7 February EU Monetary Committee

Date: 15/02/1996

THE EU's advisory monetary committee met to discuss detailed preparations for the final stage of economic and monetary union.

MOST of the meeting was taken up with a discussion on how to enforce fiscal discipline in a monetary union. The debate was based on a report from the European Commission services on the feasibility of incorporating the German Finance Minister Theo Waigel's proposal for a 'stability pact' into the Maastricht Treaty rules.

THE Commission prepared the ground for the debate by posing around 20 questions. These questions, intended to spark off a debate which will last for much of this year, included: What would the impact of additional limits for budget deficits be on the degree of budgetary coordination? Is it desirable to turn the treaty's budget deficit target of 3&percent; of gross domestic product into a limit? With a deficit target, is it necessary to have a target for reducing public debt? Should sanctions against those who transgress the targets be automatic and should new forms of fines, such as automatic tax increases, be considered? Should fines be imposed gradually or in one go?

INSTITUTIONAL implications were also discussed. For example, in an EU with only a few countries in a monetary union, how would the finance ministers' council conform with the proposal for a stability council? The effects on the principle of subsidiarity and the role of other Union institutions were also debated.

MEMBERS discussed how to interpret the 'convergence criteria' on long-term interest rates and inflation set out in the treaty. Countries wanting to join the single currency bloc should have inflation within 1.5 percentage points of the average of the three best-performing states in the EU, and bond yields within 2 points of the same three countries. The committee is still discussing how to read the rule if one of the three inflation rates is considerably higher than those of the others.

THE meeting ended with a series of debates on how to establish a common legal standard for the Euro between January 1999, when exchange rates are fixed, and July 2002, when Euro notes and coins are introduced.

The question of national symbols on coins was raised and members were briefed on the plans of the European Monetary Institute to begin a design competition for Euro banknotes. Commission representatives gave a report on their plans to draw up the secondary legislation needed to plug loopholes in the run-up to the 1999 deadline.