EUROPEAN ECONOMIC COMMUNITY

COMMISSION

II/COM(63) 216 final

Brussels, 19 June 1963

MONETARY AND FINANCIAL CO-OPERATION IN THE EUROPEAN ECONOMIC COMMUNITY

(Communication from the Commission to the Council submitted on 24 June 1963)

Reproduced from Supplement to the Bulletin ofthe European Economic Community No. , 1963. Monetary and Financial Co-operation in the European Economic Community (Communication from the Commission to the Council submitted on 24 June 1963)

Article 105 (1) lays down that: between Member States. The elaboration of common policies in the various fields was " In order to facilitate the attainment of also in a more or less early stage. In this the objectives stated in Article 104, Mem- first stage, integration in the Common ber States shall co-ordinate their economic Market did not playa particularly decisivp- policies. They shall for this purpose pro- role in deciding how the monetary situation vide for collaboration between their appro- developed or, consequently, in the monetary priate administrative departments and be- policy pursued in the Member States. In tween their Central Banks. future, however, its role will become in- creasingly important. Integration will de- The Commission shall submit to the Coun- pend even more than in the past on mone- cil recommendations on how such colla- tary developments in the Member States, boration should be achieved. " while these developments will themselves be determined in large measure by inte- 2. The Commission has so far abstained gration as economic relations are freed from submitting to the Council, as required from restrictions and common policies intro- by paragraph 2- of Article 105 (1), formal duced in certain important fields, common recommendations on how collaboration be- rules applied in others. tween administrative departments and Cen- tral Banks shall be achieved. During the 4. This growing interdependence between first stage of the transition period such a national monetary policies and integration step did not yet appear to be necessary. in the Common Market means that all con- In the exceptionally favourable general cerned must co-operate more and more economic conditions that existed, the col- closely in monetary matters. The progress laboration which developed pragmatically of integration would be endangered if the both in the Monetary Committee and at in- of one Member State were formal meetings between the Ministers of to deviate in basic principles and broad Finance and the Governors of the Central outlines from that pursued by the other Banks, was quite sufficient for the needs of members. Every advance towards complete freedom of economic relations between this period. Member States reduces the possibility 3. However, the first stage of integration maintaining such a divergent monetary led only to a partial elimination of all that policy. The movement of goods and money restricted and hampered economic relations would be so distorted that the State con- -:y

cemed would have to alter its monetary of a deficit in its balance of payments, to policy or else accept responsibility. for seek international assistance in the shape, endangering the existence of the Common for instance, of recourse to the International Market. Monetary Fund. It would be in the com- mon interest of the Member States that they 5. The co-ordination that is necessary should examine what should be the nature the aims of the Treaty are to be realized and scale of the support as well as the must apply not only to the basic principles conditions on which it was offered. and broad outlines of monetary policy, but also, as the obstacles hampering economic More generally the Member States, as par- relations are eliminated, to the more impor- ties to the international monetary system tant measures taken in the monetary field. are themselves dependent on the functioning The existence of great differences in the of that system, for which they in any case methods and instruments used to apply carry an increasing share of the responsibil- policy that in its broad lines is quite effec~ ity. The manner in which the system tively co-ordinated could, as the interde- operates is of cardinal importance for the pendence of national economies develops, maintenance of orderly monetary relations lead to situations which would make it between countries; at the same time it Can difficult to eliminate restrictions or to main- have considerable repercussions on the tain the freedom of economic relations, spread of inflationary or deflationary pres- especially with regard to movements of sures within the Common Market itself. capitaL It is therefore in the common This means that the attitude of the Mem- interest that Member States should keep ber States in international monetary matters each other informed as early as possible of must also be co-ordinated. their intentions in this field and should examine together the possible repercussions It is evident from the foregoing that Mem- in the Common Market of the more impor- ber States should take major decisions in tant measures contemplated. international monetary matters only after prior consultation. 6. Monetary co-operation cannot be limit~ ed to the action of the Central Banks alone; 8. In view of the progress already made it must also be extended to the action of the with integration and of the further steps to authorities responsible for financial policy. be taken during the second stage, the Com- Public budgets, and the mission is convinced of the need to ensure decisions which they reflect, exercise on the closest co-operation between the govern- monetary developments an influence com- mental authorities responsible for monetary parable with and sometimes even more de- and financial policy, and also between Cen- cisive than that of the Central Banks. tral Banks. In the attached documents, the Today, a large proportion of national in- Commission has submitted to the Council come passes through the public coffers. recommendations under paragraph 2 of Ar- The surpluses or deficits - in the public budg- ticle 105 (1) of the Treaty which would ets, and the method of financing any establish such co-operation by means of deficits, inevitably exercise a determining systematic consultation prior to any impor- influence on the evolution of internal liqui- tant decision relating to , fi- dity and the monetary situation asa whole. nance or foreign exchange policy. The effectiveness of monetary policy in the broad sense therefore depends on Central In making these recommendations the Com- Bank policy and budgetary policy being co- missions has drawn on the experience gained developed prag- ordinated both in each Member State and in the co-operation that has at Community leveL matically in the Monetary - Committee and the informal meetings of the Ministers of 7. Close co-ordination between the Mem- Finance and the Governors of the Central ber States is also necessary in their inter- Banks experience which shows the need national monetary relations, for this con- for such co-operation. stitutes the natural prolongation of co-or- dination at home. This is especially true 9. The close collaboration evolved in Cen- of policy regarding exchange rates. The tral Bank, finance and foreign exchange effect of changes in these rates on inter- policy must form a coherent whole with national price and cost relations is direct, policy on current economic developments. and their repercussions on the functioning According to Article 145 of the Treaty, of the Common Market might be of the the Council must ensure the co-ordination greatest importance. This applies also to of the general economic policies of the the case of a Member State having, because Member States. This could be done in the course of a debate on general economic Ministers for Economic Mfairs and the policy that could be held early each year Governors of the Central Banks would all in the Council. This debate could be have to take part. based on material submitted by the Mone- tary Committee, the Economic Policy Com- For the foregoing reasons, the Commission mittee and a Budget Policy Committee, the suggests that the Council should meet, if creation of which is among the Commis- possible, in January every year to discuss sion s recommendations to the Council un~ the general economic policies of the Mem- der Article 105 (1). As the discussions ber States, and that the meeting should be would cover matters falling within the pro~ attended by the Ministers of Finance, the vince both of the Governments and of the Ministers for Economic Affairs and the Central Banks, the Ministers of Finance, the Governors of the Central Banks.

