European Parliament resolution on the international monetary system - how to make it work better and avoid future crises (2000/2017(INI))
Date: 2001-10-23
Institutions: European Parliament
Subjects: Bank for International Settlements, International Monetary Fund, capital movement, external debt, financial market, financial policy, financial solvency, globalisation, international monetary system, market supervision, monetary crisis, speculative capital

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15. International monetary system

A5-0302/2001

European Parliament resolution on the international monetary system (cid:27) how to make it work
better and avoid future crises (2000/2017(INI))

The European Parliament,

(cid:1) having regard to the work under way in the various international fora, in particular the IMF, the
World Bank, the Bank for International Settlements and the Financial Stability Forum, and a number
of international professional organisations, including the International Accounting Standards Commit-
tee, the International Federation of Accountants and the International Association of Securities Com-
missions,

(cid:1) having regard to the motion for a resolution by Muscardini, Nobilia, Mauro and Gemelli on the real

economy and the financial economy (B5-0306/2000),

(cid:1) having regard to Rule 163 of its Rules of Procedure,

(cid:1) having regard to the report of the Committee on Economic and Monetary Affairs (A5-0302/2001),

A. having regard to the recurrence and extent of monetary and financial crises on an international scale,

of which, according to IMF figures, there have been close to 120 since 1975,

B. having regard in particular to the Asian crisis in 1997 and the Russian and Brazilian crises in 1998,
which, because of the devastating impact of propagation and contagion, almost turned into a global
crisis and are the root cause of awareness on the part of all political and economic actors, for which
there is no precedent, of the need for thorough reform of the international financial architecture,

C. having regard to the many shortcomings of the international financial architecture revealed by the
crises over the last few years, in particular in terms of prudential supervision and oversight of inter-
national financial activities and international organisations’ ability to prevent or effectively manage
crises,

D. whereas an international financial system can be stable only if Member States’ economic policies are

geared to growth and employment,

E. whereas open financial markets ultimately produce major efficiency gains for the international econ-
omy, provided that they are contained within a more effective environment so as to minimise the risks
to all countries’ economic stability,

F. whereas the real economy bears the cost of financial instability, and the crises it brings about, in terms

of lost opportunities for growth, jobs and economic and social well-being,

G. having regard to the central role played by financial engineering and innovation, which, by allowing
real economic transactions to be divided into distinct and repetitive non-cash monetary operations,
permits risk to be broken down and exchanged on the markets,

H. whereas, however, financial engineering leads at the same time to increasing complexity of financial
transactions and risk-taking channels, posing major risk-monitoring and analysis problems for regula-
tory and supervisory authorities, whether public or private within large groups,

I. whereas public or private-sector overindebtedness has been the starting point for a host of crises,

J. whereas necessary financial stability is a public good, fully warranting public authorities’ responsibility

and role in preventing all crises, or, failing that, in managing them as well as possible,

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K. having regard, in this context, to the existence of moral hazard and the special challenge facing public
authorities as regards the optimum equilibrium to be achieved between free operation of markets and
the need for them to be regulated, on the one hand, and, on the other, the occurrence of crises and
private-sector involvement in public bailouts,

L. whereas all countries, including off-shore centres and tax havens, need to be subject to minimum

prudential rules,

M. having regard to the central role the European Union is duty-bound to play in the global debate on

the new financial architecture,

Takes the view that the aim of the reforms of the international financial institutions under way must
1.
be to make them more efficient and more transparent, in particular with regard to the IMF and the World
Bank, but also more universal,
in particular with regard to the BIS and other limited-multilateralism
organisations;

2.
Advocates globally integrated prudential supervision and oversight, which have become essential not
only because of the globalisation of financial activities but also because of their increasing disintermedi-
ation and the increased number of different players on this market; while rejecting the notion of a world
super-regulator as unfeasible, appeals for much closer cooperation at international level between national
supervisory and oversight authorities, in particular through exchange of information on the activities of
transnationally operating groups;

3.
Calls for this role of coordinating existing national supervisory and oversight authorities to fall, at
European level, to the European Central Bank; is of the opinion that, as a corollary to this role, the ECB
ought also to take an active part in the introduction of close coordination at international level;

Calls for the discussions and work in progress to focus on prevention of systemic crises; to that end,

4.
proposes the creation of a ‘systemic risk monitoring centre’ to be attached to the BIS;

5.
Takes the view that the IMF is the only institution concerned about the smooth operation of the
world economy in terms of its macro-economic interdependence and that, in view of the dominating
influence of international financial markets on the world economy, it bears special responsibility for the
surveillance of financial vulnerabilities;

6. While taking the view that the IMF must devote itself to its main task (cid:1) macroeconomic surveillance
of all countries (cid:1) supports taking further the current reform of the way in which the IMF is organised and
operates, involving in particular:

(cid:1) a regular rise in both quotas and issues of Special Drawing Rights (SDR) in line with the growth of
trade in the world economy and any appropriate measure of capital flows in order to preserve the
IMF’s ability to provide the necessary basic funding;

(cid:1) making the Executive Board of Governors more effective, giving the 24 IMF Executive Directors inde-

pendence to act;

(cid:1) the introduction of a Standing Committee of Representatives of Finance Ministers to facilitate over-
sight of multilateral institutions and decision-taking by the new International Monetary and Financial
Committee;

