Monetary System Delayed by Farm Issue •••••• L Uniform Standard
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Issue No. 521 Report No. 361, January 9, 1979 IN THIS ISSUE page Community: Monetary System Delayed by Farm Issue •••••• l Uniform Standards for Life Insurance Companies .••.•••• 2 In Brief: Steel Crisis Plan; Veterinarians •••.•••••••• 3 Britain: Price Agency Refrains from Probing Ford •••.•• 3 Germany: More Protection for Working Mothers •••••••••• 5 Italy: Parliament Clears National Health Reform Law ••• 5 Metalworkers Seek Reduction in Workweek ••••••••••••••• 6 Austria: Vienna, Ford Talk About Auto Plant ••••••••••• 6 Euro Company Scene . ..•......•.•.•.....•.•..••....•.... 7 Aunity: The inauguration of the European Community's new monetary ~lan system has been delayed by a dispute between Paris and Bonn Delayed by over an important farm trade issue that the national minis Farm Issue ters of agriculture will attempt to solve at their meeting in Brussels on Jan. 15. The European monetary system was to go into effect on Jan. 1, but the French government made its consent to the Commission's proposals on the introduc tion of the European currency unit (ECU) and the credit fa cility of the European Monetary Fund dependent on a binding agreement on the reintroduction of uniform farm prices in the Conmon Market. All of the member states except the U.K. would belong to the monetary system, and third countries such as Austria and Switzerland could join as associate members. The EMS is expected to bring some measure of monetary stability to the member countries and thereby aid intra-Community trade as well as trade with third countries. Another major fea ture, seen by many observers as a way of narrowing the gaps between national economic policies, would be the potential of the system's European Monetary Fund to give credits, al though with strings attached, to national governments. When the nine heads of government met in Brussels on Dec. 5, they agreed in principle to French president Gis- ---------This issue is In two parts, consisting of 104 pages, This is Part 1.-------- COMM ON MARKET REPORTS (ISSN 0588-649X), published weekly by Commerce Clearing House, Inc., 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription rate $580 per year. Second-class postage paid at Chicago, Illinois. Printed in U. S. A. All rights reserved. • EUROMARKET NEWS - p. 2 • Monetary Plan card d'Estaing's demand for the reintroduction of uniform (contd.) farm prices throughout the EEC, but they set no deadline. During the subsequent meetings of the nine agricultural ministers, France insisted on the removal of the current fictional prices maintained by the compensatory amounts system within one year. Because of the implications for its farmers, Germany was reluctant to accede to the re quest. The uniform price system for agricultural commodities, the cornerstone of the common agricultural policy, was de railed in 1969, when all member states were drawn into the whirlpool of monetary upheavals. At that time and in sub sequent years, they were forced to revalue or devalue their currencies, which have been floating and thus subject to daily changes in value since abolishment of rigid exchange rates. In order to cushion· the impact of constantly vary ing currencies, the Community agreed to the system of com pensatory amounts. Member states with strong currencies grant subsidies to farm produce exporters and impose levies on imports of agricultural commodities. States with deval ued currencies impose a levy on exports and subsidize im ports. Without these compensatory amounts, farm prices would rise in weak~currency countries and decline in strong-currency countries. Germany is not basically opposed to abolishment of~ compensatory amounts system. Bonn wanted to wait and se how the European monetary system works and then support e - forts to reinstate uniform farm prices in the EEC, Fur thermore, the government did not want to hurt German farm ers, who would stand to lose a great deal if the system were suddenly abolished. Uniform A common market in life insurance has come closer to reali Standards for ty with the Council of Ministers' basic agreement reached Life Insurance last Dec. 19 on a directive laying down uniform minimum standards for life insurance companies throughout the EEC. Formal adoption is expected within a few weeks. The member states will have two and a half years to bring national provisions in line with the rules laid down in the direc tive. In a way the proposal is similar to the Council's 1973 directive that coordinated national provisions governing companies insuring risks other than those to life (Co11U110n Market Reports, Pars. 1349.35, 9596). The new directive would coordinate national provisions governing the licens ing of life insurance carriers, agencies, and branches. At the same time it would align national rules on financial guarantees and other conditions. The overall objectives of the measure