RECOMMENDATION BY THE COMMISSION TO THE COUNCIL CONCERNING COLLABORATION BETWEEN THE CENTRAL BANKS AND THE EUROPEAN ECONOMIC COMMUNITY

The collaboration provided for under Arti- To watch monetary developments in each cle 105 (1) as regards Central Banks has of the Member States (to this end, the already been initiated both within the Mon- opinions addressed by the Monetary Com- etary Committee and in the ' course of mittee to the Council and to the Commis- informal meetings between the Governors. sion on this subject would be placed at its It consisted at first of regular and extensive disposal). exchanges of views concerning the reasons that had led to changes in policy by the To hold consultations on the general prin- various banks of issue, together with the ciples and broad outlines of Central Bank en- policies, particularly in regard to credit, the effects of such changes. Moreover, it foreign exchange abled systematic comparisons to be made money market and the between the instruments of monetary policy market. utilized in the countries of the European better To exchange information regularly concern- Economic Community, to form a ing the principal meaSures that come within judgment of their advantages and disad- the province of the Central Banks, and to vantages, and to make the criteria for their study such measures. So far as circull1- utilization more homogeneous. stances and the dates set for the adoption It is important now, at the present stage of these measures allow, these studies will of fruition of the Common Market, that be made before the relevant decisions are the highest financial authorities of the EEC taken by the national authorities concerned. countries should be able to obtain infor- The members of the Committee, if unable time of any mation direct and in good to attend a meeting, could be represented circumstances liable to call for changes in by a member of the Board of their Bank. the monetary policy of individual Member States, and that they should consult each It should be noted that there is no Central other as to the extent of such changes and Bank in the Grand Duchy of Luxembourg, of any repercussions these might . have on and that agreements drawn up within the their partners. framework of the Belgo-Luxembourg Eco- nomic Union set up a monetary association It is therefore advisable that a consultative between Belgium and the Grand Duchy. " Committee of Governors of Central Banks in the European Economic Com- The Commission considers that as a general munity ", be set up, providing these author- rule one of its members should be present ities with regular opportunities for joint at meetings of the Committee. The discussions and enabling them to contribute Chairman of the Monetary Committee more effectively towards the harmonious might also be invited to attend. working of the Common Market. The Committee of Governors of Central The main functions of this Committee of Banks would decide on the venue for meet- Governors of Central Banks would be: ings. It would be desirable, however, for meetings to be held at least once a year at and make its own arrangements for secre- the headquarters of the European Economic tarial services. Community. For the foregoing reasons, and in pur~ The Commission should also be able to ask suance of the Treaty, in particular Article the Committee to meet at short notice if it 105 (1) thereof, the Commission recom- feels that the need is urgent. mends that the Council set up a " Commit- The Commission considers it unnecessary tee of Governors of Central Banks of the to formulate other proposals regarding the European Economic Community " in ac- functioning of this Committee. The latter cordance with the draft decision appended would draw up its own rules of procedure to the present recommendation.

