29-30 September Ecofin Informal Council

Date: 05/10/1995

EU finance ministers and central bank governors paved the way towards formal agreements on the transition to a single currency at their six-monthly “informal” meeting outside Valencia. European Monetary Institute President Alexandre Lamfalussy presented ministers with a report on a series of “provisional agreements” reached between EU central bankers last week on areas within their powers. Finance ministers backed the agreements and reached a few of their own.

AMONG them was an agreement that finance ministers will meet at the end of 1997 to select the group of countries which are ready to go ahead and form a monetary union on 1 January 1999. The assessment of countries' performance over the previous two years will include scrutiny of the most up-to-date figures from 1997.

ONCE a summit has made the formal decision to create a European currency, the EMI will be given 12 months to prepare the creation of the European System of Central Banks (ESCB). From January 1999, participating countries will fix their exchange rates “irrevocably” and hand over the conduct of monetary policy to the ESCB.

FROM day one, the ESCB will carry out all monetary policy, foreign exchange market intervention and accounting in the European currency. Commercial banks may switch their inter-bank foreign exchange and deposit-taking businesses to this currency, but citizens will use national currency for cash.

SMALL banks which have been unable to invest quickly enough to cope with a sudden switch to the European currency will have access to the ESCB's “conversion facility”. This will automatically convert money-market operations with these banks, which are carried out in national currency, into European currency at the fixed rate.

THREE years from the day exchange rates are fixed, the ESCB will start to issue bank-notes in European currency. For six months, the currency will co-exist with national notes and coins. After that, the national currency will lose its status as legal tender, which will be given solely to the European currency. In mid-November, the EMI will present definite recommendations over how and when EU governments should switch their debt into European currency, how to draft EU-wide legislation on the legal status of the new unit and when public authorities should convert payments of salaries and pensions.

MINISTERS approved a document from the monetary committee which recommended that the name of the currency should be short, easy to pronounce and identical in all EU countries.