Opinion of the Economic and Social Committee on the 'Impact of Economic and Monetary Union: Economic and social aspects of convergence and measures to increase awareness of the single currency` (97/C 30/21)#
Date: 1996-09-26
Institutions: European Economic and Social Committee
Subjects: Economic and Monetary Union, convergence criteria, euro, exchange rate, public awareness campaign













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51996IE1089

Opinion of the Economic and Social Committee on the 'Impact of Economic and Monetary Union: Economic and social aspects of convergence and measures to increase awareness of the single currency` (97/C 30/21) -   


Official Journal C 030 , 30/01/1997 P. 0073 





Opinion of the Economic and Social Committee on the 'Impact of Economic and Monetary Union: Economic and social aspects of convergence and measures to increase awareness of the single currency` (97/C 30/21) On 9 July 1996 the Economic and Social Committee decided, in pursuance of Article 23(3) of its Rules of Procedure, to draw up an Opinion on the 'Impact of Economic and Monetary Union: Economic and social aspects of convergence and measures to increase awareness of the single currency`.The Section for Economic, Financial and Monetary Questions, which was charged with the preparation of the Committee's Opinion on the matter, drew up its Opinion on 4 September 1996. (Rapporteurs: Mr Umberto Burani, Mr Michael Geuenich and Mr Bernard de Bigault du Granrut).At its 338th Plenary Session, held on 25 and 26 September 1996 (meeting of 26 September), the Committee adopted the Opinion set out below by 116 votes to 8, with 11 abstentions.1. Preliminary comments1.1. Following a request from the Commission, the Economic and Social Committee, adopted an Opinion on 26 October 1995 (), on the Green Paper on the practical arrangements for the introduction of the single currency (). The present Opinion should be regarded as complementary to the latter Opinion in which the ESC considered the technical problems of introducing the single currency. In the present ESC will look in greater detail at the consequences of a single currency, going beyond the practical problems of its introduction.1.2. The ESC welcomes the planned introduction of monetary union in Europe. This has been made clear on a number of occasions. The ESC notes with concern, however, that as the deadline for entry to the third stage of Economic and Monetary Union (EMU) draws closer, more and more questions are being raised by the public. Many Europeans regard renunciation of their national currency as a high price to pay, even if the ultimate objective, which enjoys general support, is closer European integration. The high degree of scepticism in some quarters can be attributed, inter alia, to a continuing lack of publicly available information. Against this background the ESC considers it appropriate to stress once again, at the beginning of this Opinion, the advantages of EMU for the prosperity of Europe's citizens.1.2.1. The most important aspect of EMU is the disappearance of exchange-rate fluctuations. This will remove a major barrier to trade and investment in the European Union. In this connection, the ESC endorses the analysis provided in the Commission document (), 'The Impact of Currency Fluctuations on the Internal Market`, particularly its conclusion that the single currency, as the indispensable complement to the single market, will:- eliminate internal currency fluctuations, which are a source of major economic problems;- make possible greater convergence using the machinery provided for by the EC Treaty.1.2.2. In addition, the forecast growth in investment should be accompanied by a more efficient and rational distribution of investment and employment in the single market. This would greatly amplify the positive effects on growth and employment of the establishment of the single market.1.2.3. The disappearance of national currencies will also eliminate the need for expensive rate-fixing and exchange costs, with resultant benefits for the production, trade and services sectors.1.2.4. The higher level of integration of the common capital market will make the single currency a more significant counterweight to the US dollar and the yen, and will cause it to grow in importance as a reserve currency. Investors in search of international diversification may be expected to increase the weighting of the 'euro` in their portfolios. Higher capital imports will benefit the currency itself and real interest rates. A stable currency and the associated lower financing costs are important preconditions for more investment, growth and employment.1.2.5. From a more general point of view, the combined effect of the introduction of the single currency and the completion of the single market will enable the EU, by the beginning of the 21st Century, to be one of the top three or four economic and political powers at world level. No European state, by itself, could achieve such a position of influence.1.2.6. The single currency will make it easier to compare prices on goods and factor markets across national frontiers. This does not mean that the price of a homogeneous good will be the same on all European markets. But relative price changes will be more easily discernible. This will guarantee the efficient use of available resources. The EU's prosperity will increase.1.2.7. It is also expected that the creation of a single currency area will make monetary policy more effective. Initial empirical studies () indicate that aggregate monetary demand in Europe is more stable than demand for the national components of the aggregate.1.3. Thus, EMU will offer far-reaching opportunities. Hasty and ill-prepared implementation, on the other hand, could be dangerous. Once the third stage of EMU enters into force the currency merger will be irreversible. It is therefore important in the run-up to monetary union to discuss all relevant problems and to establish the best possible framework for the common economic area and relations between this area and the citizen. In view of the many questions which the single currency raises, this draft Opinion focuses on a few key issues. The choice of subjects for discussion reflects the social interests represented at the ESC. More detailed consideration is also given to a number of subjects for which closer examination was shown to be desirable in the light of the Opinion on the Green Paper. The following aspects of monetary union are developed in greater detail:- interpretation and application of the convergence criteria laid down in the EC Treaty (Section 2);- establishment of conversion rates (Section 3);- starting date for monetary union (Section 4);- position of the future European Central Bank (Section 5);- derogation Member States: economic considerations and monetary cooperation (Section 6);- consequences of monetary union for the labour market (Section 7);- measures to be taken in the field of communications (Section 8).2. The convergence criteria - interpretation and application2.1. The establishment of a common monetary area is economically desirable if economies which have attained a similar level of development merge. In general, the suitability of a region for participation in a common currency depends on its ability to react flexibly and homogeneously to exogenous shocks. When economies of a similar level of development are merged, countries will enjoy the advantages of a single currency - primarily increased investment, growth and employment. If, however, economies with different levels of development are merged, the disappearance of flexible exchange rates can be disadvantageous. The countries which do not satisfy the real convergence criteria run the risk, as will be seen below, of not being able to keep pace with the others and of losing (export) market shares to economically stronger regions for a time. The result would be more under-employment in the economically weaker regions. The resulting large disparities in regional income structures would carry the risk of social and political tensions in the common monetary area. Large financial transfers would be needed to maintain social peace. As a result of external economic integration, a secondary effect would be that loss of demand in the weaker economies would impact negatively on growth in the central region.Convergence criteria for participation in Economic and Monetary Union  Price stabilityThe average rate of inflation, observed over a period of one year before the examination, may not exceed by more than 1½ percentage points that of, at most, the three best performing Member States in terms of price stability.  Public finances- The ratio of the government deficit to GDP (deficit ratio) may not exceed 3 % unless the ratio has declined substantially and continuously and reached a level that comes close to the reference value, or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value.- The ratio of government debt to GDP (government debt ratio) may not exceed 60 %, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace.  Exchange rate stabilityParticipation in the normal EMS fluctuation margins without severe tensions for at least the last two years before the examination. In particular, the Member State may not have devalued its currency's bilateral rate against any other Member State's currency on its own initiative for the same period.  Interest rate stabilityObserved over a period of one year before the examination, a Member State must have had an average nominal long-term interest rate (long-term government debt issues) that does not exceed by more than 2 percentage points that of, at most, the three best performing Member States in terms of price stability.2.2. These considerations are reflected in the EC Treaty. The convergence criteria laid down in Article 109j(1) (see box) will be used to determine which Member States will be among the first to participate in monetary union. In view of the observations made in point 2.1, the ESC thinks that a broad-brush approach to the scope for interpretation allowed by the Treaty would not be without problems.2.3. The question thus arises as to how the convergence criteria are to be interpreted in practice. Phrases such as 'substantially and continuously` and 'sufficiently diminishing`, used in the EC Treaty, leave a great deal of scope for interpretation. The ESC therefore calls on the Council to clarify the convergence criteria before entry to monetary union. This would have the advantage of giving governments clear targets. It would also prevent excessively lax, political interpretation of the entry criteria. This is a real danger, given that admission to monetary union requires a qualified majority in the European Council (at present 62 out of 87 votes). Thus, countries which will themselves probably not qualify for monetary union, will be required to approve the entry of other Member States.2.4. The ESC feels that the convergence criteria need to be clarified in a number of respects. Thus, it is not clear from the text of the Treaty whether the price criterion applies to the average, or the worst value of the three most stable currencies. In order to provide a more precise definition the ESC suggests that the price criterion be regarded as fulfilled if the average inflation rate does not exceed by more than 1½ percentage points the