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The EMU Summit, 1-3 May 1998:
What happened over the weekend?:
Economic and finance ministers (ECOFIN) met on the evening of Friday 1 May to recommend to Heads of Government that eleven Member States should participate in economic and monetary union from its launch date in January next year. The European Parliament was consulted on this recommendation in a special session on the morning of Saturday 2 May, at which 467 MEPs voted in favour, 65 voted against and 24 abstained. Heads of state and government then met from Saturday afternoon until late evening. The main issue of discussion was the appointment of the Head of the Central Bank. After the summit, ECOFIN met again on Sunday to agree bilateral conversion rates and other detailed legal acts for the EURO.
What was decided?:
- The Member States which will participate in the first wave of economic and monetary union, beginning on 1 January 1999. Eleven countries in total: Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and Finland.
- The nomination of the Head of the European Central Bank and the board of Bank governors. Wim Duisenberg will be the first President of the ECB and his appointment is for eight years, in conformity with the Treaty, although he has indicated that he will stand down after four years. Heads of Government also reached an informal political agreement that Jean-Claude Trichet will succeed Mr Duisenberg. The other members of the Central Bank board are: Christian Noyer (Vice-President), Sirkka Hamalainen, Tommaso Padoa-Schioppa, Eugenion Domingo Solans and Otmar Issing.
- To apply the terms of the growth and stability pact from 1 July 1998, in order to ensure that there is no slippage on budgetary objectives set for 1998 and to accelerate the reduction in debt levels. In order to achieve these objectives, finance ministers of countries participating in the EURO area will meet informally in Euro-11 before the summer, in order to start this monitoring work.
- The rate of conversion for the currencies of participating Member States with each other. These rates were set, as expected, at the current central ERM rates. ECOFIN ministers judged that these rates were in line with economic fundamentals and compatible with lasting convergence.
What happens next?:
The European Parliament agreed to hold hearings with the ECB nominees on 7 and 8 May, in accordance with the Treaty obligation for the Parliament to be consulted on such appointments. The ECB now supersedes the European Monetary Institute in Frankfurt. The board will begin its work sooner than originally planned and is expected to meet as early as July, even though it does not formally begin operating until January 1999.
What were reactions in the rest of Europe?:
The reaction of the financial markets on Monday 4 May suggested that the squabble over the leadership of the ECB had been largely discounted and that traders were focusing on the longer term significance of the summit. Foreign exchange markets initially marked down the deutschmark and government bonds. But the mark had recovered some of its losses against the dollar, sterling and Swiss franc by midday in Europe. Continental European stock markets rose strongly from the start. The Dow rose 0.92% on Friday. Amsterdam's AEX share index crossed the 1,200 point mark for the first time, and was trading just below that level in early afternoon trade. Germany's Xetra-Dax index also rose above the key 5,300 point level in early trade and managed to hang on to most of its gains despite data showing more firms expected demand to weaken due to the Asian crisis. French shares held most of their 2% early gains. The stock exchange in Madrid rose strongly, the Ibex-35 index gaining 2.13%. The Milan stock exchange also opened 2.18% up.
What does it all mean?:
The summit put in place the last formal decisions which need to be taken before EMU can be launched. The work which remains lies mostly at the level of the Member States which are participating. In some countries, for example, there are still some legal measures which need to be put in place in order to ensure that companies will be able to pay their taxes in EUROs. The UK is also implementing this provision. In general, however, Europe is now ready to launch its currency. Indeed, all the signs from large multinational companies and from financial markets are that it will be widely used from the outset.
The text above was supplied by the Representation of the European Commission in the United Kingdom on 4 May 1998.
Primary and secondary information sources associated with the 1-3 May meetings are listed under Section 5.3 in 'Recent references' of this issue of European Access. The text of the Council Regulations, Decisions and Recommendations adopted 1-3 May 1998 were published in Official Journal L139, 11.5.98, p1-36.
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