EXPLANATORY STATEMENT

The ten first years of the Economic and Monetary Union from the European Parliaments perspective

The European Parliament has been closely involved in every stage of EMU, from the decision to launch the currency taken in Maastricht in 1992, leading to the 1st of January 1999 when the exchange rates of the participating Member States were irrevocably fixed against the euro and the European Central Bank was created, and finally to the subsequent physical changeover in 2002. The Parliament has also taken part in all the decisions relating to the enlargement of the Euro area since its beginning.

During the first 10 years of the Economic and Monetary Union the European Parliament has played an active role. It has done this through its work in many areas, by co-legislating in the field of the internal market, in particular as relates to financial services, by being one of the decision makers in the enlargement of the euro area, by giving opinions and advice on the main macro-economic developments, by facilitating debate on current economic developments, by increasing transparency and accountability of economic policy decision-making, and by institutionalising an open and transparent monetary dialogue with the European Central Bank.

Economic policy co-ordination

As the only European Union body directly elected by its citizens, the European Parliament has worked for strengthening economic policy coordination and the implementation of the Lisbon Strategy for growth and jobs. Economic policy is an area in which the lack of transparency is particularly strong given the typically inter-governmental procedures foreseen by the Treaty(1).

The European Parliament has therefore established itself as a major player at the EU level despite the limited formal powers that the Treaty grants it. We have therefore taken the approach of requesting a more open attitude of Member State Governments towards national parliaments, the EP and social partners. In the field of the co-ordination of fiscal policies, Parliament is under current Treaty provisions consulted in matters related to the adoption of secondary legislation on the Excessive Deficit Procedure and the SGP.

Parliament has developed a variety of ways of making its opinions heard in Europe. This has been possible to an important extent thanks to the active interest that the ECON Committee has taken in bringing the Parliament to the fore.

We have sought to develop the concept of a broad-based partner-ship approach, which would include social partners, civil society and public authorities according to national traditions and practices.

ECON has established regular dialogue with those EU institutions and bodies which have a role in shaping economic policy in the Euro area and in the Union. Each semester, the incoming Council presidency (Finance Minister) is invited to present its work programme to the Committee. At the end of the six-month period, a review of achievements takes place. On both occasions, the presentation is followed by a discussion with the Committee. Another occasion of regular meetings between the ECON Committee and the Council (ECOFIN) is in the process leading to the adoption of the BEPGs as representatives of the Committee hold discussions with the Troika (the representatives of the current, previous and incoming Council presidencies).

On its initiative, the ECON committee has also organised regular exchange of views with the President of the Eurogroup. These have taken place normally twice a year. In these meeting the President of the Eurogroup has explained past discussions and decisions by the group and its future work programme. These meetings with the members of the ECON have been useful, in particularly, as the Eurogroup is an informal body without formal decision-making power. These dialogues have played a role in increasing the transparency of the economic policy co-ordination undertaken by the Eurogroup.

Within Parliament, the ECON Committee has the responsibility of conducting confirmatory hearings with the candidates to the Commission within its field of competence. In addition to the contacts between the European Parliament and the Commission foreseen by Community Law, the Committee conducts a regular dialogue with the Commissioner responsible for economic affairs. The Commissioner is invited to attend committee meetings, presenting the Commission's bi-annual economic forecasts, the report on public finance, the BEPGs and other major piece of news in the field of economic policy. The information concerning the Commission's activities and an assessment of the latest economic developments in the Member States and the Union is followed by a discussion, which permits an exhaustive exchange of views between the Commissioner and the ECON Members.

Frequent and regular contacts and discussions with representatives of the Economic and Financial Committee and of the Economic Policy Committee (EPC) permitted ECON Members to seek clarification with regard to the EFC'S and the EPCs activities and to have an interesting exchange of views.

Regular joint meetings of the Parliament and National Parliaments have played a role in helping develop a better ownership by national parliaments of the required economic policy coordination. Special attention has been given in this context to the Lisbon agenda for growth and jobs.