GDP-weighted average inflation rate of the three best performing Member States.2.5. The ESC also sees a need for clarification of the price criterion because of its relationship to the interest criterion. It is hoped that, as a result of the creation of the European single currency area, the participating economies will benefit from permanently lower average EU interest rates. This expectation is primarily justified by the greater depth of the capital market in the future European currency area. The maintenance of lower interest rates is a precondition for higher investment in Europe and hence for boosting employment. The resultant gains in productivity and international competitiveness are expected to fuel higher investment and employment.2.6. The exchange-rate criterion also needs clarification. On 2 August 1993 the fluctuation margins were widened from ± 2,25 % to ± 15 %. The new, wider fluctuation margins take account of the massive increase in capital mobility over recent years and the consequent high degree of volatility on the currency markets. The adjustment of the fluctuation margins was also intended to deprive the markets of an easy target for speculative attack. This has proved successful, as shown by the deviation indicator. This indicator shows whether the behaviour of a currency participating in the intervention system is deviating significantly from that of the other participating currencies (). With market volatility virtually unchanged, the indicator is showing much less violent fluctuations. And finally, many EMS currencies were able to return to their old fluctuation margins within a short time of the widening of the margins.2.6.1. At ± 15 %, the limits beyond which adjustment of the bilateral central rate is required are so wide that speculation has become a much less significant factor in exchange-rate movements. Fundamentals now play a comparatively more important role. This has made it easier for fundamentally 'healthy` currencies to remain within the narrow ± 2,25 % fluctuation margin. A currency's ability to remain within a narrow margin around the central rate can be regarded as a criterion for entry to monetary union. The ESC therefore feels that the following approach could be adopted to the monitoring of convergence. Whilst formally retaining the enlarged ± 15 % fluctuation margins, the exchange-rate criterion should be regarded as fulfilled if, during the two years prior to entry to the third stage of monetary union, no adjustments have been made to a currency's bilateral central rate and if, during the final year before the examination, the currency has remained within a sufficiently narrow fluctuation margin relative to the bilateral central rate. It will be for the Council of Ministers to define the expression 'sufficiently narrow` when assessing convergence. The ESC, however, thinks that a value which takes account of (a) actual economic conditions and (b) the principle of observing competitive neutrality should be fixed.2.7. Clarification of the government deficit and government debt ratio criterion poses the greatest political problem. The wording of the EC Treaty leaves considerable scope for interpretation.2.7.1. The provisions of Article 104c in respect of government deficits state that Member States shall avoid excessive government deficits.2.7.2. Paragraph 2 goes on to define the way this policy is to be implemented, as follows:'The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria:a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless- either the ratio has declined substantially and continuously and reached a level that comes close to the reference value;- or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;b) whether the ratio of government debt to gross domestic product exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace.The reference values are specified in the Protocol on the excessive deficit procedure annexed to this Treaty.`2.7.3. Protocol No 5 to the Treaty defines and spells out (Article 1) the reference values referred to in Treaty Article 104c(2).'- 3 % for the ratio of the planned or actual government deficit to gross domestic product at market prices;- 60 % for the ratio of government debt to gross domestic product at market prices.`2.7.4. Protocol No 5 defines (Article 2) what is meant by 'government`, 'deficit`, 'investment` and 'debt` and confirms (Article 3) that governments are responsible for the deficits of 'general government`.2.7.5. Paragraphs 3 to 14 of Article 104c give details of the procedure for Commission, Council and Parliament monitoring of government deficits. A timetable for the completion of Economic and Monetary Union is given in Article 109e of the EC Treaty. With the exception of paragraphs 1, 9, 11 and 14, Article 104c is applicable from the start of the second phase of completion of EMU.2.7.6. Consequently, should any Member State fail to comply with the criteria regarding government deficits or debts for purposes of transition to the third phase, the Commission is to prepare a report (Paragraph 3). A committee, provided for in Article 109c, delivers an opinion on this Commission report (Paragraph 4). If the Commission considers that a Member State's deficit is excessive, it addresses an opinion to the Council which shall, under paragraph 6, 'acting by a qualified majority on a recommendation from the Commission, and having considered any observations which the Member State concerned may wish to make, decide after an overall assessment whether an excessive deficit exists.`2.7.7. A joint reading of these texts shows that it is not absolutely necessary, when determining whether Member States meet the conditions to join the Monetary Union, for the ratio between government deficit and GDP to be under 3 %. It is sufficient for:- the ratio to have declined substantially and continuously and to have reached a level that comes close to the reference value,- or for the excess over the reference value to be only exceptional and temporary and for the ratio to remain close to the reference value.2.7.8. The 'substantial and continuous` nature of the decrease, the proximity to the 'reference value` and the 'exceptional and temporary excess` are matters for the Council to appraise (deciding by a qualified majority of its members' votes, weighted in accordance with Article 148(2), excluding the votes of the representative of the Member State concerned). The Council then decides 'after an overall assessment` (Paragraph 6) whether or not an excessive deficit exists.2.7.9. The reference to an 'overall assessment` gives the Council a margin of appraisal which is not defined in any text. The Council should be able to take account of the date on which the Treaty of Maastricht was signed, viz. 7 February 1992 - at which time the economic situation in the signatory States differed significantly from the situation which will prevail on the date when the Council takes its decision. As a result, the values specified in Protocol No 5, namely a government deficit of 3 % and a government debt of 60 % of GDP, are not hard and fast limits and the Council has a substantial, sovereign margin of appraisal, deciding by a qualified majority.2.7.10. At the time the Treaty was drafted, the signatory states clearly realized that the European economy, like the world economy or individual national economies, was in the throes of constant change, determined by factors beyond the Member States' control. The Member States therefore decided (over six years prior to implementation of these Treaty provisions) against fixed and inflexible convergence criteria as regards reference values. Otherwise the provisions envisaged could well have proved inapplicable.2.7.11. In the light of the foregoing, it now seems necessary for all parties again to focus on the goal of these provisions, namely the introduction of a single currency for the EU Member States. The feasibility of this venture is conditioned far more by the 'real convergence` of the various economies than by the 'binding` force of criteria.2.7.12. In the same context, the ESC would point out that an approach based on Council Decisions certainly does not mean that the precise overall assessment criteria can be ignored in the context of efforts to create a 'strong` currency. On the contrary, it would stress that the goal of convergence must be regarded as an indispensable objective.2.7.13. The deficit ratio should also be interpreted in like manner. In the ESC's view, this ratio could be said to be close to the reference value if it exceeds this value by no more than 1 percentage point. The deficit ratio could be said to have declined substantially and continuously if it has fallen for three years in succession. And a deficit could be said to be exceptional and temporary if it exceeds the reference value only for the duration of a cyclical downswing. The government debt criterion should be quantified in such a way that the results of earlier convergence monitoring do not have to be revised retrospectively. A case in point is Ireland, which in 1995 was found by the Commission and the Council of Ministers to have made sufficient progress on reducing its government-debt ratio.2.8. Member States wishing to take part in EMU must pursue a strict convergence policy. The Council will at all events make a political interpretation of the convergence criteria when deciding on whether Member States are to be admitted to the third stage of EMU. Too small a group of Member States would not justify the high costs associated with introduction of a single currency.2.9. In this connection, the question arises as to whether exclusive concentration on monetary, budgetary and debt criteria makes for an optimum selection process. The ESC feels that, in order to broaden the circle of participants to an economically more viable number, a further examination should be carried out on the basis of appropriate criteria. This should be done, however, only after a rigorous examination on the basis of the criteria laid down in Article 109j(1), and then only with respect to countries which fail to meet one only of the five criteria. This approach could be justified on the grounds that the admission criteria are biased towards monetary and fiscal policy measures. But most of the selection criteria mooted in economic publications relate to real economic variables. And even the EC Treaty calls for the application of other criteria, although the wording is vague. Article 109(j)(1) also refers to 'the results of the integration of markets`, 'the situation and development of the balances of payments on current account`, 'the development of unit labour costs` and 'other price indices` as factors to be taken into account.2.10. The advantages of a further examination are neatly illustrated by the case of Belgium. On the basis of the definition set out in the Treaty, Belgium's ratio of government debt to GDP currently stands at 133,5 %. Even the most strenuous efforts would be insufficient to bring this ratio close to the Treaty's 60 % benchmark by 1997, the year of the convergence examination. Even under the EC Treaty's more flexible requirements that, in order to qualify, a Member State's deficit ratio should be 'sufficiently diminishing and approaching the reference value at a satisfactory pace` (Article 104(c)(2)), Belgium could clearly hardly qualify for participation in monetary