A3-0294/93

Resolution on EMS plus 1992 Programme: Lessons to be drawn for the Implementation of the EMU

The European Parliament,

-having regard to the Committee of Governors' report on 'Implications and lessons to be drawn from the recent Exchange Rate Crisis' and the Monetary Committee's report on 'Lessons to be drawn from the disturbance on the foreign exchange markets',

-having regard to the Study by the Association for the Monetary Union of Europe (AMUE) on 'The EMS in transition: Lessons learned from the experience of the EMS and the completion of the Internal Market Policy options to prepare stages II and III of EMU',

-having regard to the decision of the Finance Ministers and Central Bank Governors of the EC to widen the intervention margins of the ERM to +/- 15 %,

-having regard to its resolutions of 14 April 1989 on the process of European monetary integration, 10 October 1990 on Economic and Monetary Union, 14 June 1991 on Economic and Monetary Union in the context of the Intergovernmental Conference, 24 October 1991 on the proposal of the Netherlands Presidency of the Council to the Intergovernmental Conference on Economic and Monetary Union, 7 April 1992 on the results of the intergovernmental conferences, and 15 July 1993 on the second Annual Report on the activities of the Committee of Governors and on the monetary and financial conditions in the Community,

-having regard to Rule 121 of its Rules of Procedure,

-having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A3-0294/93),

A.whereas the creation of the EMS had as its primary objective the enhancement of monetary co-ordination with a view to holding together the Trinity of:

(i)semi-fixed exchange rates,

(ii)the free movement of capital,

(iii)independent national monetary policies,

and whereas during its 15 years' experience relative currency stability was achieved via various combinations of the above three factors,

B.whereas since the early 1980s the globalisation of finance, capital and investment markets and the deregulation of markets have put an end to the effective use of capital controls, have aggravated the problem of controlling money supplies, have influenced the fixing of exchange rates and have encouraged speculation,

C.whereas the existing EMS is inevitably prone to crisis since global markets have changed the context of implementation of orderly monetary and exchange rate policies within the initial EMS framework,

D.wheras the average daily turnover of currencies due to speculation within the OECD area is at present six times greater than the commercial demand for currency, and on certain days the speculative element of the turnover in the foreign exchange markets can be anything up to 95% of the day's business; whereas, moreover, this sort of turnover has led to a situation in which the OECD countries' currency reserves are occasionally equivalent to no more than a good half of one day's total turnover in the foreign exchange market,

E.whereas the recent proposals from the Committee of Governors and the Monetary Committee on the reform of the EMS, maintaining the status quo and hoping that the speculative attacks on European currencies are over, have been clearly disproved by the July 1993 crisis because the system as initially conceived does not respond to current monetary conditions resulting from the globalisation of financial and capital markets and active institutional investors, and allows private markets to dictate economic and monetary policies while inducing disorderly placement of savings,

F.whereas at all events any harmonization of monetary policies can be credible only where macroeconomic policies have been sufficiently harmonized,

As regards the decision of 2 August 1993 and related options

1.Believes that the decision of 2 August 1993 by the Finance Ministers and Central Bank Governors of the Community to widen the obligatory marginal intervention margins of participants in the ERM to +/- 15 % amounts to a system of managed floating of exchange rates that would have the following consequences if maintained in the medium term:

(a)the Community might revert to floating exchange rates,

(b)competitive devaluations might be induced which could encourage protectionism and severely damage the incomplete and fragile single market,

(c)economic policy, the CAP and the EC budget would be adversely affected,

(d)monetary co-ordination would not be possible unless the intrinsic flaws of the EMS were corrected in time,

2.Is of the opinion that the current design of the EMS cannot cope with disequelibria of fundamentals such as competitiveness, inflation, wage settlements, current account and budget deficits, while maintaining fixed exchange rates;

3.Stresses the fact that the basic intrinsic flaws of the status quo induce unwarranted speculative attacks leading to unnecessary real costs in terms of output and employment; these high costs could endanger the whole process of European integration and could break up the Single Market;

4.Is concerned that official bodies still hold the view that interest rates are the only effective instrument with which to counter speculative attacks; points out that in the presence of global markets, a one-policy instrument (i.e. the interest rate) is supposed to influence four objectives: boost investment, control inflation, stabilise the exchange rate and increase private savings;

5.Stresses that proposals such as the immediate creation of a de facto Monetary Union consisting of a 'core group':

(a)will not correspond to the integration process laid down in the Treaty on European Union (TEU),

(b)will amount to destroying the institutional setting as conceived for the second stage of EMU,

(c)will undermine the system's primary objective of ensuring monetary cooperation between all Member States,

(d)will signal a lack of credibility of the Maastricht Treaty;

(e)will not break the power of speculators, because the latter will only switch their attacks to currencies not belonging to the "core group";

