Opinion of the Economic and Social Committee on the "Trends, structures and institutional mechanisms of the international capital markets"
Date: 2002-09-18
Institutions: European Economic and Social Committee
Subjects: capital market, financial institution, financial market, international finance, short-term economic policy

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Opinion of the Economic and Social Committee on the ‘Trends, structures and institutional
mechanisms of the international capital markets’

(2003/C 61/18)

On 30 May 2001 the Economic and Social Committee, acting under Rule 23(3) of its Rules of Procedure,
decided to draw up an opinion on the ‘Trends, structures and institutional mechanisms of the international
capital markets’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 3 September
2002. The rapporteur was Mr Sepi.

At its 393rd Plenary Session (meeting of 18 September 2002), the Economic and Social Committee
adopted the following opinion by 58 votes to none with three abstentions.

1.

Introduction

1.1.
The world financial market, which has been progress-
ively consolidated over the last decade, has a key role to play
in the process of economic globalisation.

1.2.
Its importance stems from its position as the first
economic sector where globalisation has come into real play:
there are no spatial boundaries to transactions, since they can
take place on all world financial markets across five continents,
and neither are there time constraints since transactions can
be made round the clock, day and night, from anywhere in the
world.

The purpose of

1.2.1.
the present opinion is for the
Committee to join the debate on how the international capital
market works and on the European and international proposals
for reform. The Committee believes that the debate has grown
in importance as a result of recent events, which have not been
purely economic: the bursting of the US-generated speculative
bubble in the second half of 2000 and its effects on the real
economy; the terrorist attacks of 11 September together with
the need to cut off funding to terrorist groups and organised
economic crime; and Argentina’s financial crisis.

The Committee considers the EU’s contribution
1.2.2.
to stabilisation and to world development to be crucial.
Accordingly, and notwithstanding the fact that the existence
of a single currency protects the eurozone against certain
shocks, the Committee emphasises how important it is for the
institutions of the eurozone to play an active part on the
international scene in seeking to identify effective, common
approaches capable of promoting more robust financial sys-
tems.

1.4.
The present opinion’s starting point is the belief that
the acceleration brought about by these two globalised sectors
is generating profound contradictions in a world where an
awareness of a shared future is beginning to grow among a
range of global civil society sectors.

1.4.1.
Free movement of capital is politically irreversible,
and has some positive aspects. In theory, a free worldwide
investment market could optimise capital placements and
strike a better balance in world development.

Liberalisation could also produce a major spin-off in
1.4.2.
terms of preventing systemic crises such as those which have
occurred in the past, by broadening the range of players and
resources involved.

1.4.3.
The new financial resources thus generated could
have a significant impact on productive growth, by extending
the geographical scope of development and also channelling
savings to countries unable to generate sufficient volumes
themselves.

1.4.4.
The Committee feels that these positive effects are
not yet evident: on the contrary, over recent years in particular,
globalisation — especially financial — has been the target of
heavy criticism.

1.3.
The combination of two factors has brought about the
present state of affairs, marked by fresh bouts of instability:
the almost total liberalisation of capital markets, accompanied
by the growth of derivative financial instruments, and the
development of telecommunications — which is the other
substantially integrated sector at world level.

1.4.5.
Such criticism often reflects a one-sided point of
view and shallow analysis regarding the difficulties involved in
more balanced development of the global economy. The
glaring contradictions within political systems, which have
had a hand in the development failure of the poorest countries,
are frequently overlooked. These countries are often marked by
corruption, mis-spending and inappropriate taxation policies.

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the result of

These criticisms are not, however, baseless:

1.4.6.
the
current crises, which directly or indirectly also affect millions
of EU citizens — and threaten the whole democratic edifice of
the countries concerned, as has occurred in Argentina — are
only in part
local political shortcomings.
Argentina was scheduled to repay US $ 750 million in the
course of 2001, and more than US $ 2 000 million by the end
triggered a
of
liquidity crisis in the banks, with all the ensuing institutional
and social repercussions. The ending of peso-dollar parity has
occurred against a backdrop of violent social unrest: 14 million
of the country’s population of 37 million are living below the
poverty line. The social crisis has in turn triggered a political
and institutional crisis.

