The EMS not only provided exchange rate stability through the setting-up of formal fluctuation bands between currencies; it also organized a monetary solidarity between countries, by providing compulsory interventions and related financing facilities. BIS Review 63/1997  -3-  Although the very first years of the EMS were characterized by several currency realignments, due to insufficient nominal convergence between countries, the system progressively contributed to exchange rate stability. German monetary policy, based on stability and credibility, proved to be efficient. In this context, the French authorities fully endorsed the objectives and disciplines of the EMS and embarked on monetary and exchange rate stability. The years that followed were characterized by increasing convergence between countries and fewer realignments. All countries, including new participants in the system, adopted similar strategies. Although satisfactory in theory, this stance was nevertheless difficult to follow for some economies still facing imbalances, and in particular a lack of competitiveness. This explains partly the crises that occurred in 1992 and 1993. I cannot forget how efficient Franco-German cooperation was during this difficult period. This concrete cooperation has also been made possible by the emergence of a conceptual convergence as regards monetary issues. Since 1987, the central rate of the French franc within the European exchange rate mechanism (ERM) has been unchanged, and a virtuous disinflation process has been taking place. This policy has allowed French short-term and long-term interest rates to decline steadily and to stand at similar levels to those reached by the best performers within the EMS.

While these links are not new, they now warrant closer attention for two reasons. First, the financial system has come to rely more on central counterparties. The introduction of mandatory central clearing requirements in response to the crisis has made financial markets safer and more transparent. This is in large part thanks to the European Parliament’s push for stronger financial regulation, such as the European Market Infrastructure Regulation (EMIR). While this strengthening is of course welcome, it also means that CCPs have become more systemic. Second, the United Kingdom’s decision to leave the EU means that, under the current legislative regime, several CCPs clearing significant volumes of euro-denominated business will be operating outside the framework of EU regulation and the safeguards this provides. In this context, the Commission’s EMIR II proposal, currently being discussed by this committee, is a welcome and necessary initiative. The existing regime was never intended to cope with large-scale euro-denominated clearing activities being carried out in a country outside the EU. The EMIR II proposal would enable EU authorities to directly supervise systemically important third-country CCPs on the basis of EU regulatory requirements using EU supervisory instruments. The proposal provides for an enhanced role for the central bank of issue in this context, reflecting the strong links between clearing and monetary policy. The indispensable corollary to the EMIR II proposal is the recommendation to amend Article 22 of our Statute, which was unanimously adopted by the ECB’s Governing Council last June.