G7’s company, De Silguy’s a crowd

Date: 24/04/1997

By Tim Jones

WHEN the world's most powerful finance ministers sit down to chat about economic and monetary union at the weekend, someone will be missing.

The European Commission has long been trying to muscle in on the currency deliberations of the Group of Seven (G7) most industrialised economies, but so far its requests have been met with silence and suspicion from the existing members.

While former Economics Commissioner Henning Christophersen reluctantly put up with this during his time in office, his successor Yves-Thibault de Silguy is starting to find it irksome.

An 'empty chair' policy is all well and good but it should be voluntary.

A single currency is likely to appear in Europe within two years and yet the executive arm of the EU, which will have rights of initiative in all the areas of economic and monetary policy not already claimed by the European Central Bank, is still treated as an outsider at the top table.

G7 ministers will gather as usual in Washington on the Sunday before the opening of the annual spring meeting of the Bretton Woods institutions - the World Bank and the International Monetary Fund - which begins on 28 April.

One of the issues topping the agenda will be EMU, the subject that preoccupies finance ministers throughout the Union.

Yet while De Silguy will be present for earlier discussions on Russia, he will be asked to leave the room when ministers turn their attention to the single currency. Of the EU-15, only French Finance Minister Jean Arthuis, Italy's Carlo Azeglio Ciampi and Germany's Theo Waigel will be present, with the UK's Kenneth Clarke giving it a miss since he has the 'small' matter of his political survival in the British general election on 1 May on his mind.

As of January 1999, De Silguy and his President Jacques Santer believe that the advent of the euro in itself should justify the arrival of G7 invitations at Commission headquarters. “With a single currency, our influence in these institutions will be equal to our economic strength,” Santer has said. “A strong currency allows us to reap the advantage of being a truly international currency.”

The American authorities have been historically indifferent to volatile movements of the dollar on the international markets - a fact that annoys European policy-makers. The US is a massive and largely self-contained single market and provides many of its own raw materials, so that collapses in the external value of its currency tend not to fuel inflation.

Moreover, since the dollar is the world's dominant currency for the pricing of traded goods and invoicing customers abroad, and the US securities market is so deep and transparent, the currency has a global weight far outreaching the country's importance. Even when the dollar falls, investors tend to stay in the US stock and bond markets because there are no equivalents anywhere else in the world.

De Silguy and Santer are sure this will end with the arrival of the euro and the creation of a pan-European capital market taking in German, French, Dutch and Belgian securities but also including offshoot euro investments in the London market.

All this will make it easier to bring the Americans to the negotiating table. It could even, Santer hopes, bring about the kind of international currency agreements struck at New York's Plaza Hotel in 1985 or at the Louvre in Paris in 1987.

De Silguy has tried to influence the ministers who go to the G7 meetings to push for a formal system to monitor monetary and fiscal divergences along the lines practised in the EU now. “He thinks international fora could learn from the 'multilateral surveillance' techniques of the Union, and they could,” said an official.

While the German and British ministers on the G7 have listened politely to the Commission on these issues and the members of the EU's advisory monetary committee have been even more sympathetic, they have been less ready to take the plunge of issuing an invitation.

They are also sceptical about the prospects for Plaza- or Louvre-style agreements to cap the movements of the dollar in the kind of open capital and currency markets operating now. The market in foreign currency trading alone has grown to a trillion ecu a day, making attempts to tame the beast more than a little difficult.

When G7 ministers last met in Berlin in February, De Silguy was disappointed not to be invited - although he denied it.

US Treasury Secretary Robert Rubin, increasingly fascinated by economic and monetary union, wanted to be thoroughly briefed by the Europeans, he was told. Yet it was left to the German and British ministers to give their side of the story, with a slightly different angle from the French and Italians.

The Commissioner was sore that he - as the representative of the one institution pledged to defend the single market from national interests - had been left off the Berlin guest-list. The EU's smaller member states were also perturbed. They, rightly or wrongly, see the Commission as the protector of their interests when the big boys are trying to stitch up sweetheart deals.

The issue was raised during a routine EU ministerial gathering in January, when Belgian Finance Minister Philippe Maystadt formally proposed that De Silguy should be at the Berlin table. Explaining his embarrassing oversight, Waigel told ministers that the Commission only attended G7 meetings when issues within its remit were being discussed.

Historically, it was only the question of multilateral aid to the Soviet Union and its successors which brought Christophersen and his 'sherpas' to the secret seven's meetings. That remains the case and any departure from this tradition would be contrary to the group's unwritten rules and might upset the Americans and the Canadians, said Waigel.

Indeed, the North Americans have long been opposed to the Commission being present, arguing that it would be yet another European representative. In private, some of them admit that the last person they want at these meetings is another Frenchman in addition to the representative from Paris.

A solution will be long in coming but, as monetary union approaches, the question of who will sit at the international table, first on behalf of the euro-bloc and then to represent outsiders, will exercise the minds of the Commission and smaller EU member states more and more.