January 2002. The resulting capital

flight

1.5.
This is, perhaps, happening because the onward march
of financial globalisation has not been matched by either
growth of world institutions, an overall policy direction, or
global administrative bodies. When nation states were formed,
institutional integration came before market integration: the
current process is the exact opposite.

Spurred by fierce competition, the growth of credit
1.6.
and rapid financial change, the international drive for a ‘new
financial architecture’ proposes reform of
(i) the rules of
governance, starting with the identification of best practices
which can minimise instability and its spill-over effects, and
(ii) the powers of the IMF and the World Bank.

1.7.
The Committee believes that the ‘new financial archi-
tecture’ must be underpinned by new insights, broadening the
paradigm that has guided the liberalisation of the capital
markets hitherto.

2. Analysis of debate at EU level

2.1.
On 2 February 2002, the Commission published a
communication (1) in which it analysed existing documents
and studies in this field. Its two main objectives, as previously
put forward by the Ecofin Council, were to discuss a response
to financial crises and to consider the issue of ‘financing (...)
development as a means to reduce global inequality’.

2.1.1.
The communication does not make specific pro-
posals. It simply looks at existing ideas about the new world
financial architecture, thereby launching an EU and world-
level debate. Through the present opinion, the Committee
intends to take part in the debate launched by the Commission.

2.1.2.
The Ecofin Council of 5 March 2002 adopted the
communication from the Commission. Among other points,
it argued that ‘globalisation (...) is essential for promoting
growth and development’, but concurred with the Com-
mission’s view that its ‘benefits (...) are not evenly shared’.

2.1.3.
of objectives to be brought into the debate (2).

The Council statement concluded by listing a series

The European Parliament resolution on the inter-
2.1.4.
national monetary system (3) argues, among other points, that
‘necessary financial stability is a public good ...
the real
economy bears the cost of financial
instability, and the
crises it brings about ... the central role played by financial
engineering and innovation ... permits risk to be broken down
(but)
leads at the same time to increasing complexity of
financial transactions and risk-taking channels’. It also ‘takes
the view that the aim of the reforms of the international
institutions under way must be to make them
financial
more efficient and more transparent (and) advocates globally
integrated prudential supervision and oversight’.

In an information report adopted in May 2001 (4),
2.1.5.
the Committee remarked that: ‘(...) total liberalisation of capital
movements has fuelled international financial crises which
have particularly affected the developing countries. A major
contributory factor here has been the way that
some
developing countries have used purely speculative short-term
capital flows from the industrialised countries to finance their
public deficits in an unorthodox, high-risk manner.’

2.1.6.
The Committee felt that an own-initiative opinion
could lend greater vigour to the pursuit of a new architecture
for the monetary and financial market, which would reduce
the impact and prevent a recurrence of the crises the market
underwent in the 1990s. The Committee therefore notes with
interest
the communication from the
Commission in February 2002, and will return to certain of its
points. In any case, the Committee agrees that during the
1990s, financial variables exercised a decisive influence on the
dynamics of the real economy.

the publication of

( 1) COM(2002) 81 final.

(2) Ecofin Council of 5 March 2002 (6591/02 (Presse 46) C/02/46).
(3) European Parliament resolution on the international monetary
system — how to make it work better and avoid future crises
(2000/2017 (INI) — A5-0302/2001).

(4) CES 326/2001 fin.

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3. General comments

3.1.

Short-term trends

3.1.1.
The current cycle is marked by a widespread slow-
down in production. The slowdown set in suddenly in the
USA in the second half of 2000,
following a decade of
uninterrupted economic expansion, in which growing financial
deregulation was accompanied by ready supply of low-cost
risk capital. This resulted from expectations of higher than
average returns, especially in the ICT (information and com-
munication technology) sectors. The recent revelations of
fraud on the part of senior management in major corporations
have also done much to undermine confidence among savers.

3.1.2.
The US economic slowdown has spread to other
parts of the world in which other factors were at work: these
included rising oil prices between 1999 and 2000, action by
the major central banks on short-term interest rates to
damp down inflationary pressures, and continuing ‘structural’
difficulties in Japan. The simultaneous effect of these factors
has been to accentuate a general reduction in both production
and aggregate demand.