union from the point of view of the debt criteria.2.10.1. And yet Belgium is a country which enjoys a high degree of economic stability, as illustrated by the fact that it fulfils the price, interest-rate and exchange-rate criteria set out in the Treaty. Belgium would also qualify for monetary union on the basis of a number of real economic measures. These include continuing large balance of payments surpluses despite a real revaluation of the Belgian franc, the degree of openness of the Belgian economy and the fact that Belgium is a relatively small economy. And finally, Belgium's structure of production - a highly developed services' sector, a strong industrial sector and a small agricultural sector - are comparable with those of many other European countries. This means that terms of trade shocks would have a symmetrical effect and that the exchange-rate adjustment instrument would not be needed.2.11. An examination focusing exclusively on the convergence criteria will thus not necessarily lead to the selection of the countries most suitable for participation in monetary union.3. Establishment of the conversion rates to be applied on entry to the third stage of monetary union3.1. The ESC's discussions on the introduction of the single currency have always been coloured by the concern that the conversion rates to be set for entry to monetary union could be distorted by speculation on the international financial and currency markets. The danger of speculative attacks will be particularly acute during the period when the members of the new currency union have already been decided by the Council but the currencies of the participating countries have not yet been irrevocably linked. The EC Treaty contains no clear provisions on the conversion rates at which entry to the single currency will occur. Article 109(l)(4) does stipulate that the transition to the third stage shall not modify the external value of the ecu. Strictly interpreted, however, this would mean that currency union would have to take place at the market rates valid on the day before conversion. The ESC cannot endorse this approach.3.2. In order to prevent cost-induced distortions of competition in international trade, the ESC considers it essential to ensure that speculative upheavals do not lead to fundamentally unjustified conversion rates being applied at the beginning of monetary union. This is all the more important in the light of the experience garnered from the exchange-rate mechanism of the EMS, that exchange rates justified in real economic terms are an essential precondition for the success of a currency system. If a country participates in a currency system at an exchange rate which is too high it runs the risk of losing price competitiveness. This would be all the more problematic on entry to the third stage of monetary union as, with the disappearance of national currencies, such overvaluation could no longer be compensated for by a relatively low level of interest rates. The distorting effects on external trade flows would be permanent and could only be corrected by productivity gains in the countries with overvalued currencies. But as such gains are in the short term nearly always achieved via job losses, the catching-up process would be particularly painful and would lead to a further rise in unemployment in the countries concerned. This would also have a detrimental effect on public acceptance of the common currency.3.3. One way of eliminating this problem would be to declare average rates established over at least two years to be the conversion rates. The exchange rate must not diverge significantly from the average value over this period, however. The advantage of this approach over the central rates procedure is that the market plays the decisive part in determining fundamentally 'correct` exchange rates.3.4. Another approach would be to use a weighting system which would assign a steadily decreasing weighting to market rates as the irrevocable fixing of exchange rates approached. In order to deprive market operators of targets for speculation it would be a good idea not to publish the weighting system used. In this way currency speculations taking place shortly before monetary union in particular would not affect the conversion rates.3.5. The models presented here are only some of the possible solutions. The ESC does not consider it particularly important which of them is chosen. What is important is that the responsible European institutions should be aware of the problem and should plan in advance their response in the event of major disturbances on the currency markets. No satisfactory proposals have so far been officially made in this regard. In its study of the transition to the single currency published in November 1995, the European Monetary Institute makes no mention of the problem. The view expressed by the Commission in its above-mentioned Green Paper, that strict application of the convergence criteria will be sufficient to prevent disturbances on the financial and currency markets, is essentially correct. But even then, speculation cannot be entirely excluded. The experience of the EMS has shown this. Again and again fundamentally 'healthy` currencies were dragged down in the wake of other currencies. It is also conceivable that currency turmoil might originate outside the EU. Many European currencies come under pressure whenever the US dollar is weak. The most recent example of this occurred at the turn of 1994/1995, when European currencies came under devaluation pressure as a result of the peso crisis. The ESC feels that the Community must be prepared for exogenous shocks of this kind which might coincide with entry to the third stage of monetary union.4. Starting date for monetary union4.1. The starting date for the third phase of monetary union is now virtually certain to be 1 January 1999, as provided for by Article 109j (4) of the EC Treaty. The Council must decide 'which Member States fulfil the necessary conditions for the adoption of a single currency` by the deadline of 30 June 1998. According to the letter of the Treaty, the single currency should be introduced even if, in the extreme case, only one country satisfies the stated conditions. The spirit of the provisions is obviously quite different.4.2. Clearly - as has been repeatedly stated - the Treaty is intended to establish a 'stable currency`, which represents the aggregate of a number of equally stable currencies. The long-term stability of the single currency depends on the prospects for sustainable development in those economies, a factor too frequently accorded secondary importance, if not ignored.4.3. As indicated in Section 2, the admission criteria provided for by the Treaty are, in many respects, so elastic as to allow scope for that degree of pragmatism which, bearing in mind all relevant factors, might prove necessary when they are applied. Such pragmatism must not, however, be interpreted either as laxity or a departure from the established criteria. The goal of creating a strong, stable currency must be given priority in all decision-making.4.4. GDP growth, which has remained below forecasts in some countries, the problem of managing public finances and employment trends, which are critical almost everywhere, are all now giving rise to concern for the future. This has helped to create doubt in political and economic circles, which is perhaps even greater among the general public, as to whether a significant group of countries can qualify for admission to monetary union by 30 June 1998.4.5. The Treaty defines the date and procedure to be adopted for the start of monetary union. This fact should automatically dispel any doubts and prompt the Member States to take all necessary steps to meet the specified conditions in the short time remaining before the decision date.4.6. Efforts aimed solely at ensuring entry to monetary union will not be sufficient. The preconditions for the sustainable, long-term growth referred to in Point 4.2 must also be created. It is becoming imperative to adopt gradual growth policies, whilst avoiding temporary emergency measures and, in particular, social disruption. This approach may be time-consuming and the deadline may be missed. It would, however, be in the interests of any potential adherent, as well as of monetary union as a whole, to opt for delayed admission from a firm foundation rather than for hasty admission with no prospect of stability.4.7. Nevertheless, the basic question remains: is there still sufficient time to enable a significant number of countries to participate in monetary union? Moreover, what would constitute a 'significant number?` The ESC believes that the actual total is not, in itself, relevant; it is more important for the single currency to be created by countries which together account for at least 50 % of EU GDP.4.7.1. In this connection, the following table shows individual national GDP rates and assumes a monetary union which initially includes Germany, Austria, the Benelux countries, France, Ireland and Finland. It is further assumed that the UK and Denmark will use the opt-out clause and that Italy, Spain, Sweden, Portugal and Greece are not in a position to accede. It is obvious that neither the 50 % threshold nor monetary union could be achieved without Germany and France - a fact which now seems to be politically accepted.>TABLE>5. The position of the future European Central Bank and the interrelationship between national fiscal and European monetary policy5.1. The EC Treaty defines the legal status of the ECB and its main responsibility in Articles 105 (objectives and tasks of the ESCB) and 107 (ECB's independence of instructions). The first sentence of Article 105(1) in particular states that 'The primary objective of the ESCB shall be to maintain price stability`. For the Member States, the experience of recent decades justified giving priority to the securing of monetary stability. Thus, countries with a low inflation rate would have relatively low real interest rates and hence a more robust record of investment and job-creation. Economic theory also predicts this, as the efficient allocation of resources via relative price changes is possible only if there is monetary stability. In times of high inflation the price structure is distorted and prices can no longer perform their guiding function, with its positive impact on prosperity. It is not only the goods market which is affected by loss of information as a result of inflation. The positive correlation of price and interest-rate levels, and of price and wage levels, also has a negative impact on factor markets. The result is a misallocation of resources on virtually all markets, and ultimately forgone growth: on the goods market, because producers cannot gear supply to demand; on the capital market, because savings are no longer lent to investors whose projects promise the highest returns; on the labour market, because wage earners can no longer identify the activity with the strongest demand for labour.5.1.1. The primacy of securing monetary stability does not, however, mean that the ECB is absolved of responsibility for economic policy. The second sentence of Article 105(1) clearly points to the ECB's responsibility, as 'without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2`, for example a high level of employment.5.1.2. In view of the