Key decisions loom for EMU

Date: 04/09/1997

By Thomas Klau

WITH less than eight months to go before the single currency's founding members are due to be chosen, EU member states are facing a number of key decisions on the institutional and other arrangements governing EMU.

A crucial stage in the final round of preparations for Europe's monetary grand design will be reached when EU finance ministers gather for an informal meeting in Luxembourg next weekend (12-13 September) to discuss the two most politically sensitive issues yet to be settled apart from the final decision on who will join in the first wave.

EU governments have to decide - ideally before the final decision on EMU in late April or early May next year - how to interpret the Maastricht Treaty's somewhat nebulous provisions for the determination and conduct of exchange rate policy between the euro-zone and currencies outside the EU.

They also have to agree on a mechanism to coordinate their position ahead of meetings of the International Monetary Fund, the G7 group of finance ministers and other international economic institutions.

While the Maastricht Treaty clearly designates the president of the future European Central Bank as the undisputed 'monetary voice' of the single currency zone, no provisions were made to determine how euro-participants would define their joint position in contacts with the outside world.

While finding a solution acceptable to all on such a sensitive issue is difficult enough, the decision on how to allocate ultimate control over and responsibility for the euro-zone's foreign exchange policy has emerged as one of the most politically charged questions of the recent euro-debate and one which has repeatedly pitted French politicians against their German counterparts.

While a cross-party consensus of French politicians and economists see the euro as a unique chance to harness exchange rate policy to the cause of helping exports and boosting growth in Europe, their German counterparts, egged on by the Bundesbank, seem equally determined to rebuff any attempt to 'weaken' the euro.

These different priorities are reflected in French and German government officials' often conflicting readings of the Maastricht Treaty's crucial Article 109.

French officials are almost invariably keen to stress the Ecofin Council's powers to agree by qualified majority on "general orientations" for exchange rate policy towards non-EU currencies, following a recommendation from the European Central Bank (ECB) or the European Commission.

Meanwhile, German officials are similarly eager to point out that the treaty leaves the detail of exchange rate management to the ECB and that the Council's right to define guidelines must in no way interfere with the ECB's overriding commitment to pursue anti-inflationary policies (thus in effect ruling out an exaggeratedly weak euro).

After years of shirking the issue, EU leaders finally instructed Economics Commissioner Yves-Thibault de Silguy at the June Amsterdam summit to sort out the mess and come up with proposals to clarify or complement the treaty language.

Officials in the Commission's Directorate-General for economic and financial affairs (DGII) have spent the summer months working on blueprints, which are to be presented to EU governments a few days ahead of next week's Mondorf meeting.

However, officials in Bonn and Paris are optimistic that a solution to the exchange policy quandary may be easier to find than some initially expected.

France's new Socialist premier Lionel Jospin has shown himself keen to pay homage to the ECB's anti-inflationary mission statement, while the key importance of exports to Germany's sluggish economic recovery have reminded many Germans of the advantages of a competitive exchange rate.

Both governments' determination to achieve a compromise despite remaining differences over a number of policy issues is likely to be confirmed at the next Franco-German summit on 18 September in Weimar.

But remarks by Italian Foreign Minister Lamberto Dini this week suggesting that EMU could be delayed for a year to ensure members fully meet the Maastricht convergence criteria underline the enormous stumbling blocks which still lie on the road to monetary union. Commission officials immediately responded that a 12-month delay would be incompatible with the treaty.