Shadowy group on the threshold of euro power

Date: 19/11/1998

Six weeks from now, Europe's single currency will become a reality and two clandestine bodies will wield enormous and unelected power. Much has been written about the governing council of the European Central Bank, but the Economic and Financial Committee remains unknown to all but a few monetary policy experts. Tim Jones reports

IN THE eye of the political storm over who should represent the euro-zone's 291 million inhabitants abroad is a place of serene confidence.

As the European Commission, the EU-15's finance ministers, the Euro-11 group and the European Central Bank tussle over who should run the world economy together with US Treasury Under-Secretary Lawrence Summers, a little-known expert panel sits to one side with a knowing smile.

The EU's monetary committee - an advisory group of finance ministry, central bank and Commission officials established 40 years ago - is already notoriously powerful.

Indeed, the words 'influential' and 'secretive' have virtually become official prefixes to the committee's name. It remains in the dark except on those increasingly rare special occasions when currency bands within the Exchange Rate Mechanism are realigned.

While the nominal powers of its replacement - the Economic and Financial Committee (EFC) - will be little changed, its political clout will increase immeasurably.

"We have to accept the facts," lamented a senior Commission official, "And it is a fact that, if there is a crisis in China, the first person Larry Summers will call will be the chairman of the EFC."

The French government can only be admired for latching on to this fact of life so quickly. When Nigel Wicks, the discreet and unflappable British Treasury official who has chaired the monetary committee for the past five years announced his intention to stand down this December, Paris pounced.

Sensing that the leadership of this new committee would pass by default to Italian treasury director Mario Draghi, his French counterpart Jean Lemierre threw his hat into the ring. Having failed to win the presidency of the ECB (a job the French felt they were 'owed' after the bank itself went to Frankfurt) Paris is determined that Lemierre should become the euro zone's Larry Summers.

Since then, the famously ambitious 48-year-old Frenchman has been in campaigning mode, doing the civil servant's equivalent of pressing flesh, kissing babies and making after-dinner speeches.

"Draghi, who probably most members of the committee would prefer as chairman, hasn't done much to promote his own candidacy. His attendance at meetings is still off and on. His presence is not felt," said a committee source. "Lemierre, on the other hand, is always there."

He even attended a recent meeting in Vienna between monetary committee members and their counterparts from central and east European applicant states. Admittedly, Draghi was up to his neck in another Italian political crisis, but his absence was noted.

Come December, when committee members choose the EFC's first chairman, these little things will be remembered. From being the rank outsider in the summer, Lemierre is increasingly seen as a contender for a post which is emerging as second only to the ECB presidency in wielding power in euro-land.

In the coming weeks, committee secretary Günter Grosche and Wicks will take soundings among committee members to determine who is their favoured candidate. "This will not be done by a vote," said a committee member. "This is the kind of thing that can only be solved by one of the candidates withdrawing. If that doesn't happen, you shouldn't exclude the possibility of another six months for Wicks."

Why all the fuss about a committee chairmanship? This is because, when newspapers report that EU finance ministers are wrangling over some area of economic policy, they are usually wrong.

Real negotiations over exchange rate systems, growth and stability pacts, broad economic guidelines, excessive deficits and coordination of economic policies are carried out within the monetary committee at secret meetings between members in Brussels' Albert Borschette building. By the time texts get to ministers, the negotiations are usually over.

The arrival of the EFC will only increase their influence. The committee will have 34 members: two appointed by the Commission and two by the ECB, along with one top official from each national finance ministry and one from every central bank.

EU summits and finance ministers' meetings will be prepared by the EFC. It will also be the guarantor for the four 'out' governments - Greece, Sweden, Denmark and the UK - that their interests will be considered in the Euro-11 ministerial coordinating group. The finance ministry members of the EFC, which will include two representatives from each 'out' member state, will be given the task of preparing Euro-11 gatherings.

The committee will have the formal power to deliver opinions at the request of the Commission and the Council of Ministers - not just finance ministers but anybody who wants one. And even if they do not, they might get one, as the committee is allowed to formulate opinions on "its own initiative".

The EFC's overriding task will be to keep the economic and financial situation of member states and the Union "under review" and report back regularly to the Commission and Council.

Every year, it will have to indicate whether EU laws need to be changed to give greater freedom to capital movements. This applies to 'outs' as much as to those in the euro area.

The infamous growth and stability pact, which sets rules on how much governments can spend and tax under EMU, will be run by the EFC, which will, in effect, decide whether a government should be fined billions of ecu for overshooting the pact's targets.

Common euro-zone positions for meetings of the Group of Seven leading industrialised nations, the International Monetary Fund and the Organisation for Economic Cooperation and Development will also be put together in the Borschette.

The chairman will play a vital role. Together with Grosche, he will set the EFC's agenda and make the minuted remarks which sum up its deliberations. He will also attend ministerial meetings and fly to the G7, IMF and World Bank annual meetings.

Ministers may come and go, but the EFC chairman will not be subject to the whims of the electorate or prime ministers. When issues outside ECB President Wim Duisenberg's exclusive powers - such as exchange rate policy or economic reform - need to be discussed, foreign leaders will turn to the EFC chief.

When the Commission's proposals for the make-up of the EFC went through the European Parliament, French Socialist Pervenche Berès argued that central bank representatives should not be allowed to vote.

The ECB is already an unprecedentedly powerful institution and should not, she claimed, be allowed to run the show within a key ministerial committee.

German conservatives, for their part, warned that central bankers' participation in this policy-making body could threaten their independence. Some even suggested that their continued presence on the EFC could violate the Maastricht Treaty, but the Commission proposal stressed that voting behaviour should be "without prejudice" to EU rules banning committee members from taking instructions from politicians.

Duisenberg insisted that MEPs' concerns were unfounded and came up with a novel institutional solution. "It has been agreed that when the EFC is discussing monetary matters, the national central banks will, to put it bluntly, keep their mouths shut," he said.

Berès' request that the EFC chairman should be as accountable to the Parliament as Duisenberg is could still meet with qualified success. However, her plea for the new committee head to quadruple Nigel Wicks' annual appearances before the Parliament's monetary subcommittee is over-optimistic.

The EU's second most powerful unelected committee (the first has to be the ECB's governing council) will stay in the shadows for as long as it can.

Major feature on the Economic and Financial Committee (successor to the EU's monetary committee).