requirements arising from this legal framework - primacy of monetary stability, support of economic policy objectives without prejudice to price stability - the ESC calls for improvements to facilitate the ECB's performance of its primary task. The planned shape of monetary union is not likely, the ESC feels, to guarantee non-inflationary provision of money, despite the existence of an issuing bank with the best possible institutional safeguards.5.1.3. Probably the greatest threat to the maintenance of monetary stability is posed by fiscal policy. One of the remaining unsolved conceptual problems in the way of monetary union is the different situation with regard to powers in respect of fiscal and monetary policy. Whilst the ESCB is the instrument for the implementation of a supranational monetary policy has been created in the shape of the ESCB, fiscal policy will remain in the hands of national governments, which in the light of the subsidiarity principle is to be welcomed. The room for manoeuvre in respect of the allocation of fiscal powers should be used in a decentralized way in order to bring decision-making closer to the citizen.5.1.4. This separation carries with it, however, the danger of monetary policy endeavours aimed at stability being vitiated by destabilizing fiscal policies in the Member States. In this context the sanction mechanisms provided for in Article 104c of the EC Treaty (monitoring of the budgetary situation in the Member States) have been repeatedly criticized as too weak. First and foremost, sanctions can be imposed only by a two-thirds majority in the Council. If a (qualified) majority of Member States is experiencing structural budget problems therefore, far-reaching decisions are unlikely. It would therefore be advisable to make the sanctions' mechanisms automatic, thus avoiding the need for long drawn-out votes in the Council of Ministers. Moreover, the timescale for the implementation of sanctions is too long. If the procedures laid down in Article 104c are strictly adhered, to ten years could easily pass before effective measures are taken.5.1.5. The ESC welcomes a number of proposals aimed at increasing fiscal discipline in the Member States. It sees a need for an additional agreement limiting new annual indebtedness to an economically acceptable level and providing for appropriate sanctions in the event of infringement of the stability criteria. The ESC looks with favour on the proposal that interest-free deposits with the ECB be required, in the event of an excessive budget deficit, to be refunded only when the budget situation had been rectified. So as not to impose an additional burden on countries facing fiscal problems, the amounts deposited should not be taken into account in calculating the budget deficit. The ESC feels, however, that such a stability pact should also provide scope for stabilization of demand in times of recession. But this should be expressly limited to the duration of the cyclical downswing.5.1.6. A voluntary additional agreement between the participating countries committing them to sound budgetary policies would have major advantages. First, it would increase citizens' confidence in the monetary union as, with much stronger stability requirements, the common currency would run less risk of weakness. And secondly, voluntary fiscal policy restraint would allay citizens' fears of the state sector taking an ever greater slice of their incomes. A stability pact would also strengthen the political union as, in addition to monetary policy, a degree of national responsibility for fiscal policy would indirectly be transferred to Community level without any increase in the European central budget.5.1.7. The ESC calls on the responsible European institutions to take measures to further convergence in economic policy. The reduction of debt-financed state demand will have disinflationary effects. Another welcome effect of a stability pact would be to reduce government recourse to the capital market. This would result in falling real interest rates and, hence, a better climate for private investment, private consumption and, ultimately, employment.5.2. Nevertheless, the ECB's task of maintaining price stability is not independent of the other factors contributing to economic convergence, which is the responsibility of the Member States. It is for them to control public expenditure, not only with regard to investment but also in respect of social provisions, public health and pensions. Reducing unemployment should be one of their main objectives alongside the goal of maintaining competitiveness. Inflation should be contained and, when necessary, reduced. A fiscal policy in tune with sustainable growth represents the cornerstone of the entire system.5.2.1. The foregoing gives rise to the following observation: an independent ECB policy on currency management and the maintenance of price stability would have to be backed up by national economic and social policies. These policies are, however, the responsibility of authorities facing different national situations which can involve a mix of measures that are not necessarily compatible with the goal of convergence.5.3. Thus, compliance with the convergence criteria - which are sound economic policy principles, quite apart from being requirements of the Treaty - becomes of vital importance for the individual Member States and the Community as a whole. If this principle is accepted, purely 'national` policies are clearly no longer acceptable. Economic policies must be based on common guidelines aimed at creating the conditions for admission to the single currency.5.4. Under the Treaty, the European Central Bank is required to pursue the objective of monetary stability. It is not clear, however, what will be regarded as the highest acceptable inflation rate for the EU. And thus fiscal, wages and monetary policy lack a concrete benchmark, making it difficult for economic operators to know what to expect.5.4.1. It would seem appropriate to formulate a medium-term inflation target binding for a period of several years. An argument against such an annual target is that exogenous shocks - such as a rise in the price of crude oil - could temporarily lead to a higher rate of inflation. If the future ECB were committed to an annual target, the result might be excessive swings in monetary policy leading to severe dislocations on the factor and goods' markets.5.4.2. Over the last few years a number of countries have set specific inflation targets. The experience gained by these countries has been positive. Significant progress has generally been made on reducing inflation. The ESC feels that 2 % would be a suitable medium-term target at European level. This would be in line with the policy pursued by a number of central banks and thus would signal stability to the markets.5.5. The EC Treaty neither spells out an inflation target nor specifies the monetary strategy to be pursued in order to underpin the value of money. One of the EMI's main tasks during the second stage of EMU is to draw up a monetary policy plan. This is to be ready by the end of 1996. The ESC therefore wishes to express its views on the subject now.5.5.1. There are two possible strategies for safeguarding the value of money: either direct use of monetary policy to control inflation or adoption of a intermediate target such as control of the money supply. Experience has been acquired in respect of both these methods. The Bank of England, for example, uses control of inflation and the Bundesbank uses control of the money supply. Each of these approaches has specific advantages and disadvantages.5.5.2. Controlling inflation directly involves underpinning the value of the currency by influencing market interest rates. The main problem with this approach is the lack of certainty as to the optimum amount and duration of an interest-rate change. Thus, there is a danger that 'the wrong interest rates` and variable time lags will actually accentuate the current cycle. There is also a structural hiatus in the causal relationship between interest rates and the inflation rate. Whilst, in the short term, these two variables are inversely correlated, in the longer term there is a positive correlation.5.5.3. The biggest problem in using an intermediate monetary target is that a clear positive relationship between the money supply and inflation exists only as long as monetary demand remains stable. Recent studies in the United States have shown that, as a result of large-scale financial market innovations, this condition is no longer fulfilled. Numerous studies of the German market, on the other hand, have shown that even after unification monetary demand remains stable.5.5.4. For the purposes of European-level decisions, it is important to establish whether aggregate monetary demand is sufficient to determine stability. Numerous studies have been carried out on this question. The results so far suggest that monetary demand is more stable in a common monetary area than in national monetary areas (). Thus, an intermediate monetary target could also be fixed in the new monetary union. The main advantage of this approach is that an intermediate target gives the financial markets a central guidance value for expectations. If a whole series of often contradictory indicators (growth, business expectations, money supply trends, interest-rate structural trends, etc.) of future inflationary dangers are taken into account in deciding interest policy ('looking at everything`), the basic criteria underpinning monetary policy are no longer perfectly obvious to the market. The resultant uncertainty produces comparatively greater volatility in the financial markets with an uncertain investment climate. Lastly, the use of an intermediate monetary target has the advantage of dispelling the impression that monetary policy is aimed exclusively at price stability. Reference should be made in this context to the requirement, contained in the second sentence of Article 105(1), that the ECB support the general economic policies in the Community.5.5.5. The ESC is, of course, aware that the use of an intermediate monetary target can also cause problems. In the context of ongoing financial market innovation and ever-increasing capital market movements, failure to meet the money supply target cannot be ruled out. This could pose serious problems for the European Central Bank. If, in the interests of its reputation, it was unduly strict in the pursuit of the money supply objective, it could jeopardize growth. On the other hand, the market could interpret a failure to act as a threat to stability. To avoid such problems, it is crucial for overall EU monetary demand to be more stable than that of individual Community regions - possibly through a comparatively low level of currency substitution. Use of an intermediate monetary target seems advisable if this condition is satisfied. The ESC therefore calls on the EMI to intensify its studies of the stability of monetary demand in the future currency area. The results of these studies could provide a basis for the EMI monetary policy plan.5.6. Maintaining the principle of neutrality with respect to competition must be the prime consideration when effecting currency conversion. This applies to the design of the monetary-policy instruments as well as to the formulation of objectives and strategy. In