Committee Reports > List of Committees > Joint > 1975 > Committee on the Secondary Legislation of the European Communities > Report No. 14 - European Monetary Co-operation Fund

REPORT

1. Introduction

The Joint Committee has examined the proposal for a Council Regulation [R/3594/74 (FIN 876)] amending Council Regulation (EEC) No. 907/73 of 3 April, 1973 establishing a European Monetary Co-operation Fund (EMCF).

2. Establishment and Objectives of EMCF

The EMCF was set up in April, 1973 in accordance with the Council Resolution of 22nd March 1971 on the progressive establishment of economic and monetary union and the Summit Declaration of 20th October 1972. The objectives of the Fund are to promote:—

(i)the proper functioning of the progressive narrowing of margins of fluctuation of the Community currencies against each other;

(ii)interventions in Community currencies on the exchange markets; and

(iii)settlements between Central Banks leading to a concerted policy on reserves.

The Fund is directed and managed by a Board of Governors, composed of members of the Committee of Governors of the Central Banks of the Member States and one member of the Commission.

3. Role of EMCF to date

The main work of the Fund to date has been the administration of the Community exchange system. It is therefore concerned with promoting the narrowing of margins scheme. This scheme—known as the “snake in the tunnel”—involves the maintenance of a maximum divergence of 2.25% between the exchange rates of the currencies of any two countries. The scheme was introduced in April 1972.

At present five Community countries participate in this joint float system. The others—Italy, France, UK and Ireland—allow their currencies to float independently. The EMCF arranges concertation in respect of interventions on the exchange markets between the countries in the joint float. Balances resulting from interventions in Community currencies are recorded in the Fund books for later settlement.

The EMCF also operates the short-term monetary support scheme which makes credit available to a member country in temporary balance of payments difficulties. The total support available under the scheme is now 4,225 million units of account, of which the Central Bank of Ireland has undertaken to provide a maximum of 70 million units of account. To date Italy is the only country to have availed of the facility.

4. Proposal for Amending Regulation

Under the amending Regulation which has been proposed the EMCF would not merely continue to be responsible for the administration and supervision of the Community exchange system but would also be required to promote the co-ordination of the internal and external monetary policies of Member States. Its functions in the latter regard would be to arrange for continuing and prior consultations on monetary and credit policies, particularly on bank liquidity, interest rates, capital movements, exchange rates, international capital markets and foreign currency markets. It would arrange for a regular exchange of information regarding operations on those markets and make recommendations as to remedial measures to be taken by Central Banks. To assist it in its new responsibilities the Fund would have a permanent Director-General who would appoint a specialised staff to support him.

5. Criticisms of Proposal

It is understood that the proposal has already attracted a good deal of criticism. Essentially the change proposed is procedural rather than substantive the main object being to provide machinery for continuing and prior consultation. Already there are the Monetary Committee and the Committee of Governors of Central Banks with functions in the economic and financial area. The co-ordination of the monetary policies of the Member States is, however, not regarded as satisfactory but it has been strongly contended that this is attributable to political-causes and not primarily to institutional deficiencies. This appears to be a formidable objection and the Joint Committee is informed that for lack of support the Commission is not likely to press for implementation of the amending Regulation and may well withdraw it. The Joint Committee will continue to keep in touch with future developments in this sphere.

(Signed) CHARLES J. HAUGHEY,

Chairman of the Joint Committee.

2nd July, 1975.