3.2. Cyclical features and phases of third-wave globalisation

3.2.1.
The Committee would emphasise that one of the
more positive effects of the liberalisation of international
capital movements has been the growing ability to counterbal-
ance the huge differences in the savings capacities of the
various national systems. However, especially following the
vigorous deregulations of the last decade, this liberalisation
has increased the risk of serious fluctuations in financial cycles,
with a significant impact on the real economy. Financial
variables have assumed an increasingly decisive role in shaping
macroeconomic results and projecting them beyond their own
area. The Committee recalls that the BIS now estimates capital
flows to be forty times greater than trade flows.

This ‘contagion effect’ has therefore led to synchron-
3.2.2.
isation and accentuation of the financial and economic cycles.
The seriousness of the final results can vary in line with the
economic and financial importance of the country where the
process is triggered, and with the structural and management
capacity of the various parts of the world to which it spreads.
The role of US variables in determining economic and financial
trends in many other countries is also increasingly clear.

3.2.3.
The Committee agrees that the reasons for these
cycles running concurrently include those set out by the
Commission in its most recent short-term analyses. The
extension and proliferation of channels conveying external
shocks are key elements. This refers not only to the contraction
in trade flows, which is prejudicial to all areas which tie their
own potential for growth to exports: other channels have
grown in importance, including the company one (by means
of fluctuations in multinational profits) and have increased
diversification in portfolio management. Neither, lastly, should
the confluence (between the USA and Europe, for example) of
consumer and business expectations be overlooked.

Argentina represents an eloquent instance of vulner-
3.2.4.
ability to a volatile financial system. Negative expectations were
fuelled by the unreliability of its macroeconomic benchmarks
(increasing public debt, external balance, etc.) and by the
progressive loss of control over the currency system. This
triggered a cycle which reversed the previous link between
cause and effect, and a combination of factors intensified the
pressures on Argentina’s interest and exchange rates: the world
economic slowdown, the increasing reluctance among private
operators everywhere to assume risks (compounded by the
events of 11 September) and the way this has modified
their preferences and decisions (with some evidence of ‘herd
behaviour’), the resetting of international interest rates, etc.

In less immediate terms,

3.2.5.
it can be argued that
globalisation has not only broadened the channels for exogen-
ous shock but has also complicated relations,
inside the
different systems, between private operators and public bodies,
and between micro and macro factors. This complexity is
driven by the multiple interests and interactions which revolve
around private operators (each of them with their own aims,
rationales and interests).

3.3. The new conceptual architecture

As the Commission states, reform designed to create
3.3.1.
a new financial and monetary architecture is needed both (i) to
foresee and manage financial crises more effectively from the
outset, and (ii) to enable the financial market to cope with the
glaring developmental inequalities around the world. This is a
need which, even before appealing to a sense of solidarity,
engages the direct interests of all countries — developed,
developing or almost wholly marginalised. In practice, the
contagion and simultaneity aspects mentioned above entail
‘aggregate risks’ for the credit and money market: they indicate
that even industrialised countries should not concentrate
exclusively on their own domestic problems.

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3.3.2.
The Committee nevertheless believes that governing
the financial market requires the application of ‘extended
rationality’, given the broader objectives which better func-
tioning of the market is intended to pursue. This entails
fleshing out the model for economic analysis against which
the ‘new financial architecture’ is to be viewed. The purpose of
this new architecture should be to achieve a disciplined
financial market in which competition mechanisms are backed
up by regulatory and supervisory instruments.
In order,
however, for reform to be both effective and fair, it must be
built
into a wider and more comprehensive ‘conceptual
architecture’ which reflects not only factors inherent to the
financial market, but also the links between this market and
other areas of the real economy.

‘extended
For the general economic framework,
3.3.3.
rationality’ means focusing on both demand- and supply-side
factors. Macro issues concerning the public authorities can
thus be correlated with micro issues, and the simplistic barrier
between economic decisions and mechanisms and the social
rules governing the community on which they impact can be
broken down.

