A euro of many voices


The euro

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WHO will manage the euro’s international relations? Who will represent the euro area in such international clubs as the G7, the IMF or the OECD? The answer has long been unclear. The euro’s monetary policy is decided by the ECB, whose sole goal is domestic price stability, while fiscal policy remains almost wholly a national concern. Bank supervision is a national responsibility, and the ECB’s role as a lender of last resort is opaque. Meanwhile, responsibility for exchange-rate policy is messily divided between national governments and the ECB.

Thus the governments, through the Council of Ministers, have retained the right to join formal exchange-rate arrangements (such as, say, a system of target zones) as well as to formulate “orientations” for the exchange rate. In the absence of any such formal arrangements, the euro-11 club of finance ministers may, in exceptional circumstances, provide general guidance on exchange-rate policy, although they have already said that they are not likely to intervene much. So it may, by default, fall to the ECB to watch the euro’s external value, in the context of its monetary policy.

Confused? Imagine how Robert Rubin, America’s Treasury secretary, must feel. Whom does he call at a moment of global crisis? At least three people, according to the latest proposals from the European Commission. Earlier this month, the commission suggested that, with the arrival of the euro, the euro should be represented abroad by a biblical-sounding “trinity”, consisting of representatives of the council, the commission and the ECB. The council representative would come from the country currently holding the rotating six-monthly presidency of the EU—unless that country is not a euro-member, as when Sweden holds the presidency in the first half of 2001, when the trinity will look to the next euro country in the presidency, in this case Belgium.

What about the G7 (and by extension the IMF)? The commission accepts that only sovereign governments can formally belong; and Germany, France and Italy seem to have no intention of ceding their places. But it would like the trinity to be represented too. The trouble is that Europe is already over-represented (four out of seven G7 members, for instance; and as much as 30% of the IMF’s capital). And how, in any case, to ensure that the trinity speaks with one voice, not with the usual European cacophony? The commission lamely suggests that “effective prior co-ordination” would be vital. It even proposes that a secure video-conferencing link should be set up between the parties. In the meantime, telephone calls, whether from Mr Rubin or from anybody else, will presumably be put on hold.