Draft decision by the Council concemmg co-operation between Central Banks in the European Econonllc Conununity

The Council of the European Economic decides, Community, Article 1

Having regard to the Treaty, and in partic- In order to further co-operation between ular Article 105 (1) thereof; the Central Banks of the Member States, a " Committee of Governors of Central Having regard to the recommendation of Banks of the European Economic Commu- the Commission dated 19 June 1963; nity " is hereby created.

Considering that the advance towards eco- nomic union, and particularly the further Article steps to be taken to eliminate obstacles to free movement of goods and capital, and The Committee shall be composed of the the establishment of common policies in Governors of the Central Banks of the important fields, must necessarily be ac- Member States. In the event of any mem- attend a meeting he companied by more extensive co-ordination ber being unable to of Central Bank policies; may delegate another member of the Board of his Bank to replace hiin. Considering that a fundamental requirement As ageneral rule, the Commission shall be for economic union is stability in the ex- invited to delegate one of its members to change parities of the currencies of the attend meetings of the Committee. The Member States and that consequently econo- Chairman of the Monetary Committee may mic .and monetary policies are required that also be invited; in the event of his being stability; will ensure such J-mable to attend he shall be represented one of the two Vice-Chairmen of that Considerrng that it is necessary to ensure Committee. close co-ordination of monetary policies be- tween the Member States of the European Economic Community, as stressed by the Article Commission in its Memorandum on the The main functions of the " Committee of Action Programme of the Community for Governors of Central Banks of the Euro- the second stage and by the European Par- pean Economic Community " shall be liament in its resolution of 17 October 1962 relating to the co-ordination of mone- i) To watch monetary developments in each of the end, tary policies; Member States. To this the opinions addressed by the Monetary Committee to the Council and to the Com- Considering t,hat, in order to strengthen the co-operation provided for in the Article mission regarding such developments shall referred"to above, it would be expedient that be transmitted to the Committee under there should in future be consultations be- reference; tween the Central Banks, which would pre- ii) To hold consultations on the general cede more systematically the decisions taken principles and broad lines of Central Bank by these Banks, policies, particularly in regard to credit, the In,oney market and the foreign exchange meeting desirable. Should the Commission market; consider that the need is urgent, it may Hi) To exchange information regularly con- ask the Committee to meet at short notice. cerning the principal measures falling within The Committee itself shall decide on the the province of the Central Banks, and to place where it shall meet. However, it study such measures. So far as circum. shall meet at least once a year at the. head- stances and the dates set for the adoption quarters of the European Economic Com- of these measures allow, these studies will munity. be made before the relevant decisions are taken by the national authorities concerned. Article Article The Committe shall draw up its own rules The Committee shall meet at regular inter~ of procedure and organize its own secre- vals and whenever the situation makes a tarial services.

RECOMMENDATIONS MADE BY THE COMMISSION TO THE COUNCIL CONCERNING CO~OPERATION BETWEEN THE MEMBER STATES IN INTERNATIONAL MONETARY RELATIONS