order to supply the banking system with central bank funds, all commercial banks, regardless of size, must be given direct access to ECB funds. Restricting the future ECB to open market transactions will place smaller financial institutions at a disadvantage. One of the problems is that smaller institutions which do not trade actively on the money markets have difficulty disposing of the surplus funds arising from an over-generous tender allocation. This problem does not arise in the case of refinancing via standing facilities. Under this system, the financial institution decides whether and when it wishes to cover its needs with central bank funds. If close control of the money supply is sought, central bank financing is inevitably subject to quotas; in the interests of a competition-neutral refinancing policy, it should therefore be ensured that the refinancing rate is not significantly below the market interest rate.6. Derogation Member States: economic considerations and monetary cooperation6.1. Adoption of the single currency will lead to the creation of two groups of countries within the EU, namely those in a position to join EMU and the remaining countries. There is still some uncertainty as to the identity of the 'derogation` countries, and it is not known whether the two Member States (Denmark and UK) which have secured the 'opt-out` clause intend to apply it. It is, however, interesting to examine the position of the two different groups of countries and the relations between them.6.2. The advantages of the single currency for participating countries have been amply described in reports and Opinions of the Commission, Council, Parliament and the Economic and Social Committee itself, as well as in countless statements, speeches and writings. With the exception of the opponents of the single currency, there is now general agreement on the following aspects:- greater average price stability throughout the EU; - general reduction in the cost of transactions and rate fixing;- greater price transparency between countries;- lower administrative and cash management costs for firms (excluding start-up costs);- stimulus to growth, competitiveness and employment;- possibility for the euro to become a reserve currency.6.2.1. The derogation countries will not enjoy these benefits of the single currency, finding themselves in a less favourable position with a real risk of the creation of a 'two-speed` Europe. Non-participation in EMU must therefore represent a 'transitional stage` as defined by the Commission (). The shorter this phase is, the less serious will be its impact. The ESC cannot fail to endorse this position. The need for derogation states to participate in EMU without delay will provide a stimulus for their economic re-organization. At the same time, the ESC would warn against facile optimism and over-simplification; the situation in several countries shows no signs of dramatic improvement in the short term and economic re-organization is an objective necessity, regardless of the need for EMU membership.6.3. The single market has progressed and the EU institutions have done what they could to promote growth. At the same time, unemployment and the need to improve competitiveness continue to be outstanding problems. Neither the current economic situation in Europe nor future forecasts offer encouragement for Structural Fund increases and the general continuation of assistance policies. All these factors suggest that the much-vaunted 'solidarity` cannot be embodied in a policy of further subsidies; individual countries must impose a more rigorous discipline and exhibit greater self-reliance than in the past.6.4. Enlargement of the European Union to cover countries which have applied, or will apply, for membership - though several will presumably not be ready for EMU entry immediately - will constitute a new, serious problem. Together with the new derogation states, derogation countries which have still not joined EMU at the time of enlargement would help to create a significant nucleus of non-participants. It would no longer be a question of a two-speed Europe but of two separate groups, with a different understanding of the term 'Europe`. The political danger would then overshadow the already serious economic risks.6.5. In addition to the disadvantages, certain advantages for the derogation countries must be taken into account. They would be able to benefit from the experience of the core group. Even given the most thorough preparation, the introduction of the new currency and the adoption of a single monetary policy by the ECB will not be free of teething problems. It may even prove advantageous to have more time to fulfil the convergence criteria. Abruptly coming into line with the Maastricht objectives without concern for a country's structural peculiarities could result in loss of demand with damaging consequences for the labour market (); if structural budget deficits were gradually reduced, however, such effects would be far less likely. Gradual reduction of structural deficits and a corresponding reduction in the government debt ratio should be reflected in a reduction in the risk premium component of interest rates. Yields would also benefit from relatively lower expectations of inflation. The resulting impetus to growth ought, in the medium term, considerably to outweigh the loss of demand resulting from consolidation. Finally, the derogation countries would have access to the instrument of exchange-rate adaptation, which could prove advantageous in the light of different productivity trends.6.6. In view of the special situation of the derogation countries it will be necessary to make arrangements for monetary relations between both groups of Member States. Any possible agreement should be based on three key requirements: ensuring that the internal market continues to operate smoothly; guaranteeing the greatest possible level of currency stability; and facilitating the transition of the non-participating countries to the single currency in the medium term.6.7. The ESC advocates an exchange-rate system based on the EMS linking the currencies of the derogation countries to the common currency. With this aim in view, the derogation countries will, however, have to pursue a rigorous anti-inflationary policy and a disciplined fiscal policy. Only on this basis should the future ECB intervene in the market in conjunction with the central banks of the derogation countries to provide necessary exchange-rate support. With increasing success in attaining convergence, the currencies of the derogation countries should be allowed to operate in progressively narrower fluctuation margins around the central Community rate. To qualify for subsequent entry to monetary union, the derogation countries would have every interest to satisfy the exchange-rate criterion in the manner outlined in Point 2.6.1. The advantage of a flexible approach of this kind, the ESC feels, is that narrowing of the fluctuation margins would test in the market the suitability of a currency for entry to the monetary union.6.8. This approach would not be without dangers for the common currency. As explained in Point 4.4, a strong common currency could make intervention on the foreign exchanges necessary to support weak currencies. The resulting monetary expansion in the monetary union would pose an inflationary threat. Therefore any agreement between the monetary union and the derogation countries must include the instrument of devaluation of the central exchange-rate.7. Organization of the social dialogue and consequences for the labour market in a European monetary area7.1. Underlying the planned European Monetary Union is the conviction that it would strengthen the European internal market. This is of particular importance in view of the EU's relatively weak growth and employment trends of the last few years. Rising structural unemployment is one of Europe's most pressing social problems. Since 1980 employment trends in the EU have been distinctly less favourable than in comparable industrialized countries. The average rise in employment in Europe between 1980 and 1994, was some 1,25 percentage points lower than the corresponding figure for the US and approximately 0,85 lower than the figure for Japan and the gap continues to widen. Moreover, the figure for Japan is considerably depressed by the structural crisis which has persisted since 1990. The EU 1994 unemployment rate of 11,5 % was 5,4 percentage points higher than that of the USA and 8,4 percentage points higher than that of Japan. And the prospects for the labour market are not likely to improve rapidly. According to an OECD labour market study (), EU employment growth in both production-related services and high-technology products (computers, space technology, genetic engineering etc.) was below that of the USA and Japan. In view of these trends, the attention of all political and social leaders must be focused on the realization of the anticipated employment gains from monetary union.7.2. The EC White Paper and the OECD labour-market study referred to above pinpointed the rising pressure of taxes and levies on wages and declining investment and innovation as the main causes of rising unemployment. Although the widely postulated negative correlation between wage costs and employment trends is not empirically proven, it is undeniable at a time of growing mobility of capital that labour costs - particularly when amplified by fundamentally unjustified exchange-rate movements - are becoming a steadily more important determinant in international competition. On the other hand, in the medium to long term adequate employment growth can clearly be guaranteed only if there is a high level of innovation and investment. Unfortunately, industry's gross investment in fixed assets is growing more slowly in the EU than in comparable world-market competitor countries. Whilst the average rate of growth for the period 1980 to 1994 was 3,3 % for the USA and 5,6 % for Japan, for the EU it amounted to a meagre 2,0 %. Europe is thus running the risk of being decoupled in the future from worldwide growth trends.7.2.1. The current problems of weak level of growth and rising unemployment will, in the ESC's view, not be solved by postponing the beginning of Monetary Union; what is needed is to implement a policy which reconciles fiscal discipline, economic growth and employment policy objectives, on the basis of the proposals set out in the White Paper on Growth, Competitiveness and Employment - The Challenges and Ways Forward into the 21st Century. EMU must not be implemented solely as a project for achieving stability, in isolation from the overall economic context. It is just as necessary to create jobs which have a promising future and to combat unemployment as it is to create a zone of stability.7.3. In view of the serious labour-market problems in the EU, the ESC would refer once again to the guidelines for structural reform of the labour markets adopted by the Essen European Council in 1994. These were:- improving employment opportunities for the labour force by promoting investment in vocational training;- raising the employment-intensiveness of growth;- reducing non-wage labour costs;- improving the effectiveness of labour market policy;- improving measures to help groups which are particularly hard hit by unemployment.7.3.1. The