Calls grow for radical reform of Euro-11

Date: 22/06/2000

By Tim Jones

FINDING fault with the euroland's policy-making capabilities is easy.

Euro-zone politicians know that they mishandled much of the new currency's first 18 months of life. They also know they should 'do something', but how can they act without treading on the feet of the European Central Bank, offending the sensibilities of the countries still outside the 11-nation currency area or imposing an omertà on powerful men?

French Finance Minister Laurent Fabius has promised an interim solution during his presidency of the 15-member Ecofin Council of Ministers, which begins next month. His plans, which he intends to outline on 17 July, will concentrate on beefing-up the Euro-12 ministerial coordinating group.

Meetings between the 'in' ministers will be longer and agendas more precise, but it may be premature to promote some of the more radical solutions floated by the think-tanks.

The most influential of these is sure to be the Fondation Jean Jaurès, an organisation founded a decade ago and still chaired by former French Premier Pierre Mauroy. Not only is the foundation close to the ruling Socialist Party, but its new working group established last week to investigate euro-zone economic policy coordination will be headed by Jean Pisani-Ferry, an aide to former Finance Minister Dominique Strauss-Kahn. It was Strauss-Kahn who drove through the idea of a Euro-x group despite opposition from his then German and British counterparts Theo Waigel and Gordon Brown.

Pisani-Ferry, who also headed the Centre d'Etudes Prospectives et d'Informations Internationales (CEPII) think-tank, will be rapporteur for a group which will start its work on the basis of a recent presentation by Strauss-Kahn to a colloquium in Stresa and German Foreign Minister Joschka Fischer's controversial speech on new forms of EU federalism.

Concrete proposals have already been made by the Centre for European Policy Studies' standing macroeconomic policy group, which is chaired by CEPS deputy director Daniel Gros and includes Goldman Sachs economist Thomas Mayer and French, Italian and Danish professors Olivier Davanne, Guido Tabellini and Niels Thygesen.

In its second report Quo vadis euro? The cost of muddling through, published last month, the group warned that the euro's recent weakness had been "exacerbated by the confusion about the responsibility for the external value of the euro and the views of different policy actors on the appropriateness of actual exchange rate developments".

The CEPS group claims that a secret agreement has been reached between the ECB and euro-zone ministers. This guarantees "prior discussions" of positions to be taken within the Group of Seven, "common language" for the public to be prepared for the ECB and Euro-12 by the Economic and Financial Committee (EFC), and decisions on currency intervention to be taken jointly but then the timing determined by central banks.

Gros wants the reforms to go further. "One could make the EFC chairman a sort of Mister Euro when it comes to international discussions over the exchange rate," he says. "We have some doubts about whether such a role can be taken by the Euro-11/12 chairman since he is seen as a national finance minister, only holds the position for six months and is often not regarded as competent in this area of policy."

Such a role could be tailor-made for Italian Treasury Director-General Mario Draghi, who takes over the EFC chairmanship next month from Frenchman Jean Lemierre. Draghi is a Harvard-educated economist and, as the world's longest-serving G7 representative, is well-known and respected by US officials.

Kenneth Dyson, a specialist on EU monetary politics at the University of Bradford and author of the forthcoming The politics of the euro zone: stability or breakdown, suspects that the Euro-x group will emulate reforms made to the Union's common foreign and security policy (CFSP). "You might well see the emergence of a secretary-general position, not under the French presidency, but in a year or so," he says. "It was generally recognised that the CFSP needed a high representative, so the same argument could be made for EMU, although the recent experience of the high representative may not be all that good a model."

In the same way Javier Solana was given the dual position of Council of Ministers' secretary-general and CFSP high representative, a senior economic policy chief could be assigned the EFC chairmanship and responsibility for administering the Euro-x group.

However, Dyson believes that appointing somelike Draghi would be a mistake. "I think it is more likely to be someone with a higher profile; someone who was a finance minister or - even more interestingly - someone from a central banking background."