This report marks a sort of new departure for the Joint Committee in that it sets out to examine a matter which has fundamental policy implications for the EEC, both now and in the future. As a result no attempt was made to reach a consensus about policy in the report. In Sub-Committee we examined the implications of a change of policy and debated the implications of putting greater emphasis on monetary policy as part of the development of economic and monetary union in the EEC, as we were invited to do by Mr. Jenkins, the President of the EEC Commission.
The report sets out to trace the background to the development, or the attempt to develop an economic and monetary union within the EEC over the past decade. It indicates what the Werner Report recommended in 1970, which was to put emphasis on the need for monetary union and the need for the co-ordination and some sort of convergence of economic policies. But very little was achieved. Acting on the Werner Report the Council adopted a three-year programme of action which did not result in the envisaged degree of harmonisation of economic policies of the Member States. The report succeeded in some respects as there was some movement in monetary policy, in that the so-called " snake " was introduced in 1972 in relation to some Community currencies. This involved a narrowing of fluctuation margins for exchange rates between Community currencies. It led also to the setting up of the European Monetary Co-operation Fund in April 1973. Schemes for the provision of financial aid to Member States with short-term or medium-term balance of payments problems were also set up.
The second stage of this, which was due to start in 1974, was postponed because of lack of agreement on regional and other structural policies. As we all know, there is still a lack of agreement on effective regional policies in the EEC. Following on that, we had the Marjolin Report in 1974. Their findings highlighted other causes for the lack of progress towards EMU. There was a weakening of political will and insufficient understanding of what EMU entailed and what was necessary for its achievement.
In Sub-Committee we also agreed among ourselves that there seemed to be a lack of political will and insufficient understanding of what EMU entailed.
The Tindemans Report, which was published in 1975, suggested that some countries might progress at a faster rate than others. This gave rise to a reaction, in that people did not like the notion of a two-tiered EEC.
At about the same time Mr. Tindemans said that a regional policy would have to expand gradually in step with progress made in aligning the economic and monetary policies of the member countries. He appeared to view the extension of regional policy as a corollary of progress towards EMU rather than as a precondition for such progress. We were influenced at this stage in our thinking by the so-called " All Saints' Day Manifesto " which referred to an alternative approach to the securing of economic and monetary union: that was that emphasis should be put on the parallel currency approach.
After the Tindemans Report the next most significant development was the speech by the President of the EEC Commission, Mr. Jenkins, in Florence in 1977, in which he put forward the view that more emphasis ought to be placed on the monetary aspects of EMU. Mr. Jenkins advanced seven arguments in favour of monetary union, namely: (i) monetary union favours a more efficient and developed rationalisation of industry and commerce than is possible under a customs union alone; exchange rate risks and inflation uncertainties make it impossible to plan a rational European dimension to enterprises; (ii) the advantages of creating a major new international currency, backed by the economic spread and strength of the Community, as an alternative to the dollar; (iii) monetary union would lead to a common rate of price movement, and achieve a decisive break with present chronic inflationary disorder in the Community; (iv) monetary union would highlight the need for better institutional arrangements; (v) monetary union would assist in the regional distribution of employment and economic welfare in Europe; (vi) financial policies are needed to support the integration of the European economy and the maintenance of a regional policy, and (vii) monetary union offers itself as a vehicle for European political integration.
The Commission in its communication of 17 November 1977 proposed a five-year plan, involving annual decisions on specific matters by the European Council. This plan appeared under three main headings: the convergence of the economies of Member States, the establishment of a single market, and structural and social changes. In the monetary area the Commission proposes the increased co-ordination of monetary of monetary and exchange rate policies setting individual objectives; a Community-wide exchange rate mechanism; a strengthening of the mutual aid schemes, together with a strengthening of conditionality; an examination of the idea of a parallel currency; the liberalisation of internal capital movements; and the elimination of monetary compensatory amounts.
Our Sub-Committee decided in its examination of the Commission proposals to look at the idea of a parallel currency approach to European monetary integration because we felt that most people understood the notion of a currency whereas things like economic units of account, as units of measurement, changes in policies, " snakes " and movements of capital were things the ordinary person would not understand. Most people would recognise the fact that if they had a new currency note in their hands which carried a certain value and a certain guarantee it would make some sense to them. We followed that as a means of trying to understand what the implications would be for a change of policy in that regard. We spell out in the report what might be achieved if the notion of a parallel currency approach to European monetary integration was followed.