are to remove restrictions that discriminate against foreign insurance companies and to provide policy holders throughout the Community with adequate and equal • EUROMARKET• NEWS - p. J Life Insurers protection. Once the member states have complied with the (contd.) directive, a foreign life insurance company, branch, or agency will be granted access to the insurance markets in other states under the same conditions applicable to domes tic carriers there. Agreement on the proposal was delayed by the problem of how to treat existing companies offering services in life and nonlife matters. A compromise was found that will enable existing companies, branches, or agencies which com bine nonlife with life insurance (called composites) to continue their operations by having separate managements for each sector; but the formation of new composite compa nies will be prohibited. The Council will review the com posites' performance in ten years' time. Existing compos ites entering the life insurance field for the first time in another member state would have to abide by strict rules; for instance, they would have to establish a subsid iary with a minimum capital of 600,000 units of account, Life insurance companies will be subject to strict fi nancial requirements that will be new for British and Irish insurers, though they are largely common to Continental carriers. These requirements will primarily benefit poli cyholders. In addition to having technical reserves to cover commitments, each insurer will have to have an addi tional range of financial resources, called a solvency mar gin, which will be calculated on the basis of items on the company's balance sheet (for example, capital and free re • serves) and estimates of future profits. The estimates will be arrived at by averaging the profits made over the past five years, the method applied under German rules. In Brief ... The Community's crisis plan for the steel industry has been extended until the end of 1979, which means that the Com mission retains the power to set minimum prices for certain types of steel and to control imports from third countries. The plan was expanded to the extent that the member-state governments will be authorized to aid stee·1 mills along the lines of existing Treaty principles and new Commission reg ulations+++ The Council has formally adopted two direc tives that will, as of 1981, enable veterinarians licensed by one member state to establish themselves in another and to provide services there. In the first directive the mem ber states commit themselves to recognize each o.ther' s vet erinary diplomas, and the second obligates them to coordi nate the rules controlling veterinary curricula and activi ties. Britain: The U.K. Price Commission has decided not to investigate Price Agency the decision of Ford to raise the prices of its vehicles by Refrains from an average of 4.92% as of Jan, 2, 1979, despite the. fact •Probing Ford that the company's recent wage settlement was in excess of EUROMARKET NEWS - p. 4 • Price Agency the government's 5% guideline. (The Commission is general (contd.) ly empowered to freeze price increases.) However, it was conceded that "the increase could not have been blocked by any action of the Commission" because a company's basic profits are safeguarded by the terms of reference of the Commission, and the rise was justified by Ford's higher costs in the period prior to the settlement. Ford meanwhile has pledged that no more than the gov ernment-permitted 5% of wage costs will be comprised in any future price increments, and the Commission has said that it "believes that Ford's undertaking constitutes a respon sible approach to setting prices in 1979, and it expects others in similar situations to follow the Ford example." This statement appears to be an indi~ator of the policy that will be adopted toward forthcoming ap~lications to ad vance prices, such as from the brewing industry. Observers believe that the Commission's powers may indirectly help to bring sanctions against companies that do not adhere to the approved 5% limit, now that the official sanctions policy is no longer in operation. Large manufacturing enterprises with an annual turn over of more than blS million must give 28 days' notice of any proposed price increase. The notice must include full particulars in case the Commission wants to carry out an. inquiry. (In fact, in the first year of its operation, from August 1977 to July '78, the Commission looked into some 10% of such applications to see whether they were jus tified.) After the Secretary of State for Prices and Con sumer Protection is informed, the Commission has three months to conduct its investigation. It must report by the end of that period, during which any proposed increases are automatically frozen. However, during these three months, a company may apply to raise prices in order to keep up its profit margins, and once such permission has been given, it cannot subsequently be withdrawn.