The Broad Economic Policy Guidelines being the key policy document for the co-ordination of economic policies, Parliament has taken steps to make the process leading to the adoption of the BEPGs more open and integrative both at the European and national level. The European Parliament has tried to contribute in an effective way by making a preparatory report and a resolution before the Commission's yearly reports on the Integrated Policy Guidelines. To increase its influence ECON has also introduced the practice of discussions with the Troika. These discussions take place after the Commission's publication of the recommendations for the BEPGs and Parliament's preparatory report on the subject. In these encounters, Parliament's overall position on key issues has been discussed with the representatives of the Member States. In parallel the Committee has prepared a second report with amendments to the Commission recommendations for new guidelines. Already during the second stage the EMU informal consultation processes were put in place and the Parliament has since 1994 proposed and negotiated more formal amendments to the BEPGs. Our institution has worked in favour for an inter-institutional agreement between the three main institutions in order to clarify each roles and timetables, but this work has not been finalised nor formalised.

In its work the European Parliament has supported the renewed Lisbon strategy for growth and jobs. It has taken the view that the strategy must add value at Community level to improve the coherence of reforms and maximise positive spill-over effects and ensure that the reform agendas, such as structural reforms and investment in knowledge, effectively result in more and better jobs throughout the European Union.

The Parliament has worked for streamlining the process of the Lisbon Strategy and the for combining the BEPGs and the Employment Guidelines into the Integrated Policy Guidelines. In addition we have closely monitored the specific guidelines for the euro area and thereby supported a closer co-ordination of economic policies.

Our institution has been of the view that the specific euro area dimension of structural surveillance associated with the Lisbon Strategy should be strengthened by including measures that are needed to improve the functioning of the EMU. A first step in this direction has been the focus on the euro area in the Commission’s Annual Progress Reports on the state of implementation of the Lisbon Strategy.

In addition the Commission's Annual Reports on the Euro Area has provided a good basis for a comprehensive discussion of the overall economic situation in the Euro area and challenges ahead. It has also allowed the European Parliament to express its views and formulate priorities on economic policies and governance.

The European Parliament has, however, regretted the weak visibility of the Lisbon Strategy in the national politics of many Member States. Our institution has therefore stressed the need of better involvement of social partners, national parliaments, regional and local authorities as well as civil society in order to ensure its effective implementation.

The European Parliament has given its support the Stability and Growth Pact as revised in March 2005. In its 2004 resolution to the Spring Council, the European Parliament expressed its conviction that an intelligent reform of the SGP is needed to bring Europe's economy more swiftly back into balance and to allow improvements in Europe's economic, social and environmental sustainability. Generally the Stability and Growth Pact has proven its value and must consequently kept in future, in order to strengthen the stability and reliability of the euro area. The Parliament has taken the opinion that sound fiscal policy must be a pre-condition for sustained growth and job creation in each Member State in line with the relevant provisions of the Treaty as common responsibility of the European Union.

Our institution has stressed the importance that all Member States, at least those belonging to the euro area, coordinate their different national fiscal calendars and base their budgetary projections on similar criteria in order to avoid disparities caused by the use of different macro-economic forecasts (global growth, EU growth, price of oil barrel, interest rates) and other parameters. The European Parliament has urged the Commission to ensure the validity of available data from Member States.

Even before the current financial turbulence and economic tension the Parliament has argued that growing global imbalances, aggregate demand and global inflationary pressure may become a significant challenge for monetary policy. Concern about the Euro exchange rate volatility that may harm the competitiveness of the European economy has also been raised during these years.

Monetary Policy and Monetary Dialogue

Ever since the project of an Economic and Monetary Union began in the early 1990s, the European Parliament, under the auspices of the Monetary Subcommittee first and then the ECON Committee, has been intimately involved in its design, development and advancement.

Already in 1992 the Sub-committee was strongly involved in monitoring and negotiating secondary legislations for the first, second and third stage of EMU and in the design of the information campaign. The European Parliament was also involved in the discussion on what kind of bank notes and coins should be issued in the interest of consumer. In particular, Parliament has played a fundamental role of oversight and control of Euro area monetary policy since this task was transferred upon the European Central Bank (ECB) in 1999.

This responsibility, enshrined in the EU Treaty, means that the European Parliament is the best placed European institution that can guarantee real democratic accountability of our central bank, an entity that, given the institutional structure of the EU, is the most independent central bank in any political system in history. Whilst the independence of the ECB must be fully respected, the Bank cannot be absolved from its responsibility to provide information on its activities and engage in regular dialogue with democratically elected politicians.

It can thus be argued that the work of the European Parliament in the field of monetary policy has been successful as regards democratic accountability. Through its reports and opinions, it defined the way for these dialogues. ECON has managed to hold the ECB accountable through its numerous initiatives and in particular, by establishing the practice of the quarterly monetary dialogues.