3.3.4.
At macroeconomic level, the rate of GDP growth is
not by itself a sufficient indicator with which to assess the
system’s development. Domestic demand, in all
its various
aspects, plays a key part in the stability of growth and the way
it is distributed. When it is at the right level, it makes for an
easier trade-off between export competitiveness and the need
to stabilise exchange rates. In this connection, there needs to
be a thorough re-think of the prevailing fiscal policy model,
which has preferred to use fragmented tax relief moves for
specific categories of operator and tax bases. As well as being
this undermines economic growth and social
inequitable,
development when public expenditure commitments are not
met.

3.3.5. Macroeconomic recovery schemes must be respon-
sive to the demands for a gradual approach emerging from the
wider economic and social system. The quickening pace,
invariably explained in emerging countries by their desire to
speed up their participation in the financial capital markets,
has triggered negative chain reactions on these markets. This
has highlighted how the volatility of the financial system can
manifest itself during the opening-up of a market — i.e. in the
short term — rather than when it has been open for some
time. All other conditions being equal, the process of opening
up the capital market can itself push up prices where the
national financial authorities do not have the necessary control
capacity.

3.3.6.
The choice of foreign exchange system is closely tied
in with the gradual approach. Argentina opted for a fixed parity
arrangement because it considered this the most appropriate
foreign exchange regime. It should be clear that in so doing, it
rendered national monetary policy endogenous, with the aim
of activating ‘automatic deflation’.

4. Specific proposals and considerations

4.1.
The Committee stresses the importance of the pro-
cedures which the international community plans to put in
place in order to create a new financial economy. The objective
is two-fold: to make foreign investors more familiar with
conditions on the markets they intend to enter; and to
strengthen these markets through legislative, economic and
institutional reforms, together with new financial infrastruc-
tures.

4.2.
This calls for a number of steps, including codes to
ensure transparency in macroeconomic policy, principles and
guidelines to protect creditors, international accounting and
auditing standards, banking controls, market integrity safegu-
ards, and rules which emerging and/or developing countries
should also comply with,
in close coordination with the
appropriate international financial institutions, first and fore-
most the International Monetary Fund (IMF) and the World
Bank (covering 183 countries). These two bodies intend to
step up their joint reporting and surveillance work under the
new world Financial Sector Assessment Program.

4.3.
The Committee stresses that maximum transparency
and information must also be ensured where the international
institutions are concerned, so that comparison and discussion
are possible. The rules of democratic governance should apply
within globalisation structures too. The bodies operating
within these structures are specialised in terms of their powers
and at the same time independent — even though they manage
public funds — once their establishment has been decreed by
international decision.

4.3.1.
The Committee emphasises that the rules mentioned
above must enable the countries concerned to achieve balanced
internal development. The reform process is a lengthy one:
this means that further variables, conventionally left out of the
models and procedures applied hitherto in relations between
debtor nations and credit providers, must be included so as to
ensure that financial vulnerability really is reduced. This entails
breaking down the separation between the ‘needs of the
market’ and the aspirations of civil society within each national
community.

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4.4.
To achieve this aim, the Committee does not believe it
is sufficient to state that the standards proposed by the
international community should be adopted by individual
countries on a voluntary basis, or that it is up to them to
decide on the content of action programmes and deadlines for
their implementation. Loan conditions — starting, for exam-
ple, with the ‘Contingent Credit Line’ devised by the IMF —
must take account of how far they can in practice be borne in
terms of the real economy, social conditions and international
robustness. This may reassure private creditors, and prevent
liquidity crises turning into full-blown solvency crises. In other
words, it may safeguard a project’s viability and effectiveness.

4.5.
In addition, the Committee would point out that the
state of play between the three international currencies — the
dollar, the euro and the yen — also plays a significant role.
Less fluctuation in their rates of exchange would reduce the
risks and uncertainty which influence international finance.
Greater coordination between these monetary zones could
bring exchange rates and basic aspects of the real economy
into closer line with each other, imparting more continuity to
general economic growth.

4.7.1. Money laundering and the funding of terrorism are
two areas of great concern, and involve large amounts of
money (the UN calculates the proceeds of crime at some
500 billion dollars annually). Both are beyond the reach of
individual states. They originate from a range of sources (only
in the case of organised crime are the initial funds always
illegal) and take full advantage of transnational opportunities,
globalisation and technological progress.