As regards the reform of the EMS

6.Stresses that any proposal for the reform of the EMS can only gain credibility if it derives from an affirmation by the European Council concerning:

(a)the credibility of the TEU, the instruments necessary for and the stages of EMU, building up the institutional convergence required for the implementation of stage three as laid down in the TEU,

(b)the gradual development of EMU leading to the establishment of a single currency, the ECU, as laid down in Articles 3a and 109l(4) EC;

7.Stresses that any proposals to reform the EMS at the beginning of the second stage can only be made in the context of the TEU taking account of the principles laid down in the Maastricht Treaty and developing fully the tasks and responsibilities of the European Monetary Institute (EMI); in this context, proposes, with a view to overcoming the present currency crisis and improving monetary developments and coordination, that the monetary authorities improve their voluntary cooperation over monetary policy in the second stage, as provided in Article 109f EC and the statute of the EMI;

8.Considers that, in implementing the preceding paragraph:

(a)the question of the seat of the EMI should be agreed on at the forthcoming European Council,

(b)the process leading to the independence of the national central banks should be concluded as soon as possible,

(c)the appropriate resources should be made available to the EMI;

(d)the convergence of economic performance should be pursued consistently;

9.Notes that the defence mechanisms available to the EMS to resist unwarranted speculative assaults on the currencies in the system need to be improved and extended, in order to restore the system's credibility and monetary stability; believes that selective measures need to be taken to make speculation more difficult and more risky without seriously impeding the normal operations of the capital markets; calls on the Commission and the Council to submit appropriate proposals forthwith;

10.Asks the Commission, the Council and the Committee of Governors to examine whether broadening the anchor of the monetary system, just for the second stage of the EMU, could be based on the ECU and the strongest currency in the main markets, subject to the following rules:

(a)a stable relationship should be maintained between the exchange rates of the ECU and of the strongest currency,

(b)realignments would take place only if the stable relationship between the two above exchange rates could not be maintained,

(c)the system would be managed in such a way that it would follow a money supply rule that would not increase liquidity beyond the rate necessary to support real growth;

11.Asks the Commission, the Council and the Committee of Governors to examine whether the rule in Paragraph 10(a) could be implemented by correcting any fall in the value of the ECU against one or more other currencies by either freezing the relative weights of each currency within the basket or increasing, in compensation, the quantity of any currency or currencies within the basket. Accordingly, asks the Commission to examine:

(a)such a proposal in the light of Article 109g EC given the context of Council Regulation (EEC) No. 1971/89 amending Article 1 of Regulation (EEC) No. 3180/78 amending the value of the unit of account used by the European Monetary Cooperation Fund,

(b)the effects of such a system on the markets in ECU-denominated securities and possible remedies;

12.Proposes that consideration be given to reforming the current asset settlements rule of the EMS obliging national central banks to repay intervention credits with foreign exchange reserves, by arranging for outstanding debt to be settled among national central banks and the EMI in ECUs;

13.Proposes further that consideration be given to using an interest rate indicator as the basis for the monetary cooperation to be ensured by the EMI and national central banks with a view to attaining price stability;

14.Favours the EMI, within its primary tasks conferred upon it by Article 109f(2), (3) and, if necessary, (7) EC, as the monetary authority fully responsible for issuing and managing the ECU; consequently, proposes that consideration be given, pursuant to Article 109f(3) EC, to further developing the operational functions of the EMI as stipulated in Article 6.4 of the Protocol on the Statute of the European Monetary Institute: 'The EMI shall be entitled to hold and manage foreign exchange as an agent for and at the request of national central banks';

15.Points out that great efforts will still be necessary by the Member States in order to fulfil the convergence requirements of the Maastricht Treaty and welcomes the fact that from the beginning of the second stage a procedure will be in place to deal with excessive government deficits;

16.Is convinced that, in preparing the third stage of EMU as called for in Article 109f(3) EC, the EMI should adopt a gradual approach built on safeguard clauses and consensus procedures for carrying out monetary coordination in fulfilment with the necessary procedures for implementing the third state;

17.Requests the Commission, in accordance with Article 103(2) EC, to submit proposals laying down the content, procedure and monitoring of multilateral surveillance, thus reinforcing the credibility of the mandate given to the EMI in accordance with the wishes of this resolution; is of the opinion that a monetary system based on price stability, operating in full compliance with the objectives and requirements of the second stage of EMU, should also support growth and employment;

18.Asks the Council, meanwhile, to underscore the link between monetary cohesion and a genuine single market by publicly making the case for a single EC currency;

19.Requests the Commission and the Committee of Governors to study the above proposal and report to Parliament their findings as soon as possible and thus propose the appropriate legislation for its implementation;

20.Instructs its President to forward this resolution to the Council, Commission and Committee of Governors of the Central Banks.