We are not alone in this regard because, since the " All Saints' Day Manifesto ", many eminent economists and groups in Europe have been looking at it. As we say in the report, the Taoiseach—in his statement to the Dáil dealing with the meeting of the European Council in Copenhagen—felt that the endemic monetary instability of recent years played a large role in creating the problems from which we suffer. We discussed with a number of people the possibility of this parallel currency approach. We saw that it had many advantages and these have been spelled out in the report. There are two kinds of currency mentioned in the report, one was the so-called " Eurostable " which was advocated by the Société d'Economic Politique. They have been working on this and advocating it for some five or six years. Certain advantages which Dr. Vaubel of Kiel University, who was in Ireland recently, regards the parallel currency approach as possessing are referred to also. It might be useful to reflect on some of these for a moment. As the Committee will gather, the idea is that as well as existing national currencies, a new currency would be introduced which would be called the Europa. This currency would be linked to a basket of existing currencies and would be so arranged, as the consumer price index moved in the various member countries, that it would be adjusted so that it would have a constant purchasing power. It was felt this would have a big influence in controlling or moderating the inflationary movements in Europe and would probably also bring into relief the action that has to be taken by Governments effectively to help to control inflation.
Therefore, the parallel currency approach would operate without foreign exchange interventions and without the hazards of international agreements on national rates of money supply. It triggers an automatic mechanism which works without political discretion because the market place will determine its supply. It provides a common standard of value. It has all the political and economic advantages of gradualism, that is, the change can move at a rate which is determined by the acceptance in the market place of this new currency. It does not ask for the over-night replacement of national currencies. It just introduces a new one. Gradually there will be a shift into the new currency from national currencies and, after a while, new approaches and policies would emerge. It permits the speed and pattern of currency unification to be determined by the needs of the market. It avoids the temporary unemployment created by the downward harmonisation of inflation rates. It discourages competitive inflation and devaluation. It makes it impossible—this is what Dr. Vaubel says—or perhaps difficult for Governments to use inflation as a way of augumenting tax receipts. It avoids national rivalries and hegemony and gives Member Governments a consistent incentive to accept and desire currency unification.
Obviously it would not have been possible for us in the Sub-Committee to get agreement on any policy of that kind but we examined it and I think it improved our understanding of the situation. Our conclusion is that we feel this matter is important enough to be debated further. President Jenkins invited Members of Parliaments throughout Europe to do so. This, if you like, is our contribution to the debate. It has implications for Ireland in that, since Ireland has an equal voice at the tables of Europe, there is no reason why we cannot use our voice to put forward policies which we think will be useful to us as well as being useful in terms of the ultimate ideal of a united Europe. I feel that EEC economic agencies have failed, over the decade, to produce a real convergence of national economies and that is why we do not have an effective regional policy. Serpentine analogies, like " snakes " and " boas " have not really helped. Inflation continues to be a threat. Exchange rates are bobbing about like boats in a maelstrom and regional policy is like the Scarlet Pimpernel, it eludes us all the time. Perhaps the note in the hand would be the answer. Perhaps our representatives at the policy-making tables of Europe should follow this. It might help to realise some of our needs more quickly than the policies we have been following in the past.
Recent " follow-my-neighbour " interest rate adjustments are another feature of the undesirable situation that exists. Every time the gnomes of London get worried about sterling flows and hiccup, Ireland must follow suit. It seemed to me that if a more effective monetary system existed then Ireland would not have to move its interest rates in line with UK developments because of the monetary union we have for all kinds of reasons with that country. Clearly a great change of attitude would be required by central bankers, civil servants and politicians before new ideas of this kind could be adopted. What I am concerned about, and what the Sub-Committee was concerned about, was that just because there were some technical features to this it should not be put aside because people do not want to think about it or to give time to attempting to understand it. We gave some time to attempting to understand it and would like to encourage other parliamentarians in Dublin to examine it, to think it through and to come to their own conclusions as to whether or not monetary union should not get more emphasis in the evolution of economic and monetary union.
