13 April Ecofin Informal

Date: 18/04/1996

EU finance ministers and central bank governors agreed to subdivide the new Euro single currency into 100 'cents'. Member states will be allowed to have a national symbol on one side of the coin, such as the head of a monarch, and a European symbol on the other.

MINISTERS gave the European Commission a mandate to assess all possible measures to foster convergence, including making 'multilateral surveillance' procedures more efficient. This was done in response to a proposal from German Finance Minister Theo Waigel for a 'stability pact' to enforce the Maastricht Treaty's rules on fiscal discipline within a monetary union. The Commission will attempt to tighten the control exercised by EU institutions over national fiscal policy to ensure that budgets are always kept in check.

FINANCE ministers accepted a series of recommendations from the European Monetary Institute (EMI) on how to set up a new Exchange Rate Mechanism binding countries outside a monetary union to those inside. According to the EMI, the system “should be characterised by relatively wide margins around central rates”. While central banks will be obliged in principle to intervene in the markets at these limits, such actions will be limited. If none of this works, the president of the European Central Bank will be empowered to persuade a country to devalue. The EMI said a decision had to be made on the details of the system well before 1998.

OPINIONS were divided over whether all countries should join the new arrangement and whether currencies were obliged to be in the current ERM for two years before entering monetary union. Both Waigel and Bundesbank President Hans Tietmeyer said membership was required under Article 109j. But UK's Chancellor of the Exchequer Kenneth Clarke and Bank of England Governor Eddie George played this down, saying that a history of currency stability would suffice. Sweden, the UK and Finland held the minority view that they did not need to join an ERM II.

BASED on the recommendations of the Verona meeting, the EMI and the monetary committee will draw up more detailed proposals for the next EU summit which will be held in Florence in June.