final communiqué of the Essen Summit called on the Member States to submit programmes for the implementation of these measures. The ESC regrets that, so far, few Member States have complied with this call. The ESC believes that the EU should monitor the implementation of employment-promotion measures. As in the area of fiscal policy, the ESC considers that a case may be made for an additional agreement requiring the Member States to pay an employment levy in the event of non-compliance with jointly adopted labour-market initiatives.7.4. The solutions set out in Point 7.3 above do not exhaust the range of possible EU employment-initiative measures. For example, the ESC wonders whether structural changes to the taxation system could serve the objective of full employment.7.5. The beginning of monetary union in Europe will also bring changes in the field of wages policy. The ESC points out that the free collective bargaining between employers and workers successfully practised in many EU Member States must retain its place in European economic life. The increasing integration of labour markets which will accompany monetary union will also require that transnational merger rights be guaranteed.7.6. For the countries participating in monetary union, the introduction of the single currency will mean the end of the exchange rate as a mechanism for responding to structural problems and exogenous shocks. If a currency cannot be devalued, the main burden of structural adjustment will fall on wages and prices. Finland provides the most recent European example of this. Its exports fell by approximately 20 % after the opening-up of Eastern Europe and the Soviet Union's entry into the Commonwealth of Independent States (CIS). Without the subsequent dramatic devaluation of the markka, the Finnish export industry would scarcely have been able to cope with the new conditions.7.6.1. External disturbances will have serious consequences for growth and employment as a result of the loss of international price competitiveness. Greater mobility of labour is also necessary in and between individual Member States. To promote this movement, the ESC calls for financial support for measures to facilitate the taking-up of employment in another Member State, for example funding for language courses. It should also be noted that supplementary company pension insurance has consistently proved an obstacle to mobility in the past. The ESC therefore sees a need for at least partial EU harmonization of such pension arrangements. Migratory movements must not, of course, lead to structural discontinuities in labour markets.7.7. The dawn of a new age in Europe provides an opportunity to reorganize the economic policy decision-making process. The ESC wishes in particular to be involved more directly in the Broad Economic Policy Guidelines adopted annually by the Ecofin Council. This would be advisable with a view to the establishment of a future regulatory framework for European wages policy. The ESC is convinced that the special interests represented within it will enable it to make a useful contribution to regulatory questions in a European monetary union. In this context the ESC would reiterate its calls made in the report of 26 April 1995 on The 1996 Intergovernmental Conference and the Role of the Economic and Social Committee.8. Communication measures8.1. The only way to dispel any fears over the practical aspects of implementation of the single currency is to organize a flawless communication plan, based on past experience. At the moment only some Member States seem to have provided for a communications budget in the run-up to the introduction of the euro. The key words here are integrity, clarity, transparency, psychology, education.8.1.1. From 1 January 2002 euro notes and coins will be in circulation alongside existing notes and coins. The transition period will last for no longer than 6 months. For a smooth changeover it is vital that European citizens be properly informed prior to the event.8.2. Lessons must be drawn from past experience.8.2.1. French experience with the changeover from the old 'germinal` franc to the new 'pinay` franc offers many lessons. On 1 January 1960, the old French franc was converted into the new franc with 100 old francs making up the new franc. 35 years on, many French people - including the media - still calculate in the old currency. During 1959, no specific communication measures were taken to prepare for the changeover. At the time of the changeover in 1960, shopkeepers were told to ensure that any price display in new francs was also accompanied by the corresponding amount in the old currency. The year 1961 saw the introduction of the obligation to add 'NF` (Nouveaux Francs, or 'new francs`) to the price, but there was no longer any obligation to display the corresponding amount in old francs.8.2.1.1. The public had clearly not been sufficiently prepared; in fact, no real information campaign seems to have been envisaged to prepare them for the changeover. Up until January 1960, very little information seems to have been available to explain the changeover and its consequences to consumers. This was, of course, prior to the media boom, and bankers, public authorities and teachers were under no obligation to provide people with a clear message in the run-up to the changeover from old francs to new francs. With hindsight, it seems that the few steps taken to familiarize people with the changeover only served to encourage mental complacency rather than provide practical information. Moreover, the simplicity of the conversion from old francs to new francs also encouraged complacency. When the consumer is faced with a complex conversion rate, he soon works out his own value-scale by fixing some reference points in the new currency. On the other hand, when the exchange rate is simple (knock off two zeros), the consumer does not take the trouble to get used to the new value, especially for large sums of money which he may not be used to handling.8.2.1.2. Since the conversion was simple, the French government of the day no doubt thought it superfluous to provide extra information measures after the changeover. It would now appear that the simplicity of the conversion rate should have made back-up measures all the more necessary.  Visual informationAdvertising hoardings, shop-window displays, newspapers and leaflets could have provided efficient back-up.  Radio informationIn 1960, few homes had TV, so radio would have been the best way to provide further information on the changeover.  Information in schoolsTeachers should have made children and young people aware of the situation. They would have been able to bring the message home to the family: in those days, the family was often more closely-knit.  Information via business circlesEmployers, banks, public administrations, etc. could have been encouraged more to help spread the message.8.2.2. The British and Irish experience in the changeover to decimal currency was quite different.8.2.2.1. In 1971, it took the United Kingdom five days to switch to the decimal currency. The two currencies were legal tender simultaneously for five days only. The success of the operation was the fruit of considerable input in information, training and education over a four-year period.8.2.2.2. Ireland, which changed over to a decimal currency at the same time as the UK, provides an example of a successful communication campaign. An intensive information campaign was conducted to ensure that the public were perfectly prepared for the changeover.8.2.2.3. In January 1971, a guide to decimal currency was distributed free of charge to every household in the country. It provided brief, basic information for everyday shopping in decimal currency. It dealt with the new coins; writing and pronouncing figures in decimal currency; cheques; banknotes; and dual price display. It included a copy of the price conversion tables for the most common purchases. A large-scale advertising campaign used the press, TV and radio, buses, and billboards in streets throughout the country. The campaign had two main aims: to point out the need to read 'Everyone's guide to decimal currency`, and to provide people with very simple information to prepare them for the changeover.8.2.2.4. TV and radio programmes comprised:- a number of TV and radio discussions in which members of the government gave information and advice on the various aspects of the changeover;- a series of short programmes produced by RTE and broadcast on the radio in January 1971;- a series of three short educational programmes produced by RTE and broadcast on TV. These TV programmes were repeated several times during the three weeks before the changeover to decimal currency.8.2.2.5. Special measures were taken to help the elderly and the disabled. Various members of women's associations, local think-tanks, etc. were provided with information by government officials. This meant that they in turn could provide basic information on the coming changeover to the various branches of their associations throughout the country.8.2.3. Bearing in mind the above experiences and accompanying analysis, a large-scale information campaign should be organized, specially adapted to the specific needs of the euro, in order to prepare for the changeover. The campaign will also have to be accompanied by back-up measures for a limited time.8.3. In order to ensure a successful changeover the information campaign should centre on the European citizen (bank staff, administration, employers and employees, consumers, teachers, family unit, etc.), gathering momentum and harnessing the 'trickle-down` effects of the relationships between the different users of the currency.8.3.1. An overview of the impact of the introduction of the euro must be provided from the outset. We must first allay all the fears people have concerning any loss of nationality, abandonment of sovereignty, rise in unemployment, price increases, etc. Simple, practical information must therefore be disseminated, unlike the information made available for the referendum on the Maastricht Treaty.8.3.2. Surveys have generally shown that people have a positive attitude towards the introduction of the single currency, but wish more general information were available. The round table discussions organized by the European Commission on 22-24 January 1996 revealed that old people, housewives and people who have a sedentary lifestyle will be the most difficult sections to convince that the changeover to the euro is both important and necessary. The fact is that these people use currency as a means of payment, but only rarely carry out transactions involving currency exchange, unlike some professional people, for example. Everything thus depends on how far people are involved in financial dealings.8.3.3. The speed with which people adapt to the new system will depend on the difficulty of the arithmetic in translating national currency into euros. For example, in order to change French francs into euros, the calculation should involve dividing by 7 (approx.). This is somewhat similar to the calculation involved in converting Belgian francs into French francs. Experience has shown that French people who have lived in Belgium for many years continue to think in the currency they used when they were growing up. The upshot of this is that whilst the conversion from French francs into euros will probably be a simple operation, it might run up against the problem of mental complacency which arose previously. But for each country, conversion will be a specific operation, involving varying degrees of complexity.8.4. The approach involved will differ according to the degree of frequency of the various purchases. A distinction should be drawn between three types of purchase: frequent, everyday purchases (foodstuffs, newspapers, petrol, etc.); 'one-off` purchases (car, house, etc.); and 'intermediate` purchases (clothes, furniture, electrical goods, etc.).8.4.1. For everyday and 'one-off` purchases, the changeover to the euro should not pose any major problem. As far as everyday purchases are concerned, the fact that the housewife often buys the same products will make it easier for her to adjust to the new value scale, since she will not have to modify her consumer patterns.8.4.2. 