IP/98/1008

Brussels, 19 November 1998

Relations between the and the escudo

The European Commission has today recommended a Council Decision to confirm the future relations between the euro and the Cape Verde escudo. This would ensure that the present arrangement, under which the convertibility of the Cape Verde escudo into the Portuguese escudo at a fixed parity is ensured by aid of a limited credit facility provided by the Portuguese government, should not be materially affected by the transition to the euro. The fixed parity between the euro and the Cape Verde escudo will follow from the official conversion rate fixed on 1 January 1999 between the euro and the Portuguese escudo. The present budgetary commitment by the Portuguese government does not entail any obligations for the Portuguese . Its continuation should therefore not affect the smooth operation of EMU. The Portuguese authorities will nevertheless be obliged to keep the Commission, the Economic and Financial Committee (successor to the Monetary Committee) and the (ECB) informed of the implementation of the agreement. In particular the Portuguese authorities will inform the Economic and Financial Committee in advance of any possible changes in the parity between the euro and the Cape Verde escudo. Changes in the nature or scope of this agreement would require the approval of the Council on the basis of a recommendation of the Commission after consultation of the ECB.

Portugal has concluded an exchange rate co-operation agreement with Cape Verde, reflecting the historical ties of friendship and co-operation between the two countries. From 1 January 1999, the EU will have exclusive competence for external exchange rate matters for countries which participate in the euro. This means that a Council Decision is required to confirm the continuation of the present arrangement concerning the Cape Verde escudo. At the initiative of President Santer and Yves-Thibault de Silguy, Commissioner responsible for economic, monetary and financial affairs, the Commission has today made the necessary recommendation for a Council Decision which will be adopted after consultation of the ECB. In July this year, the Commission made a similar Recommendation for a Council Decision on relations between the euro and the CFA franc and the Comorian franc.