Introducing the single currency: Commission calls for discussion and action

"By the end of the century, Europe will have a single currency. It will be strong and stable. This is the wish of its leaders and peoples in signing and then ratifying the Treaty on European Union." These opening words to the Green Paper contain three of its most important messages.

• the single currency will be in place by 2000
• it will be a strong and stable currency in its own right
• all Member States of the European Union are committed to this objective

The Green Paper is essentially a discussion document, and therefore it does not lay down a hard and fast approach. The Commission wants reactions from member governments, the European Monetary Institute and the Union's central banks, the banking and financial sector, consumers and other organisations affected by the change.

The Green Paper has three objectives:

• to remove as far as possible the uncertainties still surrounding the changeover to the single currency
• to demonstrate that the transition to the single currency is technically feasible
• to launch a discussion leading to an early consensus on how to encourage public acceptance of the changeover

Contents

The Green Paper is organised in an Introduction and four parts:

• the Introduction recalls the advantages of a single currency, summarises the economic and monetary union provisions of the Treaty on European Union and explains the document's objectives
• Part One outlines the transition scenario preferred by the Commission
• Part Two deals with the role of the different operators: the banking and financial sector, public administrations, enterprises and consumers
• Part Three discusses the legal framework for the ECU
• Part Four sets out an approach to fixing communications strategies.

WHY DO WE NEED A SINGLE CURRENCY ?

Five advantages to the citizens are Europe are identified:

• a more efficient single market after disruptions to trade and investment by exchange-rate adjustments have been eliminated
• growth and employment will be stimulated by better borrowing conditions and a currency based on sound economic foundations
• an end to the costs of converting between currencies
• greater international stability by means of a new currency on an equal footing with the dollar and the yen
• monetary sovereignty regained through collective management of a single monetary policy. A national monetary policy is no longer a sustainable option with capital flowing freely between interdependent economies.

THE CHANGEOVER SCENARIO

The Commission believes that the scenario must have certain characteristics:

• it must allow sufficient time to win popular acceptance
• it must be flexible enough to allow different speeds of adjustment between currency users and to allow market forces to operate
• it must be efficient and not impose unnecessary costs
• it must respect the legal provisions of the Treaty
• it must be credible and incapable of being reversed by unforeseen events

The Commission comes to the conclusion that a scenario in three phases satisfies these criteria:

• Phase A. The European Council decides to launch the single currency and identifies the countries which will participate
• Phase B. Not more than 12 months later, Economic and Monetary Union is effectively launched with the irrevocable fixing of parities. As soon as possible, a "critical mass" of financial activities would be established in the single currency based on the single monetary policy and the issue of new public debt
• Phase C. Not more than 3 years after the start of Phase B, the transition would be completed with the rapid introduction of notes and coins.

The Commission says the advantages of its proposed scenario are:

• it is sensitive to the needs of Europe's citizens by allowing sufficient time for public education in the advantages and use of the single currency
• it is pragmatic, practical and minimises costs for all economic operators
• it is robust, credible and irreversible, drawing strength from a strict application of the convergence criteria and critical mass
• it responds to the needs of the banking community by keeping parallel circulation of national and single currency notes and coins to a minimum. Banks will not face the costs and difficulties of maintaining double accounts, and they will have enough time to make the necessary changes to their computing and other systems
• it respects the Treaty, which calls for the "rapid introduction" of the single currency

Invitations to respond

The section of the Green Paper dedicated to the role of major currency users is an attempt to indicate some of the main areas in which they will have to make adjustments. It is not intended to be an exhaustive analysis, but it is a call to action, stressing the limited time available and the competitive and efficiency advantages to be gained from early preparation.

Seeking to stimulate action, the Commission invites:

• the banking and financial sector to present their views by the end of the year on the issues raised, particularly the proposed transition scenario and how to translate it into a changeover plan for the banking and financial communities
• other Community institutions to establish working groups to examine the implications of the introduction of the single currency
• national public administrations to establish working parties to plan the legislative and administrative measures required for the smooth introduction of the single currency. Progress and findings could be reported to the Commission by December 1995. Member states should also consider whether a national steering structure for the changeover is needed
• public administrations and utilities to start dual display of prices from the beginning of Phase B. This could apply, among other things, to bills for gas, electricity, water and tax statements
• enterprises, representative and professional associations, including Small and Medium Enterprises to examine the implications of the changeover for their particular activities. They could set up working parties to distil reaction to the Green Paper and chart the necessary adjustments. Member States are urged to coordinate the activities of private enterprises and organisations to avoid duplication of work and encourage the sharing of ideas.
• consumers to provide comment and additional information that would help in developing policies for a smooth changeover for consumers

Legal Framework

There is a need for complete legal certainty to be established well before the start of monetary union at Phase B. The Green Paper says that legislation will be needed to ensure the legal continuity of contracts and to clarify national definitions of legal tender. The Commission is examining the need for Community legislation in other areas such as legal protection against counterfeiting and the rounding of prices.

Member States are asked to report by December 1995 on the legislative changes required to ensure that the single currency can be used on the same basis as the national currency from the start of Phase B. For its part, the Commission will present draft proposals for the legal framework needed at the Community level by the spring of 1996.

Communications

Winning popular support and stimulating technical preparations are identified as the two core objectives of communications strategies for the Union as a whole, and for individual Member States. Although Community institutions will be active in both launching and coordinating initiatives, prime responsibility for information and communications will lie with Member States, who should decide how best to organise themselves for these activities.

The Commission will emphasise the communications priority by organising a Round Table in the autumn if all public and private interests involved in the changeover to discuss objectives and strategies, including organisation and the sharing of responsibilities.

Before this event, Member States are invited to establish a contact point to which currency users can address questions on EMU and offer comment on issues raised in the Green Paper.