Year XXVII, 1985, Number 2, Page 110




The growing success of the ECU in the private sector has given new life to a stream of proposals which, by a series of technical improvements in issue and circulation methods, are designed to increase the ECU’s use and acceptability.
Some of these proposals have been accepted and were, in fact, promptly implemented by the market. Others have been jointly approved by member States. They include the amendments approved in mid-April in Palermo by the EEC financial ministers on using the ECU as part of the Community’s exchange mechanism in inframarginal interventions, authorising other countries’ central banks to hold official ECUs as reserves, fixing the interest rate for official ECU deposits on the basis of the market’s interest rates, and abandoning the ECU’s ties with official discount rates, which are less appealing than market rates.
Other suggestions, which were not immediately taken up, are nevertheless food for thought and, indeed, hold out the promise of new progress on the road to European monetary unification. Particularly noteworthy among these are plans to encourage wider use of the public sector ECU as a step towards closing the gap in the ECU’s two uses.
After the ECU’s successful acceptance by the private market, there are two crucial issues, among many others, which will have to be solved to create a truly European currency. Both relate to matters mentioned above. The first is the need to keep a tighter control over the official ECU, making it less erratic, and ensuring, in particular, that it is closely linked to the Community’s budgetary policies. The second is to overcome the current dichotomy between official and private ECU, because no true currency can have two parallel but unconnected circuits. One possible link between the two circuits of the ECU might well be the EEC budget, through which money flows are directed towards the Community’s network of agents.
Today, the Community budget disguises as ECUs what is, in fact, finance coming from member States in national currencies. This finance is returned to them in national currencies as payments. If the Community budget collected funds and redistributed them to the various beneficiaries in ECUs, or in a foreign currency denominated in ECUs, rather than merely recording finance in units of account, then the dichotomy between the two circuits would be eliminated.
J.P. Planchou, a socialist deputy from Paris and director of the Club République moderne, in an article, arguing along these lines, which appeared in the economic supplement of “Le Monde” on January 15th,[1] puts forward an interesting proposal.
With a view to creating a “monetary shield” which would give greater autonomy to the European area, Planchou suggested that, as well as taking numerous measures designed to increase the official and private use of the ECU, the member States should float joint loans, subscribed to and quoted on the different markets and should issue Treasury Bonds in ECUs, revenue from which would be distributed among the member States. The second proposal, if properly interpreted, might well lead to important developments in monetary integration.
But these suggestions have only been roughly outlined and really need numerous qualifications to be fully assessed. For example, despite the ambiguous reference to loans issued simultaneously by various governments, it is implicit that a Community body would have to take charge of issuing ECU Treasury Bonds and sharing out the funds raised among the member States using some, as yet, unspecified criterion. Equally, if ECUs are collected in this way, they would presumably consist of foreign currency denominated in European units, otherwise there would be no point in using a formula already adopted in Italy (where the Treasury has for some time now issued Credit Certificates in ECUs) and nor would there be any sense in distributing the revenue among the member States.
However, if our interpretation of Planchou’s suggestions is correct, then, once implemented, this proposal would have the merit of opening up the way for an intermediate form of European budgetary policy, with a considerable degree of autonomy vis-à-vis national policies.
Until conditions permit the development of a truly European budgetary policy including deficit spending financed by a fully-fledged European currency, the creation of European Treasury Bonds, to be used for purposes collectively approved within the EEC, would certainly be a step forward as compared with the current situation, where at the very best we can talk about an embryonic European fiscal policy.
Even more interesting is the suggestion made by the Italian economist, Ezio Tarantelli,[2] for “an ECU for the unemployed” designed to fight against unemployment and relaunch growth in the EEC by means of concerted action among the member States. Ezio Tarantelli was recently killed in a terrorist attack for which the Red Brigades claimed responsibility and was known both in Italy and Europe for his suggestions for creating a European Incomes Policy (EIP), as a step towards relaunching monetary unification and furthering the EEC’s integration.
Tarantelli believed that, through a revamped European Trade Union Confederation, the trade unions in the member States ought to harmonize wage and labour policies on a yearly basis so as to unify inflation rates and stabilize exchange rates between European currencies.
In this way, one of the conditions required for the existence of a Community currency would be achieved, even though, obviously, before this could effectively circulate within the Community, other conditions would need to be satisfied, first and foremost joint control of the growth of public expenditure in the member States, another significant factor explaining the different inflation rates in the various countries.
Against this solid and stimulating theoretical background, shortly before his tragic death, Tarantelli suggested that the Community should take steps to print ECUs and distribute them through the Social Fund to the member States according to the number of unemployed in each country.
The issue would be the responsibility of the European Fund for Monetary Co-operation and the sums made available in the various countries would be used to encourage productive investments or to support employment directly by a number of measures.
