De Silguy warns of two-speed EMU risk

Date: 23/01/1997

By Tim Jones

ECONOMICS Commissioner Yves-Thibault de Silguy is promising to defend the single market as he draws up plans for a two-speed economic policy in a post-EMU Europe.

Warning that over-ambitious schemes for a political body to counterbalance the might of the European Central Bank could split the Union, he pledged to tread softly in devising methods for euro-bloc members to cooperate on taxation and social policy issues.

“We must not prevent those who wish to go ahead from doing so,” he said. “But, on the other hand, we must not establish mechanisms which would break up or create two zones within the European Union.”

In an interview with European Voice, De Silguy stressed that the 'stability council' of finance ministers called for by the French government to keep central bankers in check should be an “informal” grouping with limited powers.

“We must be vigilant,” he said. “Discriminatory practices would risk breaking Europe in two.”

In the coming weeks, De Silguy intends to come forward with a discussion paper for the Intergovernmental Conference showing how a small group of countries could adopt economic policies which currently require the unanimous backing of all 15 member states.

Now that support for this concept of 'flexibility' is growing in the IGC, De Silguy wants to explore ways in which euro-bloc countries could cooperate in areas of economic policy without violating the EU's founding treaties.

“Fiscal, social or labour market harmonisation is not a precondition for economic and monetary union to function, but it is obvious that the system could only work better if there were harmonisation in these areas,” he said.

News of De Silguy's plans, which coincided with UK newspaper reports of alleged Franco-German aims to coordinate the euro-zone's income tax and social security systems, caused a political storm not least within the European Commission itself.

In an attempt to smooth ruffled feathers, De Silguy is soon to meet fellow Commissioners whose policy areas are covered by his initiative Mario Monti (internal market and taxation), Pádraig Flynn (social affairs), Karel van Miert (competition) and Marcelino Oreja (IGC) to refine his proposals.

Monti, for one, was not best pleased when De Silguy's plans were announced and claimed that it made no sense for tax legislation to be adopted by a small group of member states.

An early draft of De Silguy's paper examines whether long-stalled Commission proposals in the area of taxation such as those advocating common levies on interest paid to foreign investors and a definitive regime for value added tax could be agreed just by those member states which want them.

Yet it acknowledges that this may be pointless, given that most of these measures have to be applied right across the Union, and even beyond, if they are to work at all.

De Silguy believes employment policy and reform of labour markets would be a more promising area for cooperation.

Finance and employment ministers of all 15 member states already exchange information and ideas on how to promote job creation, and the Commission has promised a paper in the spring showing how EU social security systems could be changed to generate the maximum number of new jobs.

De Silguy hopes that EMU members would choose to cooperate even more closely and so avoid the temptation to use “discriminatory practices” to protect jobs and industries.

Euro-bloc participants may also wish to tighten the rules on the payment of industrial state aids and, in doing so, both make their mini-single market more efficient and lower the obstacles for 'out' member states who wish to join the monetary union.