5. EU proposals

The European Union has a clear picture of its role and
5.1.
the contribution it can make in all the areas mentioned. The
Committee would draw attention to the value of the following
initiatives and trusts that the working deadlines will be met.

5.1.1.
The EU called for new forms of democratic govern-
ance at the Laeken European Council. These require a collective
view of the rapid changes affecting the world, identification of
priorities, matching of human and financial resources, and
acknowledgement of
the crucial role of civil society in
liberalisation. The Commission’s proposal
orderly financial
on governance (1) must
lead to legislation and to robust,
coordinated political action by the entire European Union.

4.6.
The financial economy must reflect the logic not only
of the financial system, but also of the monetary economy.
The traditional tension between them, which has been exacer-
bated by the rapid liberalisation and increasing deregulation of
the capital market, must be set against a broader framework
for governance than the mono-dimensional one prevalent so
far. Only in this broader framework can proposals be put
forward on whether or not to boost the role of the IMF, on
extending its remit to the balance of payments capital account,
on the scope for systematic involvement of the private sector
in dealing with financial crises, etc.

5.1.2. With regard to the tax issue, the Helsinki and Santa
Maria da Feira European Councils (December 1999 and
June 2000 respectively) launched a package of initiatives, in
compliance with the principle of subsidiarity and of a barrier-
free European market, to be implemented on a voluntary basis
by the Member States (code of conduct on company taxation),
together with a coordination drive guided by European
directives on taxation of savings income. The first results
should be available in the course of 2002. Progress towards
tax harmonisation has only just begun.

4.7.
Proposals under discussion include the introduction of
a ‘Tobin tax’, which would be levied on cross-currency
transactions in such a way as to deter currency speculation
and protect capital flows destined for productive investment.
Alternative solutions, such as non-yield time deposits, have
also been proposed. In the Committee’s view, the question of
whether or not the Tobin tax is desirable or practicable comes
under the broader issue of how to ensure international fiscal
coordination which can prevent ‘unfair’ competition, confront
the problem of tax havens and off-shore markets (both of
which combine tax evasion and complete anonymity), and
facilitate measures to combat both laundering of the proceeds
of organised economic crime and funding for international
terrorism. The Committee should devote further attention to
the issue of international capital taxation.

The EU is engaged in integrating its own financial
5.1.3.
market,
the Lisbon
in accordance with the decisions of
European Council (March 2000) setting 2005 as the deadline
for implementation of the Financial Services Action Plan,
and with the decisions of the Stockholm European Council
(March 2001), which brings integration of
the securities
market forward to 2003, in keeping with the views of the
Committee of Wise Men chaired by Mr Lamfalussy. The
Committee has already welcomed this approach and the stages
into which it is divided, and will not return to it in the present
opinion. It does however wish to emphasise that the financial
market can act as an engine for growth and a force for stability
only if the optimum balance between efficiency and security
can be achieved.

(1) COM(2001) 428 final.

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5.1.4. More specifically, with regard to the state of progress
of the action plan, the Committee would stress the importance
of relaunching the takeover bids directive and the need to
make progress on the supplementary pension funds directive.

5.1.5. With regard to the current world economic slow-
down, the Committee urges the EU to boost its own internal
growth and intra-Community trade. This could in part be
achieved by launching European infrastructure projects, with
the project funding drawn from the market and the banking
system in combination with new public investment.

the

Stability Pact

5.1.6.
By boosting the contribution of internal demand to
European GDP growth, these types of action would provide
necessary structural reforms. They should not be included
among
If
implemented as part of a system of efficient cooperative
development between Member States, these steps would enable
each country to take account of the decisions of its partners
and therefore to limit the volume of the financial resources
needed, while obtaining the same economic results as with
initiatives taken in isolation.

accounting mechanisms.

6. The international financial institutions

6.1.

The European Central Bank

6.1.1.
The ECB has restated its — primarily methodological
— objection to adopting short-term discretionary monetary
policies, considering that these would inject even greater
volatility into cycles. In the ECB’s view, a medium-term policy
— if based on clear objectives (price stability) and information
— broadly matches the expectations of private operators, who
will then make the necessary adjustments.