This accountability of the ECB has been fought hard for by the Parliament, given that the Treaty does not spell out the exact form of these dialogues. It can be argued that nowadays the European Parliament has taken on a role even stronger than that of the US Congress vis-à-vis the Federal Reserve.

Already on a report from March 1998 on democratic accountability in the third phase of EMU the Parliament called for setting out the common framework for the Treaty based dialogue between the European Parliament and the ECB on monetary affairs. The Parliament made clear that it possesses some powers in monetary affairs, in particularly, as the Treaty and the Statute of the ECSB and ECB does not only give the ECB rights but also duties.

The relationship between the Parliament and the ECB is based on the following fields of action:

(a) The procedure for appointing members of the ECB’s Executive Board;

(b) Reporting to the European Parliament; and

(c) The ECB’s publications, and especially the annual report presented to the Parliament, as well as the convergence report.

Appointments to the Executive Board can only happen after Parliament has been consulted. Thus the Parliament becomes the best-placed European institution to ensure democratic accountability of key ECB positions. The consultation process takes the form of public hearings hosted by ECON. This has proved to be the best way of obtaining the necessary information about a candidate before the EP's final recommendation. The main objective of the hearings is to learn more about the personality and views of the candidate on key economic and monetary policy questions, on how the ECB should be run and on his or her conception of democratic accountability of the ECB. Committee Members then take an immediate decision on the suitability of the candidate for the position, which is then sent for ratification to the Plenary.

There is also a longer-term purpose: this exercise helps Parliament's Members to get to know better the Members of the Executive Board of the ECB, who will have to appear routinely thereon before the Committee.

Under the Treaty(2), the ECB's President and other members of its Executive Board may, at the request of either side, "be heard by the competent committees of the European Parliament". This provision has been transformed into an outright transparency and supervisory commitment based on regular exchanges of views, established by mutual agreement upon the behest of ECON, between the two institutions. The President of the ECB or, occasionally, the Vice-President appears before a televised meeting of ECON Committee at least every three months to answer questions on the economic outlook and on the conduct of monetary policy in the Euro area. In total 38 monetary dialogues have taken place since 1999. Members of the Committee select two special topics on which special attention should be given by the President of the ECB. In preparation for these meetings, Parliament receives regular advance briefing from a panel of twelve specialist academic and other advisors (these papers and the verbatim reports of the meetings are available to the homepage of ECON). After an introduction by the ECB President, a questions and answers session has taken place. The President of the ECB has also answered to written questions put forward by Members at any time.

The annual reports of the ECB are instruments to create greater transparency in monetary policy. The ECB's Annual Reports are presented for debate in the European Parliament by the ECB President, and form the basis of parliamentary resolutions, prepared each year by ECON. It is an opportunity for Members to yearly assess the developments in monetary policy. The debates take place in the plenary session and constitute a solemn moment for the ECB President to give a broad account of the year, and to formulate future initiatives.

ECON has consistently pressed the ECB to develop, and to make public, the models and other tools of economic analysis on which its monetary policy decisions are based. Its resolution on the ECB report in 1999 called on the Bank to publish macro-economic forecasts on a six monthly basis, together with the research and macro-economic model on which these were based; and also reports on national economies (similar to the Beige Book in the United States). The following year's resolution was able to welcome the commitment by the ECB to publish both forecasts and model.

A recurrent issue concernes the transparency of decision taking by the ECB's Governing Council. The 1999 and subsequent reports have specifically called for: "summary minutes taken at meetings of the ECB Governing Council to be published shortly after the following meeting reporting explicitly the arguments for and against the decisions taken, as well as the reasoning used in reaching these decisions.", with the balance of votes also being published, but anonymously. So far, the ECB has failed to accept Parliament's arguments in this area.

The role of the ESCB and ECB in the running and supervision of the Euro area financial system is not entirely clear-cut. Already in a Parliament's resolution on the ECB Annul report from 2000 stressed "the need for close involvement of the ESCB in macro-prudential supervision" and the role of the ECB in safeguarding financial stability.

In its monetary dialogue with the ECB, the Parliament strives to encourage a better policy mix and increase the legitimacy of the monetary policy conducted. Joint dialogues between the Eurogroup, the Commission and Parliament similar to the monetary dialogue between Parliament and the ECB have also taken place.