In a series of articles taken up by other authors, the proposal is debated in such great detail that it is impossible to summarise or comment on it here.
To give a more precise picture, we may merely add that the ECU for the unemployed would be issued in exchange for Community budget contributions paid by the member States in national currencies. Hence, as well as having no inflationary impact, this would make it possible to lessen the constraints that the balance of payments places on intra-Community relationships. Moreover, the ECU for the unemployed would make joint EEC reflation possible, thus enabling the hard core of unemployment to be gradually reduced within a reasonable time scale.
Two requirements are catered for by the creation of an ECU for the unemployed and by Planchou’s proposal for the issue of European Treasury Bonds. But they also raise a problem.
In the first place, both suggestions are designed to create a link between Community monetary policy and fiscal policy, a first step towards overcoming the embryonic state they currently have. They contribute to shaping efficient Community instruments, able to control the European economy and counter the ever-present risk of the Community’s splintering up. What is required today to get Community integration out of the doldrums in which it has been stuck for far too long, is relaunching monetary unification together with a consistent increase in the Community budget. The first is necessary to guarantee the continued existence of an integrated market and to increase the degree of integration achieved, putting the immense potential for integration which has not yet been exploited to good use. The second is vital for the harmonisation of the member States’ economies, bridging the gaps between the central and peripheral areas of the Community. As the Mac Dougall Report[3] has clearly shown, a Community budget of 2 to 2.5% of Community GDP would make a considerable reduction in the disparities in income existing among the various regions of Europe possible and would certainly reduce economic fluctuations within the EEC. The data presented in the Mac Dougall Report show that the redistribution effect on the disparities in the standard of living between the member States (which is today no more than 1 to 1.5%) could reach about 10% if there was an increase in the Community budget, or a transfer of expenditure, equivalent to 0.7% of overall Community GDP from the national level to the European level. Much still remains to be done as regards these objectives: even with the imminent increase in VAT earmarked for the EEC budget, the size of the EEC budget vis-à-vis Community GDP will still be less than 1.5%. But an employment support programme like the one Tarantelli proposed would increase this to over 2%, exceeding the critical level indicated in the Mac Dougall Report.
The second requirement catered for by the proposals examined here is how, in a short space of time, to relaunch demand in the member States and reduce Europe’s current unemployment to less traumatic levels. An entire generation is running the risk of remaining permanently excluded from the labour market if the Community countries fail to agree on placing the fostering of employment first on their list of collective preferences. Certainly, a Keynesian policy of employment, after the crisis manifested by the Welfare State, is not sufficient and it will be necessary to resort to active policies in this sector, such as the transformation of the Social Fund into a European Work Agency linked to a regional network of agencies, which act as suppliers of employment in the last resort. But meanwhile, if the rate of growth stays down at the current 2 to 2.5%, it is difficult to see how unemployment could be brought down in a reasonably short period of time. If we recall past attempts at unco-ordinated reflation, blocked a couple of months later by balance of payments problems, then it is clear that the relaunch which Europe needs will only come as a result of a concerted effort – for, as the Albert-Ball Report[4] stresses, the “Community efficiency multiplier” makes it possible to obtain growth rates which are 2 to 4 times better than alternative individual action and trade and balance of payments results that are from 1.2 to 3 times better.
As we hinted above, the two proposals raise a problem. What are the institutional prerequisites needed to enable these steps forward in European monetary and fiscal policy to be carried out?
History allegedly teaches that the birth of a currency has often preceded the establishment of the Central Bank controlling its issue and circulation. This is Triffin’s argument.
I have my doubts that faith in spontaneous market mechanisms is justified today. In any case, it would be necessary to clarify in what way the relationship between the instrument’s efficiency and the autonomy of the economic policy centre responsible for managing it is to be established.
In a complex and articulated world like ours, and faced with a heavily imbalanced institutional system favouring the member States, relaunching monetary integration and strengthening the EEC budget both require proper reform of the Community institutions. In the first case, it means the passage to the second stage of the European Monetary System and the creation of the European Monetary Fund. In the second case, it means the development from EEC to European Union with the concomitant strengthening of the Community budgetary authority, the European Parliament, and of the body responsible for managing the Union’s fiscal policy, the Commission transformed into a true European government.
Franco Praussello

[1]J.P. Planchou, “Renforcer le SME en le rendant plus souple pour mieux résister au dollar”, Le Monde, 15 Janvier 1985.
[2]E. Tarantelli, “Lo scudo dei disoccupati”, Politica ed Economia, n. 2-1985; E. Tarantelli, “Come fabbricare lo scudo”, Politica ed Economia, n. 3-1985.
[3]Commission of the E.C., The Role of Public Finance in the European Communities (Mac Dougall Report), Brussels, 1977.
[4]M. Albert, Un pari pour l’Europe, Seuil, Paris, 1983.


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