA were to be tied to the euro, who would be responsible for compensation payments in respect of CFA countries' balance of payments? Might such payments be set off against contributions to the EU budget?

5. Will the currency reserves held by the African states on an account at the French treasury have to be transferred to the European Central Bank pursuant to Article 105(2)?

Answer given by Mr de Silguy on behalf of the Commission

(17 July 1998)

The changeover from the French franc to the euro on 1 January 1999 will have no immediate implications for the African Financial Community (CFA) area. Indeed, it may bring some economic advantages in the medium term.

The machinery of the franc area agreements is built on a form of solidarity between the African countries and France that is embodied in cooperation agreements. This solidarity results in budgetary aid and, in particular, temporary liquidity loans being granted by the French State to central banks in the CFA area.

The changeover from the French franc to the euro will in no way affect this situation since the countries belonging to the franc area have no wish for change and since the changeover will not give rise to any legal problems or technical difficulties.

Acting on a proposal from the Commission, the Council on 6 July 1998 reached political understanding on a draft Decision confirming the future relations between the euro and the CFA franc and Comorian franc. As soon as the European Central Bank has given its opinion in accordance with the Treaty, the Council will adopt the Decision, which will come into effect on 1 January 1999. The Decision ensures that the present arrangements between France and the CFA area will not be materially affected by the changeover to the euro. The French authorities will nevertheless be obliged to keep the Commission and the Economic and Financial Committee (successor to the Monetary Committee) informed about the working of those arrangements. In particular, they will inform the Economic and Financial Committee in advance of any changes in the parity between the euro and the CFA or Comorian franc. Changes in the nature or scope of the agreements will require the approval of the Council, which will take a decision on the basis of a Commission recommendation after consulting the European Central Bank.

The introduction of the euro does not, therefore, entail any destabilisation risks for the franc area countries. On the contrary, it will open up new opportunities and have a generally positive impact on them. First, the link between the CFA area countries and the area of monetary stability represented by Economic and Monetary Union will benefit them on an economic level. Second, the introduction of the euro will bring advantages for the CFA area countries on a commercial level. The fact of using a single currency in their dealings with their European partners will simplify trade in so far as the cost of their foreign-exchange transactions will be reduced.