The Member States of the Community play ii) Recourse by Member States to the Inter- an important part in the functioning of the national Monetary Fund; international monetary system, which may iii) Participation by one or more of the profoundly .affect the movement towards Member States in large-scale financial European economic unification. This is assistance to another country, either directly particularly true of changes in exchange or through international organizations. rates. Hence the necessity for the Mem- ber States to co-ordinate closely their poli- Preliminary consultations within the Com- cies in regard to monetary international munity are also necessary in the event of relations. changes in the exchange parity of the cur- To this end, it is essential to institute within rency of one or more of the Member Sta- the European Economic Community arran- tes. Such consultations have been provided gements for consultation before any im- for within the framework of the Interna- portant decisions are taken by Member tional Monetary Fund by virtue of Article States in this field and, generally speaking, IV(5) of its Statutes, but for various reasons before any decision of these States regarding they do not meet the requirements of the the broad lines of international monetary close co-ordination which is imperative policy. between the Member States .of the Eu- ropean Economic Community in this mat- In each country, policy in this matter is ter. As economic relations between the conducted by co-operation between govern- Common Market countries grow closer, ment authorities and the Central Banks. movements in the exchange parity of a Consultations in the European Economic Member State s currency will have more Community should therefore take place direct and more important consequences for through a body in which these institutions the other Member States than for other are represented. The Monetary Committee countries. The fourth annual report of the is in fact so composed. The discussion Monetary Committee, recalling the two of international monetary problems already currency revaluations that took place forms a large part of its activities. It would March 1961 in the Community, said that therefore suffice to strengthen this form of although this problem had on several occa- co-operation by referring more specific sions been studied by the Monetary Com- points to this Committee. mittee, at the time the final decisions were made these changes in parity had not been The principal fields in which arrangements preceded by adequate co-ordination at Com- should be made for regular consultations munity level. in the monetary Committee are the fol- lowing: Moreover, the introduction of common poli- i) General functioning of the international cies in various important sectors of the monetary system; economy has lent substance to the principle set forth in Article 107(1) that each For the foregoing reasons, and in pursuance Member State shall treat its policy with of the Treaty, more especially Article 105 regard to exchange rates as a matter of thereof, the Commission makes the follow- common interest. The functioning of ing recommendations to the Council. various mechanisms for fixing prices and tariffs which are necessary in order to give a) To modify Article 1 of the statute of effect to a common policy, particularly in the Monetary Committee as proposed in agriculture and transport, can be seriously the first draft decision below, so as affected by changes in parity between Mem~ empower it to arrange where necessary for ber States' currencies. consultations before any major decision is taken or attitude adopted by any Member Consequently, it would seem that the prin- State in the field of international monetary ciple of consultation before any alternation and financial relations, particularly as con- of exchange parity between Member States cerns : of the European Economic Community must be accepted, whether such changes are i) The general functioning of the inter- made by a Member State because of special national monetary system; difficulties or are caused by disturbances ii) Recourse by Member States to the affecting the currency of one or more International Monetary Fund; countries, partcularly those which are wide- ly used for international payments. iii) Participation by one or more of the Member States in large-scale financial The establishment of procedures for prior assistance to another country, either directly consultations on these matters presents com- or through international organizations. plex problems, especially having regard to the requirements of secrecy and prompt b) To decide, in accordance with the second action. It is therefore recommended that proposal below, that the Member States the Monetary Committee as the best qual- must consult each other before any change ified body in this respect in the European in the parity of their currency; to ask the Community should be asked to consider Monetary Committee to give its opinion as appropriate procedure to make these con- to how such consultations could be organ- sultations fully effective and report to the ized; and to invite the Commission, in the Council and Commission. The Commission light of such opinion, to make precise pro- will then make detailed proposals to the posals to the Council concerning procedure Council. for the consultations in question.

Draft decision of the Council relating to co-operation between Member States in regard to international monetary relations

The Council of the European Economic Whereas close co-ordination is necessary Community, between the policies of Member States re- garding international monetary relations, as Having regard to the Treaty, and in partic- urged by the Commission in its Memoran. ular Articles 105 , 116 and 153 thereof; dum on the Community s Action Program. me for the second stage and by the Euro- Having regard to the recommendation of pean Parliament in its Resolution of 17 Oct- the Commission, dated 19 June 1963; ober 1962 concerning the co-ordination of monetary policies in the European Econo. Whereas the functioning of the international mic Community; monetary system can profoundly affect the movement towards the economic unification Whereas the most appropriate method of of Europe; ensuring such co-ordination is to hold the necessary consultations in the Monetary Whereas in the event of one of the Member Committee, States having a balance-of-payments deficit it would be in the common interest to con- sider how such deficit may be covered and, decides, in particular, whether recourse should be had for this purpose to the International Article 1 of the Monetary Committee s sta- Monetary Fund; tutes shall be modified as follows: ~, The Committee shall keep under review monetary relations, particularly as con- the monetary and financial situation of the cerns : 'Member States and of the Community, i) The general functioning of the inter- ,together with the general payments position national monetary system; , and shall report reg- of the Member States ii) Recourse by Member States to the ularly to the Council and to the Com- International Monetary Fund; :missions thereon. iii) Participation by one or more of the Consultation shall take place witq.in the Member States in large-scale financial assist- Monetary Committee prior to any major ance to another country, either directly by decision taken or attitude adopted by the the national monetary authorities or through Member States in the field of international international organizations

Draft decision of the Council relating to prior consultations between Member States in the event of changes in the parity of their currencies

The Council of the European Economic decides, Community, Article

Having regard to the Treaty, and in partic- ular Articles 105, 107 and 152 thereof; There shall be consultation between Mem- ber States before any change is made in the

Having regard to the recommendation of parity of their currency. the Commission dated 19 June 1962;

Whereas changes in the parity of one or Article more currencies of member countries of the European Economic Community may have The Monetary Committee shall be invited far-reaching effects upon the functioning to express its opinion as to the procedure to of the Common Market; be established for prior consultations in the event of any change being made in the Whereas close co-ordination is necessary parity of the currency of one or more of between the policies of Member States re- the Member States, and to report to the garding international monetary relations in Council and to the Comr.1ission. general and exchange rates in particular as urged by the Commission in its Memo-

randum on the Community s Action Pro- Article gramme for the second stage and by the European Parliament in its Resolution of The Commission shall be invited to make 17 October 1962 relating to the co-ordina- proposals to the Council concerning the said tion of monetary policies in the European procedure in the light of the opinion ren- Economic Community; dered by the Monetary Committee.