'One-off` purchases occur so infrequently that the consumer does not rely on habit or any reference scale when shopping around. In this respect, the changeover to the single currency will not be dramatic. The consumer will only choose the product on the basis of research carried out at the time, and therefore in the currency which is legal tender at the time of the purchase.8.4.3. On the other hand, in the case of 'intermediate` purchases, the consumer will have a greater tendency to convert, so as to establish a value scale and in order to enable him to call upon consumer experience with a view to facilitating price comparisons and taking advantage of competition.8.4.4. When the switch to the euro takes place, information campaigns will have to pay special attention to this aspect, and compensate for the infrequency of 'intermediate` purchases by providing clear price displays for the products. Thus, the consumer will get used to the new currency thanks to an awareness of the price ranges of the products rather than through direct experience of buying. In all the above cases, checks will have to be carried out to avoid hidden price rises, since the force of competition may not be sufficient to prevent them.8.5. If long-term preparation is to be effective, it should start now or, at the latest by the year 2000. The date is important psychologically - a new currency for the new millennium. In order to fit in with the schedule set out in the Treaty, the communication measures should begin on a large scale one year after the actual launch of Monetary Union (introduction of the euro, fixing of conversion rates) on 1 January 1999.8.5.1. This would give banks and administrations time to adjust to the new currency. The extra costs ensuing from the obligation to inform should thus be financially acceptable.8.5.2. The preparatory measures will have to end on 31 December 2001 - on the eve of the introduction of the euro - and be replaced by back-up measures.Timetable for the information campaign >START OF GRAPHIC>>END OF GRAPHIC>8.5.3. This advance information concerns the intermediaries and certain scenarios which should be envisaged.8.6. Preparation through intermediaries8.6.1. The information campaign should be carried out by local operators, which are in the best position to deal with business circles and individual citizens, and should be geared to the specific needs of the user (consumer, taxpayer, employee, job-seeker, social security contributor, elector, small business, shopkeeper, etc.). Intermediaries should not be contacted individually; rather, existing inter-relationships should be exploited to the full in order to enhance the effect of the information campaign, by harnessing what could be called the 'trickle-down effect`.8.6.2. Thus, the authorities would inform the banks, who would inform the customer, who would inform friends and relatives, and so on.a) AuthoritiesAny information or papers from national authorities containing sums expressed in figures must advise the reader of the change. The term 'authorities` must include social security departments (with which the user has frequent dealings), the Post Office, tax authorities, the police, the law courts, chambers of commerce and local authorities.b) Employers and employeesEvery firm will have to organize its own staff training programme, paid for partly from its own resources and partly from external funding from the state or the EU. Trade unions can carry out excellent work in the field of communication by means of their training programmes.c) Distributive trade staffSpecial attention should be devoted to this sector. Customers will often ask check-out assistants for help with prices. Consequently, intensive training courses must be provided for them in advance.d) Bank staffBank staff will have to have more intensive training, since they will have to understand the changes in order to be able to carry out their work, and also, more importantly, to explain the process to their customers.e) TeachersA special effort must be made in schools, particularly with the youngest pupils who are not yet used to handling money, and for whom the euro will be their first and only national currency. For older pupils, the teacher will have to adapt and step up the examples. When calculating the cost of the 'shopping basket`, the arithmetic should be expressed in euros.Generally speaking, an information campaign for schools - from primary school to the sixth-form college - will have to be set up with Community support (along the lines of the Leonardo programme). Community support could also extend to encouraging schools to make sure that internal financial transactions, such as those involving photocopies, school equipment, snacks, fund raising events for school trips, etc., can only be carried out in euros. The same kind of Community support could also be used to establish a European prize for the best idea for information on the introduction of the euro. Only schools would be allowed to compete and a prize would go to the winning school.f) Consumer associationsThese could act as excellent go-betweens for the public authorities and consumers, providing simple, easy-to-understand information. The more the information reflects daily life, the more the consumer will feel involved. All consumer publications and TV programmes should focus regularly on the switch to the single currency.g) Travel agenciesSince the introduction of the euro will do away with currency exchange between countries which adopt the single currency, travel agents should be encouraged to help tourists understand the benefits that the introduction of the euro brings to their everyday life.h) The mediaWhen France held a referendum on the Treaty on European Union, the former European Commission President, Mr Jacques Delors, felt that it was not the Community's job to provide information and advertising for the new Treaty. Consequently, Maastricht's detractors had no problem in putting forward often false arguments to discredit the Commission's efforts in this area.Here again, we must learn from the past. The Commission must get involved and provide funding for information on the transition to the euro, even though the ideal communication level must most definitely be as close as possible to the citizen. This Commission action could take different forms, e.g. adopting communications designed to provide encouragement, binding provisions, programmes with targeted funding, etc. Commission intervention is needed not because the Member States shirk their responsibilities, but because only the Commission can provide the necessary coordination.The success of the switch to the euro depends on coordinated communication between the different Member States. This coordination requires identical communication measures to be introduced simultaneously in the Member States joining the single currency, and also in those with a derogation.The Commission should enlist the support of the media. It might suggest a national measure to encourage the press to print a countdown to the switch. In the same way, TV game show producers could be encouraged to express prize money in euros.Still in the field of television, armchair shopping programmes should give prices in both currencies, and make arrangements for rapidly phasing out the national currency, leaving the price in euros only.Finally, advertisers (TV, hoardings, radio, newspapers) should be encouraged to display prices in euros.8.6.3. The Economic and Social Committee could constitute a very effective instrument for publicizing a programme for promoting the introduction of the euro, such as that launched by the Commission.8.7. Preparation through dual price display8.7.1. Dual price display is considered as one of the possible ways to familiarize consumers with the new currency; it could serve to educate the public. In order to take account of the specific characteristics of national markets, arrangments in respect of dual display should be determined at national level, in accordance with the principle of subsidiarity. Prices should be displayed in both currencies for all everyday transactions.8.7.2. Dual display of retail prices is designed to ensure that whenever a price is given in national currency, its equivalent in euros should appear beside it. This measure means that for each product, four different values would be displayed on the same label. This is because 1997 will see the entry into force of the Directive on price display by unit sold and by unit of volume or weight. Legibility and feasibility problems may arise here.8.7.2.1. Since 1 September 1985, the French experience of displaying prices by unit and volume for pre-packed products sold in stores larger than 120 m² has shown that French consumers became used to reading two prices without any difficulty. Having several prices on the same label should not worry consumers too much, especially since the obligation will be limited to two and a half years.8.7.2.2. Training will have to be provided for sales staff dealing with the sums involved and cash-handling machines will have to be adapted. As mentioned above, check-out assistants will need prior training in order to be able to answer the various questions customers will most certainly ask them. Cash registers will have to be adapted to provide a receipt in both currencies, at least for the total figure. When adapting them for the dual display requirement, they could be programmed from the outset to issue a receipt giving the price of each article in euros, but the total in both currencies. This would avoid the need to adapt the cash registers several times. Thus, in practice, until 1 January 2002 when the euro comes into circulation, consumers will use national currency to pay prices displayed in national currency and in euros. The advantage of this is that at the end of the dual price display stage on 30 June 2002, cash registers will not have to be radically adjusted once again. It will be sufficient to erase the facility allowing conversion and printing of the total in national currency, and leave the operation in euros only.8.7.3. It is vital for the consumer to establish a link between income and outgoings if he is to get used to retail prices expressed in euros. Spending power will not be affected by the introduction of the euro, but reassurance must be provided in this respect. Accordingly, binding provisions should be introduced at Community level to ensure that