Date is set for EU currency merger
KM Abel is Professor of Psychological Medicine and Director of the Centre for Women's Mental Health at University of Manchester and Honorary Consultant Psychiatrist at Manchester Mental Health & Social Care Trust.
Monday 15 September 1997
This will bring forward a key piece of the EMU jigsaw by eight months and will sharply increase pressure on Britain to finally decide whether to join the common currency during the first wave in January 1999.
The move is a pre-emptive strike against potentially damaging market turbulence once the list of countries qualifying for EMU is announced in May, and reflects a growing political determination to ensure that the single currency starts on time.
In talks at the Luxembourg spa resort of Mondorf-les-Bains, ministers agreed the identity of the first batch of EMU entrants and the conversion parities to apply from 1 January 1999 will be announced simultaneously. This is what brings forward a major piece of the EMU jigsaw. "From the time of the announcement we will de facto have a piece of monetary union in place," said Hans Tietmeyer, the president of the Bundesbank.
It had always been assumed that the announcement on exchange rate parities would come only on the eve of the EMU starting date, when currencies will be irrevocably locked.
Yves Thibuult de Silguy, EU commissioner for monetary affairs, predicted the early announcement would enhance the credibility of the EMU timetable by warning financial speculators that their scope to gamble on likely conversion parities between May 1998 and January 1999 will be limited.
How the rates will be determined remains unresolved. The likeliest option is to use central rates within the EU's currency grid, the ERM.
The weekend's important and highly symbolic decision, coupled with improving prospects for economic recovery in France and Germany, mean hopes are higher than they have been for months that a delay in the EMU timetable can be avoided.
Britain therefore faces intensified pressure to step up preparations for the impact on both sterling and business of a Euro launch in less than 16 months time.
Gordon Brown, the Chancellor of the Exchequer, repeated at the weekend that the Government is committed to keeping Britain's options open. But his approach to the talks, significantly more constructive than that of the Tories, have fuelled speculation in Mondorf that Tony Blair's government is positioning itself for early second-wave membership if EMU is seen to be working.
Mr Brown announced in Luxembourg that the Government wants a "vigorous debate" in Britain on the preparations for EMU, to warn business and consumers that "in or out" they will be affected. This recognition from the British government that EMU is no longer in doubt was being seen by some EU diplomats as further evidence of a significant shift in the British attitude.
Britain's more positive strategy is partly influenced by the fear that the United Kingdom could be politically sidelined as EMU-participating countries, led by the French and Germans, start to collaborate more closely on a wide range of economic policy issues from 1999.
France appeared at the weekend to retreat from its earlier demands that the Euro be run by an "economic government", though officials believe an informal structure of "in" governments, separate from EU finance ministers, is inevitable once the Euro is launched.
Ministers are already taking the first tentative steps towards co-ordinating taxation, which is seen by France and Germany as indispensable after the single currency. At Mondorf, they authorised the European Commission to draw up detailed proposals for a code of conduct to iron out the discrepancies between tax systems which allow EU governments to bid against each other for foreign investment and jobs. Competition to lure companies through cut-price corporation tax is being blamed by Brussels for the rise in employment taxes and social security contributions, and the effect that has in killing jobs.
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