France’s bid to fast-track currency deals shot down

Date: 23/11/00

By Tim Jones

A FRENCH campaign to 'fast-track' euro-zone approval for international agreements to manage exchange rates is close to collapse in the face of opposition from eight governments and the EU's two leading monetary agencies.

A German-led group of countries, together with the European Central Bank and the European Commission, is fiercely resisting French calls for the abolition of national vetoes over decisions on whether, for example, to peg the euro to the US dollar and the Japanese yen.

Their adamant opposition to switching to qualified majority voting on such agreements is thwarting one of France's central economic policy goals. It wants to change the rules both to make it easier to strike such agreements without being held back by a handful of reluctant governments and to assert finance ministers' supremacy over the ECB in formulating exchange-rate policy.

French Finance Minister Laurent Fabius hopes to end currency volatility by managing exchange rates within the Group of Seven club of leading industrialised countries. Monetary officials say Fabius - who was his country's prime minister in 1985 when France, Germany, the UK, Japan and the US signed the Plaza Accord to drive down an over-valued dollar - is a "true believer" in currency management. But Germany and the ECB are both firmly opposed to such efforts to manage the currency's value.

The French minister is trying to use the current talks on EU treaty reform to achieve this goal, proposing changes to a so-far-unused article in the existing treaties which allows the Union to "conclude formal agreements on an exchange-rate system for the [euro] in relation to non-Community currencies" by unanimous agreement.

The Fabius amendment is aimed at making Plaza-type agreements easier to strike without sceptical countries being able to block a deal. "This is also a reminder to the ECB that it is ministers who have the final say on exchange-rate policy," said a senior monetary official. Fabius also hoped to capitalise on a new administration in Washington, which might be more open than Clinton's team to global currency agreements.

But at a showdown meeting of the EU's secretive Economic and Financial Committee (EFC) of top finance ministry and central bank officials last week, Germany, the UK, the Netherlands, Belgium, Greece, Ireland, Luxembourg, Finland, the ECB and the Commission all opposed the change. The proposal will be put to finance ministers when they meet on Monday (27 November), but officials expect it to be rejected again.

However, a second proposal to choose the euro zone's representatives at G7 meetings by QMV is close to being agreed despite opposition from Finland and Portugal, both of which have headed the Euro Group's G7 delegation and believe majority voting would squeeze out smaller countries.

Ahead of next month's Nice summit on treaty reform, EFC Chairman Mario Draghi has drafted an options paper for ministers setting out six monetary-policy areas where the French presidency and committee members agreed that decisions could be taken by QMV instead of unanimity. All the proposals are opposed by the UK treasury, but negotiators believe London will give some ground to win other concessions in Nice.

Another proposed amendment which would extend QMV to decisions on when and whether to shift responsibility for national banking supervision to the ECB has also run into fierce opposition, although this is now waning.

In every euro-zone country except Belgium, Luxembourg and Finland, national central banks monitor commercial banks for credit-worthiness, capital adequacy and fraud. Within the euro zone, Spain and Greece are insisting on retaining their vetoes over transferring these tasks to the ECB, while all the 'outs' - Denmark, Sweden and the UK - fear the possibility of handing supervisory powers to an agency outside their own currency area.

A French campaign to 'fast-track' euro-zone approval for international agreements to manage exchange rates is close to collapse in the face of opposition from eight governments and the EU's two leading monetary agencies.