The EURO: The countdown has begun
Sent to us by
Pierre Kessler of
Rectorat de l'Académie de
Strasbourg - Service Technologies Nouvelles et Innovation, FRANCE,
(English translation of the French original by Fiona Bartley, CBS James's Street, Dublin, IRELAND)
Contribution to the EDUVINET "European Monetary Union" subject
The cost to the European Union of operating 14 different currencies comes to
a total of between 100 and 165 thousand francs. The wheels, therefore, of the
largest project at the end of this century, have been set in motion; Europe will
operate one single currency by the year 2002, at the latest. This project is
but one of our first steps on the difficult road to political union.
Despite consultations with the people and on-going work, the 'Eurosceptics' have not put down arms; now that the actual countdown has begun, there are concerns that last-minute fears or a 'euro-apathy' may lead to a misunderstanding of the advantages a united Europe brings.
A brief history .....
Without returning to the Treaty of Rome or the Europe of Six, we discover the conviction, at the root of the Common Market's creation, that an enlargement of the european economic territory is a basis for european prosperity. Everything, thus, depends on this project: to establish a market open to a kind of competition which allows businesses to develop truly european strategies. First, the free circulation of goods was assured and agricultural markets organised. Since then, the opening-up of the market has extended to banks and assurances regarding the free movement of people and capital within Europe, in existence since July 1st, 1990. Finally, the numerous obstacles to competition which persist (tarif-free borders, the policies of public purchasing, national monopolies) should be progressively lifted: this is the sense of the single market of 1993. In such a context, continuing to operate separate national currencies becomes absurd.
Stage one: the European Monetary System
March 13, 1979, sees the entry of the EMS, creating the ECU, a currency
calculated each day according to the variations in the exchange rate of each
individual component currency. The value of the currency is determined in
relation to other currencies inside the 'Money Serpent', respecting the floor
and ceiling levels, and with a fluctuation corridor of 2,25%, increased to 15%
in 1993. As soon as one currency begins to reach its ceiling or floor level,
the Central Bank must intervene to defend it, by either buying or selling its
national currency for cash.
The EMS was created to compensate for the difficulties of the International Monetary System, but it has not solved the problem of speculation on currencies as proved by the peripeties of 1995 .
The Maastricht Treaty and Economic and Monetary Union
On February 7th, 1992, the signing of the Maastricht Treaty paves the way for the European Union, born on January 1st, 1993, and composed of two wings: the Political Union and the Economic and Monetary Union (EMU). The European Monetary Institute (EMI), precursor of the European Central Bank, is launched on January 1st 1994, but holds no powers in the area of monetary policy-making.
The objective of the EMU is to replace individual national currencies with a single currency - the euro - printed by an independant central European bank. The creation of the euro presupposes a sufficient convergence amongst the economies of the member states, and also, naturally, a convergence in their economic and monetary policies.
In December 1995, the European Council launches the single currency. The schedule for its circulation is fixed, in three phases:
The advantages of a monetary union:
The loss of sovereignty: a red herring
The argument against european monetary union on the basis of losing sovereignty has often been put forward, but does not seem realistic once the facts have been put on the table. Since its creation in 1979, the EMS has imposed a tight, constrictive monetary policy on member states. Moreover, the central position of the Deutschmark within the EMS means that, in the words of the British Minister of Finance himself, any sense of British sovereignty lasts exactly ten minutes after a Bundesbank decision! The margin for manoeuvre in the area of monetary policy for member states has been very tight now for quite some time. Rather than being compelled to follow the policies of the Bundesbank, as has been a characteristic of the EMS, it would be better to share monetary sovereignty on a community level. In fact, the question still under examination is how to implement this shared sovereignty.
Which nations would form the first group for monetary union?
In theory, those nations having satisfied the five criteria of "convergence", fixed by the Maastricht treaty would be in the first group. It is unthinkable that France and Germany would not be amongst those nations, yet these two countries are a long way from meeting the Maastricht criteria satisfactorily. The criteria are stringent and follow a liberal orthodox line, liable to bring about a shake-up in these times of weak growth and mass unemployment:
Whichever way we look at the possibilities, it is unlikely that Greece, Portugal or Italy would participate in the first group, because of their large national debt. Even Germany is not excluded, and currently only Luxembourg could adequately satisfy all conditions.
Should the criteria then be reviewed? The deadlines changed? Significantly, the German term for a revision of the Maastricht terms says it all: << Aufweichen >> = 'softening'. Yet it remains unlikely that the dates will be changed. As regards a 'softer' interpretation of the criteria for convergence, the Treaty itself forsees certain 'margins of appreciation' which in themselves will prove useful.
In any case, a number of declarations have been submitted insisting that the economy in depth will be considered, and its tendencies, rather than the mere figures themselves. That remains to be seen ... Meantime, we can all grind our teeth in anticipation of the eurosceptics move to demand the deadlines be brought back, under pretext that the Treaty itself will not be respected, to the letter.
After monetary union: the growth and stability pact
The supposed 'stability' budget pact was adopted Friday December 13, 1996, in Dublin by the ministers for finance of the European Union countries. It became absolutely indispensable due to the absence of a common political desire: the member states would keep a certain autonomy, in policies regarding revenue and fiscality, for example. A durable budgetary discipline would then have to be respected.
The pact would incorporate, from January1st 1999 onwards, public finances for states participating in the EMU, and would aim, in the short term, to limit budgetary deficits to a maximum of 3% of GDP, and in the medium term, to achieve a more or less balanced set of public finances.
Dissuasive in nature, the stability pact lays out certain penalties: a deposit of between 0,2% and 0,5% of GDP could become a fine if the situation is not kept in balance, except in unusual circumstances, for example, a deep recession.
There are many unanswered questions:
We must not fall into the trap of complete optimism: the single European
currency system in itself will pose its own problems - problems of adaptation
for everyone. But where would we be, were the project abandoned now, at this
stage? The resulting loss of confidence would be catastrophic, speculation
Problem spots remain, different in each country: in Germany, the sense of attachment to the mark, symbol of stability and economic growth; in France, the question of sovereignty, coupled with a sense of hostility towards a foreign vote. Within the member states, two pressures coexist - a rise in nationalist sentiment together with a push towards a faster enlargement of the European Community.
Ignorance, pure and simple, gives rise to the fears which exist in this regard. There is a profound lack of understanding of european institutions and their system of operation, also, quite simply, an ignorance of the history involved. Let us hope that the communication campaign will bring a real and effective contribution towards the construction of Europe.
"The metamorphosis is incomplete, we are neither pupa nor butterfly, we are still in the chrysalis. The decisive effort remains to be made." Edgar Morin
A little nostalgia ...
The 'Quotidien' of Paris, 11 april 1983 : "20 years of currency control"
<< The table below shows (...) that France is the most severe of
countries in the area of currency control:
When leaving their country, Australians can take out circa 27,000 Ffr per journey, the Spanish 4,200 Ffr per journey ... Germans, Belgians and Britains may leave the country with whatever currency amount they choose.
|Year||Current French francs|
|1963 - 1966||5000 F per journey|
|1968 - 1969||1000 F annually|
|1970||1500 F - in 2 journeys annually|
|1972||3500 F per journey|
|1973 - 1982||5000 F per journey|
15 April 1983: Jacques Delors announces the lifting of restrictions in currency control by the end of 1983.
For further information:
Either await the outcome of the new communication campaign, begun on January 1st 1997, which cannot fail to bring results, or, amongst a great number of other works, consult "Towards a Better Understanding of Maastricht", Francois Descheenmaekere, Editions d'Organisation.