6.1.2.
For this reason, the ECB views the euro exchange
rate as an indicator, not an objective. In comparison with the
the ECB points out that the
Bretton Woods agreements,
liberalisation of capital and application of market criteria have,
over the last two decades, ironed out the disadvantages in the
allocation of financial resources and savings. It does however
acknowledge that this can make it more difficult to maintain
stable exchange rate regimes. At all events, the ECB feels that
the best way of letting the fundamental principles of market
discipline govern the system is to comply with them.

6.1.3.
Cooperation agreements between the major monet-
ary areas can only be an option under entirely exceptional
circumstances, such as the 11 September attacks — as in fact
occurred immediately after those events. In general terms,
agreements are viewed by the ECB as potential triggers for
crises, in view of the difficulty of comprehensively covering all
the different variables when drawing up their internal rules.

6.1.4.
The Committee is fully aware of the difficulty that an
exchange rate agreement with the leading currencies would
pose, but nevertheless emphasises the positive effects it would
have in making the markets less volatile and more predictable.
The ECB must also have a recognised role as the representative
of its monetary area at the international institutions.

6.2. The Financial Action Task Force (FATF)

6.2.1.
For the FATF, the common element in all the various
aims of economic crime is the need to be funded through
efficient financial structures. Their individual characteristics,
however, influence the channels through which the money
passes. Economic crime involves procedures for laundering
funds generated by illegal activities (dirty to clean), drawing
lawful funds into unlawful activities (as can happen in funding
for terrorism), i.e. clean to dirty, or channelling unlawful funds
(from contraband, drugs, etc.)
to other criminal activities
(terrorism), i.e. from dirty to even more dirty.

The particular gravity of

the terrorist attacks of
6.2.2.
September 2001 has prompted the FATF to draw up fresh
recommendations which, in conjunction with those on money
laundering, provide a basis for detecting, preventing and
suppressing terrorist funding and acts. The Committee fully
supports the content of the recommendations, and stresses the
need for all states to ratify the UN’s 1999 Convention for the
Suppression of the Financing of Terrorism, and to implement
the related resolutions, in particular Security Council Resol-
ution 1373 (financing terrorism, terrorist acts and forming
terrorist groups are considered to be crimes; all countries are
to make the necessary changes to their own laws and
regulations in order to freeze and confiscate without delay
funds or other resources, and submit reports to the appropriate
authorities where there is a suspicion that funds are linked
with terrorism).

6.2.3.
The Committee notes that the globalisation of finan-
cial markets, the ever-increasing diversification of new pay-
ment instruments and financial derivatives, and the introduc-
tion of the euro make it increasingly difficult to control this
phenomenon. This state of affairs requires not only bilateral
and multilateral agreements between the various national
systems, but
the effective acceptance of an international
framework for governance, based on uniform criteria and
procedures.

The Committee’s concern also derives from the
6.2.4.
difficulty of applying these rules effectively in widely varying
institutional and legal settings.

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6.3.

The International Monetary Fund (IMF)

c)

a contractual approach based on market rules, under
which collective action clauses could be incorporated
voluntarily.

6.3.1.
The Committee agrees with the IMF regarding the
implementation and strengthening of the Code of Good
Practices on Transparency in Monetary and Financial Policies,
initiated in 1998. Voluntary acceptance (and application) of
the code can be regarded as a necessary stage in crisis
prevention. Under the code, two criteria are to be applied
when framing national monetary and public finance policies:

a)

b)

private operators and the public should be informed of
the macroeconomic goals of policies and the instruments
for achieving them;

the monetary authorities and financial
institutions
operating with a high degree of autonomy should under-
take to respect the commitments and rules adopted,
thereby confirming their reliability.

6.3.2.
The Committee would therefore strongly advocate
strengthening the IMF’s new International Capital Markets
Department, and bringing greater transparency to the IMF’s
operational choices, as well as to the economic policy debates
and decision-making procedures preceding and accompanying
such choices.