RECOMMENDATION BY THE COMMISSION TO THE COUNCIL CONCERNING CO-OPERATION BETWEEN THE COMPETENT GOVERNMENT DEP ARTMENTS OF MEMBER STATES IN MATIERS OF BUDGETARY POLICY

The co-ordination of monetary policies nomic development. It is therefore neces- would be incomplete if it were to be con- sary that the broad lines of budgetary poli- fined to purely monetary matters and took cy be discussed within the Community be~ no account of government decisions in the fore they are settled by each Member field of . Such co-ordination State. presupposes that the budgetary policy of individual Member States does not com- This should be done in the more general promise the joint conduct of monetary poli- context of overall economic forecasts, in cies. The same applies with regard to the the form of " economic budgets . These effects of budgetary policy on general eco- economic budgets are now drawn up every year for the following year, on as far as policy; it should proceed in close co-ordi- possible a uniform plan, and are to be grad- nation and concurrently with the work rela~ ually consolidated in an economic budget ting to the preparation of economic. fore- of the Community. In any event, the pre~ casts. paration of these economic budgets involves taking into account national budget trans- From the preliminary stage in drawing up actions, by very reason of their repercus~ national budgets there should be exchanges sions on economic development. of views in this Committee on the broad lines of the budgetary policies of the Mem- It therefore seems advisable that the con~ ber States, particularly from the angle of frontation of economic budgets should in- their repercussions on the economic deve- clude a confrontation of national budgets. lopment of the Community as a whole. This should apply to estimates of total addition, the work of the Budgetary Policy revenue and expenditure together with the Committee should go hand in hand with headings having the most breakdown into that of the Monetary Committee and of the significance as regards economic trends Economic' Policy Committee, since it It would suffice for this breakdown to show meant to provide these Committees with on the one hand, the proportion of total the necessary material for discussion on the revenue from different categories of taxes specifically monetary and economic aspects direct and indirect and, on the other of the execution of national budgets. hand, the distribution of total expenditure between government departments, transfer For the foregoing reasons, in pursuance of incomes, capital subsidies, investment by the Treaty and more especially Article government departments themselves and, 105(1) thereof, the Commission recommends finally, loans and advances. This work that the Council should set up a Budgetary could be done by a' committee composed of Policy Committee, as proposed in the draft senior officials from the Ministries of Fi- decision appended to the present recom- nance competent in matters of budgetary mendation.

Draft decision of the Council concerning co-operation between the competent departments of Member States' Governments in the sphere of budgetary policy

The Council of the European Economic decides, Community, Article

Having regard to the Treaty, and particu- There shall be set up a Bud!.Cetary Policy larly Article 105(1) thereof; Committee. The task of thi~ Committee national budgets Having regard to the recommendation of shall be to study, when the Commission dated 19 June 1963; are at an early stage of pref,aration, the broad lines of Member States' budgetary Whereas budgetary decisions have reper- policies, particularly from the point of cussions on economic and monetary deve- view of their repercussions on the economic lopment; and whereas the co-ordination of development of the Community as a whole, economic policies particularly conjunct- and to make a confrontation of these ural and monetary policies would be budgets. inadequate without co-ordination in budge- Article tary policies; The Committee shall be composed of re- Whereas it is necessary to ensure close presentatives of the Member States and of co-ordination of conjunctural and monetary the Commission, each of which shall policies and of budgetary and financial appoint a full member and an alternate. policies of the Member States, as urged by the Commission in its Memorandum on the Article Action Programme of the Community for The Commission shall co-ordinate and the second stage and by the European Par- synchronize the work of this Committee liament in its resolutions of 17 October with that of the Monetary Committee and 1962 relating to co-ordination of monetary, of the Economic Policy Committee. budgetary and financial policies in the Eu- ropean Economic Community; Article

Whereas to this end it is desirable to organ- The Budgetary Policy Committee shall draw ize such co-operation within a group com- up its own rules of procedure. Its secreta- posed of representatives of the Govern- rial services shall be provided by the Com- ments and of the Commission mission.