Macroeconomic and Monetary Issues

In deliberations on macroeconomic and monetary policies, the Community has limited authority for consultation and coordination, based upon the European Monetary System (EMS), and upon the monetary dimension which the SEA (Article 102a) formalised into the legal framework of the Community in 1987.

The EMS was launched in 1978-79 in an effort to create a 'zone of monetary stability' in Europe, as a reaction against the global economic disarray. Over the past decade, the EMS has been consolidated, but its prosperity and success have been hampered by the non-participation of sterling and by the fact that only seven of the twelve member states currently adhere to the narrow exchange rate bonds dictated by the exchange rate mechanism (ERM). Throughout the 1980's, the EMS could not really be presented as a powerful and unified European Community entity at the summits of the Seven-Plus, although it received endorsement from the summiteers and its contribution to world monetary stabilisation has been acknowledged. Over the years, the Community's voice in macroeconomic and monetary issues has been far from unified. The influence of the Commission has waxed and waned depending upon the specific circumstances surrounding each summit meeting, although EC influence has by no means decreased in this sphere from its initial level of 1978, when the EMS was launched.

Indeed, in since his advent as Commission President in 1984, Jacques Delors -- a former French Finance Minister -- has considered economic and monetary affairs to be a special and priority undertaking. Consequently, he has made every effort to assert the Commission's authority in this domain at the summit. The Commission's views on economic and monetary policy have assumed an independent character, and have by no means always represented the contemporary opinions of the twelve individual EC member states in this contentious sphere.103

The Commission's autonomous and rather aggressive stance in economic and monetary affairs in international summitry was dealt a significant blow at the Tokyo Summit of 1986, where it was excluded from the Group of Seven finance ministers (G7), an extension of the G5 which was already in existence.

The task of the G7 --mandated at the Tokyo Summit -- is to strengthen the process of multilateral surveillance to monitor the management and the improvement of the international monetary and macroeconomic system. The G7's mandate provides for frequent and intimate collaboration throughout the interim periods between the yearly summit conferences in order to jointly review individual economic objectives and forecasts based upon a conglomerate of economic indicators; as it evolved, the G7 also oversaw coordinated exchange market intervention. This was particularly evident in the instance of the Louvre accord, and in the coordinated intervention which occurred in the aftermath of the October 1988 Stock market crash.

The United States vetoed Commission involvement, on the grounds that it lacked the legitimacy and authority of a sovereign state in the monetary domain; that is, the EC lacked a central bank, intervention funds, power to fix interest rates and a single currency. The American and Japanese leaders also strongly opposed the inclusion of the EC on the reasoning that it would transform the relatively manageable G-7 into an unruly and unstable G-15. Furthermore,since the records of all EC international negotiations were automatically transmitted to Greece and Portugal, it would considerably compromise the security of the information, precluding the discussion of highly sensitive currency matters. 104

Funabashi argues that the adamant EC insistence upon participation found its origin in Belgian and Dutch concerns that their relative power and status within the EC would diminish if Italy became a member of the G7 without a concomitant guarantee that other EC member-states' interests would be represented and defended at the international level in macroeconomic and monetary issues by the Commission. These smaller EC states were again suspicious and afraid that their interests would be overridden by those of the Big Four 'directorate', and that G7 decision-making would interfere with and impose upon national and Community-wide priorities.

In short, this mirrored the concerns that the smaller EC states held in 1975, when the first "Seven Power Summit" was convened at Rambouillet. The Dutch and Belgian preference for a more 'federalist' solution, where a delegation from the EC could represent the Community's interests (including particularly the interests of the smaller EC states who were not present at the international negotiating table). In this instance, however, the more pragmatic compromise 'parallel' approach, which had eventually brought a bicephalous EC delegation to the economic summit in 1977, did not dominate the reasoning of European countries present in Tokyo. Interestingly enough, the French, who had so strongly opposed any type of Community representation at the summit in the mid-1970's arguing that this would violate Gaullist and realist principles which dictated that sovereign states were the only legitimate entities in international politics, firmly endorsed EC participation in the G7 in the mid 1980's. This was perhaps as much due to personal solidarity between Francois Mitterrand and his former finance minister, as to France's official support for the EC's bid for inclusion.