(cid:1) the reactivation of SDRs (cid:1) an embryonic common world currency (cid:1) the award criteria for which
could be selectively targeted on the basis of the requirement of sustainable development and which
could also be used in the event of a major crisis;

(cid:1) the abolition of the super-majority of 85 % for all important decisions; redistribution of powers and

votes better reflecting the universal nature of the IMF and the role of emerging countries;

(cid:1) recourse by the Executive Board to a regular critical appraisal by external experts of the economic

analyses and measures advocated by IMF departments;

(cid:1) the intelligent rejigging of its component parts to better regroup the European Union’s economic

strength within the IMF;

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Appeals also, in this context, for European positions to be better coordinated and coherently repre-

7.
sented in all international economic and financial bodies;

Regards it as essential to apply joint rules and standards at international level, in particular in the
8.
statistical accounting, evaluation and audit fields, using private-sector resources and expertise to draft them
and making all IMF aid subject to the implementation thereof in all the organisation’s member countries;

Agrees with the calls made by the Financial Stability Forum for a legal and judicial framework allow-
9.
ing prompt settlement of all disputes between parties, in particular where one party has become insolvent,
by:

(cid:1) creating transnational arbitration bodies;

(cid:1) introducing a distinction between principal and non-principal insolvency;

(cid:1) introducing ‘debtor-in-possession financing’, borrowed from US law;

10.
Believes that the private sector needs to be involved in crisis management; argues for the inclusion
of collective action clauses, in particular for bond contracts, so as to permit monetary crises to be managed
with the participation of the private sector; considers it desirable for the European Union to show the way
by means of a European directive;

11.
Considers that, in some cases, such involvement may extend as far as a freeze on debt servicing
payments, which may make it possible to confine the moral hazard and reduce the cost of restructuring
programmes; considers that the IMF would have authority to guarantee the validity of the standstill vis-à-vis
the international financial community;

12.
Takes the view that better crisis prevention is not possible without enhanced surveillance of off-
balance-sheet transactions, in particular all derivatives (including all OTC derivatives); they must not be
able to enjoy a competitive advantage over other financial products, which is the case when they are,
comparatively, less controlled and less regulated than the latter;

Supports, to that end, the creation of a ‘credit register’ at the BIS in order to centralise all

13.
information on the exposure of all significant financial enterprises to highly leveraged institutions;

14.
Underscores the need to bolster prudential requirements imposed on banks where they serve to
offset speculative funds (or hedge funds); considers, by the same token, that refinancing of speculative
funds operating in countries not covered by the Basle Accords must be made more difficult and more
costly;

Insists, in the same spirit, that the EU put financial supervision and provisions to fight money

15.
laundering at the top of the agenda of accession negotiations;

16.
Calls on the EU to agree measures to restrict financial business with countries and off-shore centres
which do not comply, according to the analyses of FATF (Financial Action Task Force on Money Launder-
ing), with international minumum prudential rules;

17.
Considers that, in connection with enhanced prudential supervision and oversight at international
level, the European Union is also duty-bound to adjust its approach in this connection by designating the
European System of Central Banks, in accordance with Article 105(6) of the EC Treaty, as the bona fide
body to coordinate national supervisory and oversight authorities; takes the view, furthermore, that the
very existence of a single currency and a single market in financial services in the process of completion
makes this a necessity;

Acknowledges the challenges posed by better control over short-term speculation and the destabilis-
18.
ing effects it represents; takes the view that it is for emerging countries to protect themselves through
domestic liberalisation accompanied by effective supervision, before proceeding with external liberalisation
of capital movements, and, should it be necessary, to imitate the Chilean approach of requiring non-inter-
est bearing deposits to match foreign capital on entry in order to promote the longer maturities of external
obligations;

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19. Welcomes in this connection the Ecofin Council’s decision to call on the Commission to carry out,
before the end of February 2002, a study on globalisation and development, in order to assess the advan-
tages and disadvantages of financial globalisation (international capital flows, combating volatility on the
financial markets), and to take stock of development aid at international level (debt alleviation, access to
markets and to foreign investment); calls for this study to be drawn up in as objective a way as possible
taking account of the work carried out by different schools of economists;

20.
Stresses that the European Union is also affected by this problem and must equip itself with pru-
dential instruments as part of regulation of an integrated financial market; calls for a prompt discussion of
these prudential instruments by the institutions on the basis of the studies available;

21.
Calls, pursuant to Article VII of the IMF’s Articles of Association, for a standstill procedure on debt-
servicing for countries hit by a liquidity or solvency crisis, so as to give such countries enough time to
develop a debt restructuring plan;

22.
Appeals to the IMF and the industrialised nations to allow the poorest countries to make a fresh
start, tied to appropriate economic policy conditions, by cancelling their debt and to allow indebted
emerging countries to repay their debt on the basis of a percentage of the proceeds of their exports, in
accordance with a famous historical precedent;

23.
Calls for the IMF, in its structural adjustment programmes, to allow for the social aspects of the
reforms to be proposed; invites the World Bank and the regional development banks to devote themselves,
first and foremost, to combating poverty through educational, social and health-related programmes in
particular;

24.
Instructs its President to forward this resolution to the Commission, the Council, the General Man-
ager of the Bank for International Settlements, the President of the ECB, the Managing Director of the IMF,
the President of the World Bank, the Director-General of the WTO and the Secretary-General of the United
Nations.