WRITTEN QUESTION P-0052/99

by Gianni Tamino (V) to the Commission

(15 January 1999)

Subject: Exchange transactions between national currencies and the euro in the Member States which have joined the euro area

The single currency has already been introduced in 11 Member States, although only for transactions which do not require the use of cash, it is as valid in those countries as the national currency and hence bank transactions between those countries should be comparable to those within each Member State.

The media have reported that banks are charging commission at a set rate of up to 4 % for exchange transactions between one currency and another or even between euros and national currencies.

Does the Commission not consider that this behaviour goes against the very concept of a single currency and can even be seen as improper speculation?

What steps does it intend to take to put an end to this situation, which is likely to compromise the image of the euro in the eyes of European citizens, as well as causing financial damage to consumers and businesses in the countries which have joined the single currency?

Answer given by Mr Monti on behalf of the Commission

(11 March 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 Italian lira to euro in Italy) 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. This does not of itself mean, however, that bank transactions between participating Member States should be comparable to those within each participating Member State.

The Recommendation, therefore, does not ask that banks cease to charge for the services they provide, including the purchase or sale of banknotes of other Member States. The Recommendation does, however, require that full transparency is provided for all conversions and exchanges by showing clearly the application of the fixed conversion rates and identifying separately any charges of any kind which are applied.

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 must, therefore, alter their method of charging with effect from 1 January 1999 at the latest. The situation which the Honourable Member mentions of banks charging commission at a set rate of up to 4 % for exchange transactions, can be considered to reflect this alteration to a more transparent method of charging.

On 12 January 1999, the Commission asked the European banking federations for information on the situation in Member States, including a comparison between 1998 and 1999 figures on conversion charges and fees for cross border credit transfers. On 5 February 1999, the Commission again called on banks to further 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 infringements 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 Parliament's concerns that initial feedback and analysis from some banks in some Member States suggests the contrary.

On the separate but related 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 EMU. This will set out a detailed framework which is aimed at achieving the goal of a single payments area.

The Commission's press release IP/99/90 issued on 5 February 1999 contains further details on the Commission's approach to this matter.

(1) OJ L 130, 1.5.1998.

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