A3-0334/94

Resolution on the impact of exchange rate fluctuations on the Community's internal and external trade

The European Parliament,

-having regard to the study by the Centre for Economic Policy Research entitled 'The impact of exchange rate fluctuations on European Community trade',

-having regard to the conclusions drawn at the hearing on this subject held by its Subcommittee on Monetary Affairs on 15 March 1994,

-having regard to its resolutions of 15 December 1993 on the independence of the national central banks in the context of the second and third stages of EMU, and on international monetary cooperation within the framework of the easing of restrictions on capital markets,

-having regard to Rule 148 of its Rules of Procedure,

-having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A3-0334/94),

A.whereas trade, which accounts for about 27% of the European Union's gross domestic product (USA about 12%, Japan 7%), is more important than in other economic regions, trade within the Union accounting for 15.5% of GDP, external merchandise trade for about 11.5%; whereas the USA and Japan account for about 23% of the EU's exports and 28% of its imports, their share of world merchandise exports is about 18% (EU 21%) and the US dollar is the most important international trading currency, an estimated 41% of exports and 49% of imports of goods worldwide being invoiced in US dollars,

B.whereas trade within the European Union may have changed as a result of the exchange rate adjustments in 1992 and 1993 due primarily to the increases in Italy's and also Finland's and Sweden's exports,

C.whereas exchange rate stability has advantages, since it will facilitate the transition to a single currency and increase the anti-inflationary pressure in some Member States; whereas it will, however, necessitate an adjustment of costs in the labour and product markets,

D.whereas financial markets are becoming global and speculation, which may cause short-term exchange rate instability, is on the increase,

E.whereas transnational undertakings are unable to react quickly to sudden currency revaluations and are therefore forced to accept market losses and falling prices and profits and may even relocate investment in the medium term,

F.whereas the cost of safeguarding against exchange rate fluctuations is high, particularly for export-oriented SMUs,

G.whereas competitive devaluations have an adverse effect on the internal market and intra-Community trade and, in the medium term, on countries using them as a trade policy instrument,

H.whereas the freezing of the EMS central rates from 1987 to 1992 led to growing distortion of real exchange rate levels and this may have had a greater adverse effect on intra-Community trade than the changes in nominal exchange rates from 1992, which resulted by and large in no more than a correction of this distortion,

I.whereas, however, the preservation of misaligned parities in the name of currency stability can be more damaging to trade than their timely realignment,

J.whereas the absence of competitive devaluations after the EMS crisis in 1993 is appreciated and the voluntary observance of the former 2.25% margin above and below the bilateral central rates of the strongest currency is to be seen as a de facto consensus on stability and thus as a major contribution to preparations for the achievement of monetary union,

K.whereas there are dangers inherent in significant and persistent worldwide exchange rate fluctuations and in the adverse effects they have on competitiveness in global markets; whereas protectionist tendencies are evident in both revaluing and devaluing countries and may have a mutually negative influence; whereas coordination will be difficult as long as macroeconomic conditions differ so widely among the EU Member States and between the European Union, the USA and Japan,

L.whereas persistent exchange rate fluctuations may adversely affect both world trade and investment and lead to the worldwide misallocation of resources, since they may both deflect trade and cause undertakings to relocate their production facilities,

1.Maintains the view that the completion of the internal market through the achievement of economic and monetary union remains a priority objective for the stabilization and expansion of trade within the European Union;

2.Considers an expansion of internal trade in the European Union important primarily because it can be used to revive internal demand and thus to promote production and employment and believes that the stabilization of exchange rates will contribute to the kind of growth that has a favourable impact on employment, since both short-term exchange rate fluctuations and persistent exchange rate distortions, a source of trade distortions that increase costs, can then be avoided, provided that exchange rates are adjusted in good time;

3.Considers it essential for exchange rate policy within the European Union to seek to prevent persistent distortions of real exchange rates since, given the increase in trade linkages, EU undertakings are far more dependent on regional parities than undertakings in other regions of the world and therefore benefit from stable exchange rates;

4.Calls on the Member States of the European Union to limit short-term exchange rate fluctuations as far as possible during the second stage and to ensure that a credible reduction in the EMS margins is progressively achieved on the basis of fundamental economic data and clear integration objectives, so that the requirements for participation in the third stage may be satisfied by as many Member States as possible and the political will to achieve monetary union may be strengthened;

5.Calls on the Member States to improve and strengthen the coordination of their monetary, budgetary and economic policies, so that a credible stabilization of exchange rates may be achieved during the second stage, and to make their central banks independent as soon as possible;

6.Calls on the newly acceding Member States to contribute even now to the revival of trade in the European Economic Area by participating in the stabilization of exchange rates by means of coordinated exchange rate policies, since this trade already accounts for 70% of the EEA Member States' exports and so contributes to growth and employment;

7.Calls on the Member States so to modify the EMS mechanisms that distortions of real exchange rates are prevented and prompt adjustments of nominal exchange rates are made and therefore proposes that

(a)decisions on the conditions governing participation in and withdrawal from the EMS should be taken at Community level,

(b)decisions on devaluations and revaluations should be taken on the basis of objective economic indicators,

(c)decisions on these aspects should be dedramatized and the EMI should therefore play a decisive role;

8.Calls for better monetary and more responsible coordination and cooperation as a means of stabilizing exchange rates than hitherto achieved in the G7, through greater steadiness in the growth of the world money supply at an inflation-free level and, above all, of avoiding persistent exchange rate adjustments since they have a significant influence on the EU's trade with third countries, and believes that a persistent distortion of the exchange rates of the US dollar, the yen and the ECU might have an adverse effect on the volume of trade, increase protectionist pressure, distort investment flows and lead to trade wars:

9.Sees a need for further hearings and studies on the link between exchange rates and trade in and outside the European Union, primarily as a means of analysing the EMS crises of 1992 and 1993 and assessing the cost of safeguards against exchange rate fluctuations and the effects of the European Economic Area, of trade with the Central and Eastern European and CIS countries and of the development of world trade generally;

10.Highlights the need, in particular, for further studies into the costs of hedging, and the extent to which these costs vary according to the size and type of companies involved. Asks for further research too, into whether hedging increases or decreases the overall volatility of currency markets;

11.Calls on the Commission and the European Monetary Institute to submit to the European Parliament their general concept of the European Union's future exchange-rate policy;

12.Instructs its President to forward this resolution to the Council, the Commission, the European Monetary Institute and the governments and parliaments of the Member States.