The exclusion of the Commission from the G7 was a disappointing setback, which inevitably reduces the legitimacy and authority of the Commission in international economic and monetary decision making. The Commission, however, does not consider the issue of G7 composition as a closed debate.105

The Commission wishes to press its case for inclusion in the G7 process based upon two lines of reasoning. First, with respect to the legal foundations endowed to the Community by the Treaty,the SEA has given explicit endorsement to the economic and monetary capacity of the Community. A clause in the SEA's Preamble refers to the ultimate goal of European Economic and Monetary Union (EMU) as a fundamental tenet of the Community, stating that: "...the Heads of State or of Government approved the objective of the progressive realization of EMU". In addition, Article 102a of the SEA states: "In order to ensure the convergence of economic and monetary policies which is necessary for the further development of the Community Member States shall cooperate...In so doing, they shall take account of the experience acquired in cooperation within the framework of the EMS and in developing the ECU." These clauses provided legal foundation for measures considered requisite for institutional modifications in the Community's monetary structure. The Commission argues that these Treaty provisions provide a firm and substantial legal foundation for Community action.

The Commission also refers to its intention to construct an integrated financial area as a keystone of the 1992 project, based upon the complete liberalisation of capital movements and the free provision of financial services throughout the Community. This initiative presupposes a strengthening of the EMS framework in order to ensure monetary cooperation and stability. Increased commercial use of the ECU is also anticipated. Such an undertaking will obviously have major effects upon the activities and policies of the EC's summit colleagues, and therefore supports the claim of Commission inclusion in the Group of Seven Finance Ministers. 106

In addition, a strong boost to the monetary dimension of the Community has been granted, by the endorsement by the European Council meeting at Madrid in June 1989, of the Delors Committee Report on the longer-term financial and economic implications of the internal market. This landmark decision signifies that European political heads endorsed the concept of convening an intergovernmental conference (IGC) in order to map out stages to promote the institutional development of the EC's economic and monetary infrastructure, with the envisaged objective of creating either a Community 'Reserve Fund', or a European Central Bank and eventually EMU. At the Madrid Summit, in order to reinforce the process of strengthening the EMS, the Spanish Government announced that the peseta would adhere to the ERM in 1990, and the British also gave a conditional commitment that sterling might also join the EMS. Further impetus was given to the move toward EMU at the EC's December 1989 Strasbourg European Council. Here, a date was finalised for the EMU IGC, which should commence shortly after the West German elections of December 1990. This movement for enhanced European monetary cohesion could possibly give high-level political support to the Commission's bid for G7 inclusion. The second line of reasoning which the Commission pursues in order to supplement the pure monetary argument for its inclusion in the G7 process is based upon the changing nature of the G7 agenda itself, as it becomes more concerned not just with purely economic indicators, but also in domains where the Commission indisputably possesses interests and competence, such as international trade and debt-related questions. The more the G7 moves toward this global approach to macroeconomic policy coordination, the more legitimate will be the Commission's claim to participate in its processes.107

Based upon these two arguments, then, the Commission believes that the situation will be redressed, and that the EC's right to be included as such in the G7 will be recognised in the 'very near future'. 108 This will lend a considerable boost to Commission legitimacy and authority in the international macroeconomic sphere. The Commission also argues that inclusion in the G7 would enhance the Commission's internal monetary competence within the Community itself.

As most macroeconomic and monetary coordination among the summit countries has occurred under the aegis of the G7 since the 1986 Tokyo Summit -- in particular through the Louvre Accord and the coordinated reaction of the summit countries to the October 1987 stock market crash -- the Seven have simply expressed their support for G7 activity at Venice in 1987 and Toronto in 1988 and in Paris in 1989. Thus, the G7 process has the effect of reducing the role of the Commission, and of reducing the importance of the EC itself as a decision-making arena in this issue-area: Community effectiveness in the macroeconomic domain is decreased. As long as the Commission remains outside the G7, its impact and influence in this domain will be severely restrained within the economic summitry process.