An empty victory on control of euro

Date: 30/10/1997

By Tim Jones

SINCE the conclusion of the Cold War nine years ago brought an end to major ideological conflicts, it has become depressingly commonplace for politicians to fight to the death over minutiae.

In the trophy room of trivial gains, the French government's victory in the battle over a 'stability council' should take pride of place.

Much has been written about French demands for a political counterweight to the might of the incoming European Central Bank (ECB) and German opposition to it, but most of the spilled ink has exaggerated the claims of both sides.

French Prime Minister Lionel Jospin saw it as part of his campaign to promote job creation and industrial investment in the Union, while the German establishment feared it was a back-door attempt to curb the powers of the ECB.

In reality, the battle the French Socialists have been so intent on winning over the past year was lost to the Germans in Maastricht six years ago.

It was then that their former President François Mitterrand and his ministers agreed to the creation of the most powerful independent central bank in the world. When the treaty was ratified - by referendum in the case of France - the relative powers of the ECB and finance ministers were set in stone by EU law and can only be changed by unanimity and a new treaty revision conference.

Once these facts are established and all the blather stripped away, the real mini-council can stand up. There was always going to be one. The Maastricht Treaty even specifies that once the economic and monetary union has been formed, many decisions can only reasonably be taken by the finance ministers of the 'in-gang'.

The UK and Denmark, because they benefit from EMU opt-outs, would take no part in these deliberations, while the countries which wanted to join but could not would be granted derogations from their treaty obligations.

What the French wanted (and it was first suggested not by the Socialists but by former Conservative Finance Minister Jean Arthuis in May 1996), was a more formal grouping of the 'in' ministers. This would meet before scheduled meetings of EU finance ministers (known as Ecofin) and coordinate non-monetary policies for the ins.

At a recent summit in Münster, German and French leaders agreed to establish such a grouping. But to avoid upsetting 'outs' and the European Commission, who fear that this would rival Ecofin and violate the EU treaties, they opted to shun the name 'stability council'.

Instead, in the same spirit as the Group of Seven (G7) most industrialised countries, the council would be known as the Ex, with the number of participating countries replacing the x .

As requested by EU leaders in Amsterdam in June, officials from the Commission are putting together a report for the Luxembourg summit in December on how this could work in practice.

They have already decided that the pooling of economic policies - defining the tax base, eradicating predatory fiscal practices, loosening labour laws and introducing more competition into product markets - could be undertaken by the Ex.

However, obviously, they could not violate the terms of the EU's founding treaties.

The ECB would retain de facto control of the external exchange rate of the euro because of its obligation to keep annual inflation below 2&percent;. The Commission would retain its right of policy initiative in areas where this was defined by the treaty, and decisions could not be taken by Ex to establish intra-EU trade barriers in contravention of the Treaty of Rome.

Besides, on fundamental economic policies, the euro-zone front runners are vehemently opposed to each other. Is France going to be able to convince the rest of the gang to cut the working week to 35 hours? Will Germany persuade Luxembourg to stop luring its citizens' savings away?

Setting up the institution will be the easy bit.