Enlargement of the Euro area

One important facet of Parliament's legislative(3) role has to do with whether an EU Member State has qualified to join the euro area or not: the final decision rests with Member State Governments, but, again, only once Parliament has delivered its opinion. Since 1998 Greece, Malta, Cyprus and Slovenia have joined the Euro area. Next in turn is Slovakia. The enlargement of the euro area is on every single case historically important challenge both for Member State concerned and the rest of the euro area. The Parliament has therefore taken the view that the process of economic convergence of a Member State must be carefully monitored and the path towards their adoption of the Euro should be appropriate to the actual state of their economies.

In the context of the consultation procedure, the European Parliament has issued an opinion on each proposal for a Council decision in accordance with Article 122 (2) of the Treaty, i.e. for each euro area enlargement. The Parliament has also requested an earlier consultation by the Commission in order to have longer time to prepare its opinion after an in-depth analysis of the situation. An ECON delegation also went to Slovakia in early 2008, in order to gather more information before issuing its opinion.

The issue of enlargement has also been addressed at several occasions such as special report from 2006 on the enlargement of the euro area and in the context of the annual reports on the euro area and on the ECB annual report.

As for the general pre-conditions for the future enlargement of the euro area, the Parliament has always advocated strict compliance with the Maastricht Treaty's convergence criteria, and strongly opposed special provisions concerning the fulfilment of the Maastricht criteria. It has also said it believes that the long-term stability of the euro area should also be assessed in terms of its capacity to absorb new entrants. Turning to the technical pre-conditions for the enlargement of the euro area, the Parliament has asked acceding Member States to pay particular attention to consumer protection during the changeover phase, and recalled the necessity to start early and extensive citizen information campaigns in applicant Member States.

Our institution has also set special requirements for applicants for accession, pointing out that a premature accession to the Euro area might lead to unexpected developments in the economic convergence process and that the enlargement of the Euro area facilitates economic convergence process and contributes to strengthening of the Euro area as a whole.

Euro communication strategy

The Parliament has expressed its views on the implementation of an information and communication strategy on the euro and EMU, noting as soon as 2005 that the apparent unpopularity of the euro among certain citizens was in contradiction with the fact that the euro is possibly the most successful European project ever launched. It has been of the view that the single currency remains a communication priority for the EU, believing that the benefits of the euro must continue to be sold and explained to the public at length. Parliament has in this respect called for a series of specific actions to foster the acceptance of the euro.

Financial Market integration

As a legislator and policy maker the European Parliament has had a major role in the integration of the financial markets in the European Union. Our legislative work has focused upon delivering an integrated market for the benefits of the consumers. The Financial Services Action Plan adopted in 1999 was finalised in 2005. The work has, however, continued since with the needs to respond to market developments or shortcomings. Only to mention one topic in particular, the European Parliament fought many years for an aligning payment charges throughout the euro area and a regulation was finally adopted in 2001. In addition to this work to establish a Single Euro Payment Area (SEPA) the legislative work has covered insurance services, such as reinsurance and solvency, banking services, such as capital requirements, securities markets, such as investment services, and supervisory and regulatory issues in general in the framework of the Lamfalussy process. The Parliament have been very active in setting up the Lamfalussy framework in order to improve financial market supervision and regulation. It has it this process made sure that it has the same powers as the Council both being the legislators. It has also worked for making this process more transparent on all stages.

External representation of the euro

Whether there should be an exchange-rate policy for the Euro, and, if so, who exactly would be responsible for it, have been more or less open questions. The Treaty is not clear in this respect. Nor is it clear who can speak for the Euro area at international level: the ECB President, the Commission, the Council Presidency or the Euro-group Presidency (where this differs from the Council Presidency). Parliamentary reports have therefore called for "enhanced representation of the Euro zone in international policy-making institutions", and for "the selection of a single representative of the Euro area".

According to the views taken by the European Parliament the European Union and the Member States have a shared responsibility for addressing the challenges, opportunities and uncertainties facing citizens as a result of globalisation. Our institution has supported the view that the external dimension of the internal market needs to be developed.

The European Parliament has stressed that further steps would be needed before the external representation of the euro area would commensurate with its growing importance in the global economy. Parliamentary reports have therefore called for "enhanced representation of the Euro zone in international policy-making institutions", and for "the selection of a single representative of the Euro area".