6.3.3.
However, the Committee believes that improvements
to the method of analysis, and the preparation of new
indicators by the IMF itself, should form part of a broader
approach. Under this approach, steps for readjusting variables,
and the timetables for implementing them, should take account
of the development needs of the real economy and of their
social acceptability. The Committee is convinced that this is
the only way for the necessary stability policies — which
every country should feel duty bound to pursue — to be
strengthened and made more credible in terms of feasibility
and structural consolidation. In the Committee’s view, this also
implies direct and broad involvement of all the different
political strands and of civil society in the preparation of
national debt repayment or recovery plans.

The IMF has not yet specified which of these options is
considered the most suitable for adoption.

The Committee notes this uncertainty and the expec-
6.3.6.
tation of a three-year wait before the new mechanism is
introduced. It takes a serious view of the present situation of
certain countries with severe difficulties (e.g. Argentina), which
are unable to refer to new rules or, in agreements currently
being concluded, to count on clauses similar to those to be
contained in the solution eventually adopted. Regarding the
current debate, the Committee believes that the approach
whereby decisions are taken by a majority of creditors allows
the macroeconomic financial institutions and private operators
to be involved in a carefully considered way and, at the same
time, to offset any aggressiveness on the part of the strongest
creditors.

6.3.7.
In the Committee’s view, preventing and resolving
crises also means looking again at the Enhanced Heavily
Indebted Poor Countries Initiative. In the first months of 2002,
of the 21 countries (from a total of 42) which had started
using debt reduction payments, eight were subsequently
excluded by the IMF because the agreed macroeconomic and
reform-related commitments were not met. The Committee
would emphasise that assessments of non-compliance must
take account not only of traditional structural difficulties, but
also of overall economic growth which is lower than that
(always) assumed by agreed debt repayment programmes, and
of the fall in certain commodity prices.

6.4. The World Bank

6.3.4.
In 2001, the IMF called for the establishment of a
new external debt restructuring mechanism using procedures
similar to those adopted at national level for bankruptcies. The
IMF also considered the issue of how to define its own role in
this new framework of collective action clauses.

The first point for consideration with the World
6.4.1.
Bank was the feasibility of the UN programme, confirmed by
the Monterrey Consensus which, as well as setting out the
action to be taken, aims to halve the number of people living
in poverty by 2015 (from 29 to 14,5 % of the world’s
population).

6.3.5.

The alternatives currently under discussion concern:

6.4.2.

The Committee points out that:

a)

b)

a statutory approach giving the IMF further powers in
defining debt restructuring mechanisms;

a)

a statutory approach based on decisions by a majority of
creditors;

the feasibility of many of the objectives set (including the
economic policies which the countries involved must
follow) depends on abstract initial assumptions, such as a
basic GDP growth rate, at international level, of 3,6 % a
year to 2015;

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14.3.2003

b)

c)

in its own reports, the World Bank emphasises that
economic downturns and widening inequalities in many
parts of the world are impeding the structural reforms
that countries are supposed to carry out;

the World Bank on the need to review the criteria thus far
adopted (e.g.
in backing privatisation uncritically), and the
continued adherence to these criteria in programmes.

all these factors mean that the World Bank must, in
the light of the experience acquired, fine-tune its own
analytical model and the associated economic and social
statistical indicators.

7. Conclusions

6.4.3.
Thought was also given to the practical ways in
which future commitments are to be implemented. The
Monterrey Consensus envisages a new partnership for sustain-
able development between the developed and developing
nations, on the basis of shared accountability and obligations.
It sets out to ensure good governance and application of
macroeconomic stabilisation policies (surveillance of the finan-
cial sector, public finances and the exchange rate system) on
the part of the developing countries, matched by greater and
more efficient assistance from the developed countries, who
must also comply with the trade liberalisation decisions
reached at Doha. Against this backdrop, the role of the World
Bank is to help the developing nations to overcome existing
obstacles of a strategic, institutional or infrastructural nature.

6.4.4.
The Committee considers that a dynamic private
sector, liberalisation of the financial markets and an integrated
trade system are essential for the economic growth of the
developing countries. However, the Committee is convinced
that the experience of the last 30 years clearly shows that if
such steps are introduced without proper regard to the wide
variety of specific local economic and social conditions, they
upset the balance of power between economic operators and,
when compounded by structural imbalances, frustrate rather
than facilitate movement towards development, reform and
social progress.

