Alexandre LAMFALUSSY, from 1994 to 1997 was the founding president of the European Monetary Institute in Frankfurt, forerunner to the European Central Bank. In November 1993, Alexandre LAMFALUSSY appears before the Monetary and Economic Affairs Committee of the European Parliament in the procedure of the appointment of the President of the EMI.

debate

Committee on Economic and Monetary Affairs

European Monetary Institute

LAMFALUSSY, Alexandre (FR)

Debate with Alexandre LAMFALUSSY, nominated President of the European Monetary Institute - Committee on Economic and Monetary Affairs

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SOUNDBITE (English), Alexandre LAMFALUSSY, nominated President of the European Monetary Institute, It is a great pleasure for me to appear today before your committee in order to respond to the member's question in the context of the new procedure of appointment of the president of EMI. I would like to see again with that I am deeply honoured to have been nominated as president by the heads of state and government at the last meeting on the 29th of October recommendation of the committee of governors and after endorsement of this recommendation by the council.

The establishment of the EMI is an important step marking the end of thetage 2 of the process towards economic and monetary union. Although some of the tasks assigned to the EMI which were formed in the past by the Committee of governance and the European monetary cooperation fund. The treaty and the EMI statute conferred upon the institute a wider range of tasks and functions and leave them firmly to the ultimate goal of monetary union.

It is in particular this clear orientation and ambition of EMI which distinguishes its from its predecessor, which is still this is the committee of governors and it is with this objective in mind. EMI will have to fulfil the four basic tasks and functions stated in this manner.

May I just in my own words tried to sum up the needs of our missions. Firstly at EMI that actively promote cooperation among community central banks. This will involve efforts not only to strengthen the coordination of national monetary policies, we gave of ensuring the best stability, but also to monitor the functioning of the European Monetary System. In addition the EMI facilitate the use of ECU and oversees development including the smooth functioning of the ECU clearing system. That's the first step.

Speaker: The second area of the mandate is the preparation of the framework for conducting a single monetary policy has from the beginning of stage 3. Now that means the design of the appropriate strategy, operating procedures and monetary policy instruments, as well as the various auxiliary but essential aspects such a deficit reduction distribution of banknotes and payment accounting and information system requirements.

Thirdly the EMI has a number of various advisory functions. And fourthly I am able to form certain operational functions which arise partly from his taking over the tasks of the European monetary cooperation fund but also partly from his right to hold and manage foreign exchange reserves as an agent forward and at the request of national central banks.

These are the four groups of the same. Now before saying a few words about what I consider to be the most urgent tasks in the near term let me briefly comment on the nature of Stage 2. Since this is an important bearing on the character of the EMI and the role it should be expected to play facilitating and organising the transition to the single monetary policy.

It wasn't recognized in the Delors Report but and the Intergovernmental Conference which negotiated the Maastricht Treaty that the transfer of monetary policy competences presents perhaps the single most difficult task on the way to economic and monetary and read away the challenge this represents. And neither during my participation in the work of Delors committee there was one or two annexes which I contributed to that report. Nor in my public statements since then have I conceved my apprehensions concerning the smooth functioning of the period of transition to.

This is a difficult staging because on the one hand it is explicitly acknowledged in the document that the responsibility for monetary policy remains with the national monetary authorities until stage 3. On the other hand at the latest at that moment, all the conditions for a smooth handover of monetary authority to the central bank must be firmly in place.

Now this means that without infringing on national monetary policy autonomy the EMI must succeed in preparing the ground for the single monetary policy in such a way that on the Eve eve of stage 3 a state of readiness is reached which eliminates major risks of failure. This is a very complex and challenging task which implies of course putting in place the necessary technical prerequisites but it involves more than that.

It is arguable that this state of readiness can be accomplished only if such a high degree of monetary policy coordination has been achieved prior to stage 3. But in practice a common monetary policy stance emerges in the community before the step to a single monetary policy state.

I should like at this stage to make a point which I regard personally quite important and which leads me to consider the EMI task in the near future. Enhanced monetary policy coordination among member states is a desirable as a means of stating goals as smoothly as possible. to our stage 3. But it is also desirable objective the way it is which would make it an acceptable policy approach even for those who harboured doubts about the prospect of reaching Stage 3 within a reasonable time horizon.

The point is this, more effective monetary policy coordination, indeed more effective cooperation regarding global policy mixes is an absolute prerequisite for safeguarding the proper functioning of the single market.

Let me just elaborate on this. The widening of the *** plus minus 15 percent is a fact which has radically changed the environment for conducting monetary policy. It may have been an unavoidable lesson and then a general suspension of the obligations. It May have prevented exchange market operators from continuing to make safe one big bets at the expense of monetary authorities.

It may have given a breathing space to governments and central banks enabling them to do some hard thinking about future exchange rate arrangements and the ways and means of preventing it. But this breathing space should be used effectively or I do not believe that in a longer perspective the efficient and safe operation of the Single Market is compatible with acquis I won't exist.

Without some sort of exchanges debate and I deliberately use this broad expression, we shall not be able to achieve the main purpose of the single market which is large scale productivity gains resulting from better allocation of European resources.

Speaker: And if major exchange rates move misalignment good to emerge as they often did in the past with floating currencies I would fear for the survival of the single market. This is not a forecast. It's an expression of a concern. Whatever exchange rate arrangements we should be on for the future, what are the steps we can devise to implement them. Neither the functioning of any such arrangements nor indeed the implementation can be secured without an effective coordination or stability oriented monetary policies.

This may not be a sufficient but it is an absolutely necessary one whole realm which will not be easy to meet. The wide margins have removed both the traditional point of reference and the constraint implied in the pre 1992. We are closely coordinating policies. Moreover as I mentioned in one of my answers to the questions, monetary policies will need the support of the global policymakers in their never to achieve stability.

Now the Monetary Institute can and should play a constructive role in promoting this policy essentially coordination must of course be aware that EMI will only provide the institutional structure for this COREPER. It will not be actively involved in monetary policy operations nor will it possess specific powers to enforce globally coordinated monetary policies. You may regret it but this is part of the of the treaty.

The instruments and means available to EMI are analysis and persuasion. And it is therefore of the utmost importance that the institute succeeds in establishing its credibility on the basis of its own research and will reason economic opinions and recommendations.

Cooperation and coordination on monetary policy is thus ultimately rest with those with the responsibility for policy decisions. The EMI however can and will play its part in two ways, as an honest broker between the national central banks and also as a provider of ideas and initiatives.

Now very short remarks, strong efforts will have to be made to establish a fully operational EMI seats in Frankfurt. However for obvious practical reasons and this final remark, the EMI will be presenting two reports each year. A progress report on the preparations for stage three and an annual report on this act forming the public of the most endeavours in promoting more closely monetary policies. And at the same time the release of these reports may offer the opportunity for an exchange of views with members of the European Parliament in the framework of duty.