payslips mention wages in national currency and euros. This should accompany the introduction of the dual display of retail prices.8.7.4. Special attention should be paid to the dual display of banking services:- account statements should give the figures for debit and credit in both currencies;- cheque books: although cheques would still be made out in national currency, they could carry a conversion table on the reverse side;- documentation in respect of loans should give the amounts in both currencies;- documentation in respect of securities should give the amounts in both currencies;- automatic cash dispensers will have to be adjusted to give a receipt showing the amount withdrawn and the equivalent in euros.8.7.5. From 1 January 2002, cash dispensers will have to be adjusted to dispense euros only, and the receipt should show the equivalent in national currency until 30 June 2002. Persons wishing to withdraw cash in national currency will have to go directly to the bank counter. With effect from 1 September 2002, cash dispensers will only be able to issue receipts showing withdrawals in euros.8.7.6. As regards the dual display of all documents from the authorities, the term 'authorities` should be understood in a broad sense, as was the case in earlier sections of this Opinion. All tax documents (declarations, stamps, fines, etc.) and social security documents should give equivalents in euros.8.7.7. There are two types of repercussions in connection with the introduction of the dual display: technical and financial.8.7.7.1. First of all, the dual display requirement means that a very large number of machines will have to be adjusted: cash registers, cash dispensers, etc. Special new software will have to be developed for this. However, given the limited 'shelf-life` of software, those developed in 1996 will be almost obsolete by 2002. Thus, it is important to gauge the right moment for bringing in the new software to deal with the new data and requirements resulting from the introduction of the euro.8.7.7.2. The costs involved in implementing the dual display requirement should not be overlooked. These will be connected with the purchase and tailored installation of the software, staff training, and losses due to conversion error (the decimal problem). In order to encourage economic operators to make the necessary preparations for dual display, the public authorities could allow tax relief and tax deductions on the technical investments needed for the switch to the euro. The consumer's share of the changeover costs should be kept to the bare minimum.8.8. After the switch on 1 January 2002, the preparatory measures outlined above will be replaced by short-term back-up measures for a maximum period of six months.8.8.1. This period will coincide with the date set for circulation of the euro (1 January 2002) and withdrawal of national currencies (1 July 2002 at the latest). The main change during the back-up period will be reversal of dual price display. During the preparatory period, the price in national currency will be followed by the euro-price, whereas during the back-up period, prices will be displayed in euros first, and then in the national currency for information only. The back-up measures will take over from the preparatory measures and cover the same aspects.8.8.2. As of 1 January 2002, wages must be paid in euros, but payslips will also show the amount in national currency, for information only. Prize money from betting, lotteries, etc. will have to be paid out in euros.8.8.3. As regards banking services, cash dispensers will only allow withdrawals in euros. Cheques will have to be made out in euros, but a 'round figure` conversion table could be kept on the back of the cheque.9. Summary9.1. The ESC welcomes the planned monetary union in Europe which will make a fundamental contribution to bringing about a Europe which is closer to the citizen, more highly respected at international level and in a better position to create jobs and wealth within its boundaries.9.2. In order to make the convergence monitoring process transparent, the convergence criteria must be applied clearly (see Points 2.4 and 2.7).9.3. It is the Council which will finally make a political assessment of the achievements of the Member States with a view to deciding whether they are to be admitted to the third stage of EMU. Too small a group of Member States would not justify the high costs associated with introduction of the new currency.9.4. The ESC recommends that countries which fail to meet only one of the five convergence criteria be examined again on the basis of real convergence criteria.9.5. Exchange rates should be set at a level which ensures that speculative distortions have no lasting impact during the transition to monetary union.9.6. The ESC considers it essentially counter-productive to assume that departure from the convergence principles as a result of circumstances beyond government control can be penalized by financial sanctions.9.7. As regards the derogation countries, the ESC would draw particular attention to the adverse consequences of their long-term exclusion from EMU, especially against the background of EU enlargement.9.8. The ESC would like to see an inflation target published in the future single currency area. An intermediate monetary target should be a main plank of the ECB's monetary policy. In order to make money-market control more effective the ESC would like to see a minimum reserve requirement applied to deposits with commercial banks, attracting a rate of interest close to the market rate.9.9. The ESC urges that monetary relations between the core group of Member States participating in the third stage of monetary union and the other Member States be regulated in order to (a) guarantee the continued smooth operation of the internal market, (b) ensure a high degree of exchange-rate stability between the single currency and the national currencies and (c) facilitate the non-participating countries' subsequent transition to the single currency.9.10. With these aims in view, the ESC supports the establishment of an exchange-rate mechanism on the lines of the EMS in which the single currency would act as an anchor.9.11. In view of the high level of structural unemployment in the EU, the ESC calls for the objective of full employment to be accorded greater priority in European economic policy.9.12. The ESC would remind the governments of the Member States of the guidelines for structural reform of the labour markets adopted by the Essen European summit. The ESC regrets that so far few Member States have submitted programmes for the implementation of these measures.9.13. The ESC points out that the free collective bargaining between employers and workers successfully practised in many EU Member States must retain its place in European economic life.9.14. The introduction of the euro will require a number of back-up measures to prepare those working in the various sectors involved and the public at large. Both the preparatory measures and the back-up measures taken after the introduction of the euro will have to be geared to the target groups. In the ESC's view, we should draw on the French experience (with the introduction of the new franc) and the UK and Irish experience (with the introduction of decimal currency) in order to ensure that citizens are prepared for the changeover in good time.9.15. If the changeover is to take place under optimal conditions, the first step which needs to be taken is to launch information campaigns. Special roles could be played here by administrations, employers and employees, staff in the distributive trades, bank staff, consumer associations and, indeed, by the ESC. The media have a vital role to play; they should be encouraged to issue a countdown to the changeover, in the interests of the general public.9.16. Dual display (national currency followed by the euro in the run-up to 1 January 2002 and the euro followed by national currency post 1 January 2002) in respect of prices, wages and contribution slips - which should also take account of the specific characteristics of national markets - could help consumers to avoid confusion.Brussels, 26 September 1996.The President of the Economic and Social CommitteeCarlos FERRER() OJ No C 18, 22. 1. 1996.() COM(95) 333 final, 31. 5. 1995.() COM(95) 503 final, 31. 10. 1995.() See M. Falk and N. Funke, The Stability of Money Demand in Germany and in the EMS: Impact of German Unification, in: Weltwirtschaftliches Archiv 131 (3), pp. 470-488.() See Deutsche Bundesbank, Devisenkursstatistik, May 1995, statistical appendix to monthly report 5, p. 84.() See M. Falk and N. Funke loc. sit. and O. and J.J.M. Kremers and P.D. Lane, Economic and Monetary Integration and the Demand for Money in the EMS, in: IMF Staff Papers 37, pp. 777-805.() 'Exchange links between the Member States taking part in the third phase of EMU and the other Member States`; Interim report to the European Council, 28 November 1995.() Thus a study carried out by the National Institute for Economic and Social Research showed that reducing all the EU Member States' budget deficits to the 3 % level required by the Maastricht Treaty by 1999 would lead to the temporary loss of some half a million jobs. Fulfillment of the debt criterion by 2002 could lead to the temporary loss of a further million jobs. Greece would be the hardest hit, with 450 000 lost jobs. See R. Barell, J. Morgan and N. Pain: The Employment Effects of the Maastricht Fiscal Criteria, National Institute for Economic and Social Research Discussion Paper 81.() See OECD: The OECD Jobs Study. Facts, Analysis, Strategies, Paris 1994, pp. 19 et seq.APPENDIX to the Opinion of the Economic and Social Committee The following members, present or represented, voted for the Opinion:Mr/Mrs/Miss: BAEZA SANJUAN, BAGLIANO, BARROW, BASTIAN, BELABED, BENTO GONÇALVES, BERNABEI, BETELU BAZO, de BIGAULT du GRANRUT, BLESER, BØGH, BOISSERÉE, BOUSSAT, BREDIMA-SAVOPOULOU, BRIESCH, BUNDGAARD, BURANI, van den BURG, BURKHARD, BYRNE, Vasco CAL, CARROZZA, CASSINA, CAVALEIRO BRANDÃO, CHEVALIER, CHRISTIE, COLOMBO, DANTIN, von der DECKEN, DELAPINA, de NORRE, van DIJK, DRIJFHOUT-ZWEIJTZER, ENGELEN-KEFER, FERNÁNDEZ, FOLIAS, FORGAS I CABRERA, FRERICHS, GAFO-FERNÁNDEZ, GAUDER, GEUENICH, GIACOMELLI, GIESECKE, GIRON, GOTTERO, GRUSELIN, HAMRO-DROTZ, HAUSMANN, JENKINS, KALLIO, KANNISTO, KAZAZIS, KIELMAN, KIENLE, KONITZER, KONTIO, KORYFIDIS, KRITZ, LAUR, LEHNHOFF, LEMMETTY, LERIOS, LINSSEN, LIVERANI, LÖW, MADDOCKS, MALOSSE, MARGALEF i MASIÀ, MASUCCI, MATTEOLI, MAYAYO BELLO, MEGHEN, MENGOZZI, MERTEN, MORELAND, MUÑIZ GUARDADO, NIELSEN B., NIELSEN L., NILSSON, OLSSON, OSENAT, PANERO FLOREZ, PAPAMICHAIL, PARDON, PELLARINI, PETERSEN, PIETTE, POMPEN, QUEVEDO ROJO, RAMAEKERS, REGALDO, REGNELL, REUNA, RODRÍGUEZ DE AZERO, RODRÍGUEZ GARCÍA CARO, ROSSITO, RUPP, SARALEHTO, SCHMITZ, von SCHWERIN, SEPI, SIGMUND, SIRKEINEN, SKLAVOUNOS, SKOUBY, SOLARI, STECHER NAVARRA, STOKKERS, STRASSER, STRÖM, STÖLLENBERGER, TWIST, TÜCHLER, VERHAEGHE, VEVER, VINAY, VOGLER, WHITWORTH, ZÖHRER.The following members, present or represented voted against the Opinion:Mr/Mrs/Miss: ASPINALL, BEALE, BROOKES, ETTY, LITTLE, MORGAN, PELLETIER, WALKER.The following members, present or represented, abstained:Mr/Mrs/Miss: BORDES-PAGES, CHAGAS, KARGAARD, LEVITT, LYONS, LÖNNBERG, MOBBS, NYBERG, OLAUSON, PÉ, WESTERLUND.