6.4.5.
In the light of the points confirmed at the Seville
European Council of 21 and 22 June 2002, the Committee
calls upon the European Union to propose the adoption of
new criteria in the appropriate international forums geared to:

— delivering greater impetus to the development of the real

economy;

— providing safeguards for the essential goods and services

necessary for such development;

— supporting local economic activity.

The Committee notes the growing importance of the
7.1.
international capital market, which is no longer bound by
limits of time or space.

Activity on this market has a huge influence on
7.1.1.
developments in the real economy, affecting production,
employment, and private and public supply and demand. Its
impact in transmitting financial crises to the real economy is
bound up with its capacity to synchronise and extend financial
crises across geographical regions, triggering and amplifying
not only economic, but also social and institutional instability.

For this reason, a broad debate is developing on the
7.1.2.
new architecture of world finance, as one possible means of
bringing good governance to a field where the rules are either
outdated or are of too limited territorial scope to tackle the
situation.

7.1.3.
The Committee is convinced that a new financial
architecture capable of anticipating or managing crises has to
be based on new concepts, on a new conceptual framework
reflecting not only financial, but also economic and social
aspects, and the institutional and democratic solidity of the
countries affected.

7.1.4.
The Committee calls for governance along the lines
set out in the Commission’s white paper (1), under which the
involvement of civil society and the reduction of global
economic disparities are set objectives.

7.1.5.
The European Union must therefore adopt a higher
profile in the debate, bringing this new vision to institutional
forums and presenting a united front.

The international

institutions must be thoroughly
7.2.
overhauled. The Committee notes that while the World Bank
is progressively broadening its methods of analysis and
introducing new elements in line with European governance,
the IMF remains firmly anchored to its traditional criteria. It is
in any case difficult to see these bodies implementing substan-
tial changes purely on their own initiative.

6.4.6.
There is at present a damaging degree of ambiguity
between the declarations of principle made by major figures at

(1) COM(2001) 428 final.

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Official Journal of the European Union

C 61/113

7.2.1.
But reform is only possible if the balance of power
between the international institutions is altered: this however
an understanding between the European
presupposes
countries to break the present mould and speak with a single
voice, resolving the myriad political problems which this
entails.

7.2.2.
Lastly, the Committee calls on all the international
organisations (IMF, World Bank, FATF, Global Forum on
Fighting Corruption, etc.) to enter into close and effective
cooperation with each other and with national systems. The
political will to strengthen control of off-shore markets and of
links between off-shore and on-shore markets is crucial in this
regard.

Brussels, 18 September 2002.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on ‘The future of upland areas in the EU’

(2003/C 61/19)

On 16 January 2002 the Economic and Social Committee, acting under Rule 23(3) of its Rules of
Procedure, decided to draw up an opinion on ‘The future of upland areas in the EU’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 25 June 2002.
The rapporteur was Mr Bastian.

At its 393rd Plenary Session (meeting of 18 September 2002) the Economic and Social Committee
adopted the following opinion by 66 votes to one with 12 abstentions.

1.

Introduction

— CoR opinion of 21 April 1995 on the European Charter

on Mountain Areas;

1.1.
Now that the UN General Assembly has designated
2002 the International Year of Mountains, the European Union
should give thought to its policy for upland and mountain
regions.

— CoR opinion of 18 September 1997 on A policy for

upland agriculture in Europe;

1.2.
The European Economic and Social Committee, the
European Parliament and the Committee of the Regions have
all expressed their concern for upland and mountain areas on
a number of occasions, and have called on the European Union
to recognise the special nature of these areas and to conduct a
proper cross-sectoral policy for them. These views are set out
in the following documents:

— EESC opinion of 28 April 1988 on A policy for upland

areas;

— report of the European Parliament’s Committee on Agri-
culture and Rural Development of 16 October 1998 on
A new strategy for mountain regions, based on an earlier
study by the EP’s Directorate-General for Research entitled
Towards a European Policy for Mountain regions (AGRI
111/FR — available in French only);

— EESC opinion of 25 April 1996 on The Alpine Arc — an

opportunity for development and integration;

— European Parliament resolution of 6 September 2001 on
25 years’ application of Community legislation for hill
and mountain farming.