Euro-zone élite should not ‘jeopardise’ EU institutions

Date: 23/01/1997

IF FRENCH politicians fearing the excessive powers of the coming European Central Bank are looking for an ally in Brussels, they will be disappointed in Yves-Thibault de Silguy.

The 48-year-old Breton who took over as Commissioner for economic and monetary affairs two years ago shows signs of - in the words of former UK Prime Minister Margaret Thatcher “going native”.

While he is careful not to denigrate the idea of a political counterweight to the Frankfurt-based ECB, De Silguy is definitely suspicious.

“Ministers should reinforce their discussions, tell each other what they are about to do, exchange ideas, say what has worked or not worked at home, and so on. That is good; that is a community,” he says. “But this kind of cooperation should not jeopardise the institutional balance of the European Union.”

The French establishment's blind love affair with economic and monetary union, and its willingness to make any sacrifice in order to lock the Germans into a single currency, is over.

Worried about being stuck forever in deflationary hell, Prime Minister Alain Juppé has called for the creation of a strong political body to keep the ECB in line. While the idea is still vague, some of his supporters are urging the formation of a 'stability council' of the euro-zone's finance ministers with its own joint policies and voting powers.

If that is what is on offer, De Silguy is not keen. He fears it could lead to a two-tier and discriminatory monetary union.

“The Commission must be called on to play a role in this mechanism even if it is informal,” he says. “The Commission should participate not only because it has access to information on economic matters, but also because it is the guardian of the treaty and the single market, and ensures non-discrimination.”

De Silguy's faith in the Commission as a protector of the single market has some justification in this area of policy.

Last year, the French and Belgian governments campaigned for tough punitive measures to compensate euro-bloc members for competitive devaluations by southern member states outside the monetary union.

The Commissioner promised to investigate the measures' compatibility with the treaty, and soon found that they were discriminatory and contrary to the rules of the internal market.

He promises to be equally even-handed in recommending which countries should be allowed into EMU, when he and the European Monetary Institute draft advisory reports for heads of state and government in 12 months' time.

Dutch Finance Minister Gerrit Zalm caused a political furore in Italy, Spain and Portugal last week when he indicated that the first group of countries adopting the euro should be northern European.

The Commissioner disagrees. “The decisions will not be taken on the basis of geography, but on an objective basis which will be the same for everybody,” he insists.

Talking about 'objectivity' is a lot easier than practising it. The Maastricht Treaty left many questions unanswered when it laid down the entry rules for EMU.

The targets for inflation and interest rates are clear, but those for budgetary performance are not. While a government is expected to reduce its budget deficit to 3&percent; of gross domestic product this year, certain extenuating circumstances can be taken into account.

Economic purists have also been outraged by the accounting sleight of hand practised by some governments in their 1997 budgets simply to get them closer to the 3&percent; target.

Even though the Commission allowed the French government to count a 6-billion-ecu one-off payment from its nationalised telephone operator as a deficit-cutting measure, De Silguy sounds a warning to governments about the assessment that his officials will carry out a year from now.

“You should not confuse the exercise of classification of this or that measure, which has a one-off effect on the appearance of the 1997 budget, with the overall exercise of assessing convergence of the budgetary situation over several years. There is no risk of fudging or cooking the books,” he maintains.

When the Commission and the EMI decide whether a country has fulfilled the entry criteria, they will consider the treaty's requirement that there should be a “high degree of sustainable convergence”.

“If, in the 1997 budgets, there are measures which have an effect during the year but then, in 1998, the deficit goes up again, we will detect that in our assessment,” warns De Silguy.

This year, the Commission should be able to get a taste of the kind of evaluation it will have to carry out in early 1998 when officials in the Directorate-General for economic and monetary affairs (DGII) draw up this year's broad guidelines for the conduct of monetary policy, carry out the normal procedure for judging whether governments have 'excessive deficits' and run through a series of new convergence programmes from member states.

“This is a large amount of macro-economic work, all leading up to the culmination of the process next year,” says De Silguy, adding: “That is a huge workload, but after that the ball will be in the court of the member states. It is up to them to select the qualifiers.”

For the Commissioner and his staff, responsibilities will change.

Once the legal drafting of the texts on the stability pact, the revised European Monetary System and defining the legal status of the euro are complete which should be in time for the Amsterdam summit in June De Silguy sees his role as a euro-missionary.

“One very important element in all this is the citizen,” he says. “The euro will have an impact on the citizen at all levels. The citizen is a saver, the citizen is a wage-earner, the citizen is a consumer, the citizen is a pensioner and the citizen is a traveller.”

Already, preliminary work on the practical problems involved in introducing the new currency has shown that the Commission may have to introduce specific legislation perhaps laying down the exact date when euro notes and coins will become legal tender, when goods should be priced in two currencies, and the length of time for which the national currency and the euro will circulate together.

At the end of May, the Commission will again host a round table to hear the views of bankers, retailers, machine-makers and public authorities on the answers to these practical questions.

De Silguy is also raising his eyes above the internal politics of the Union. As the euro starts to become a reality to politicians and market practitioners in the US and Asia, the Commissioner needs to consider the external aspects of its introduction.

During March, he will together with Commission President Jacques Santer present a communication on the subject.

“It is not a proposal, but is meant to spark a debate on an important subject,” he says. “It will put the fruit of three or four months of reflection within the Commission on this subject into black and white.”

De Silguy, like many of the architects of the new euro-order, is convinced that it will end the tyranny of the volatile dollar on the world markets.

“Today, the United States accounts for around 20&percent; of global trade, but the dollar is used in 50&percent; of commercial transactions and 80&percent; of financial transactions. Europe, which is the world's major commercial and economic power, is not in the same monetary league. So, when we establish a new currency, which will be by definition sound money based on well-run economies, it will attract savings.

“People will not switch from the dollar to the euro on day one. But it will be a progressive move, which should mean that economic and commercial power will be better reflected in the monetary field.”