WRITTEN QUESTION E-1716/01

by Erik Meijer (GUE/NGL) to the Commission

(14 June 2001)

Subject: Possibility of restoring economic stability following the introduction of the euro through the adoption of different interest rates

1. Can the Commission confirm that since 1999 it has been impossible for the then 11 and currently 12 Member States preparing to introduce the euro on 1 January 2002 to reduce the difference in their economic growth rates through the adoption of different interest rates?

2. Does the Commission not consider that the European Union runs the risk of encountering the same problems as the USA where since 1913, when the Dollar was introduced as the common currency, it has become apparent that it is difficult to bring regions with a strong economy and those with a weak economy closer together since the economy cannot heat up and cool down at the same time?

3. Assuming that both policy and composition of the Union remain unchanged after 2006, what would be the repercussions of irregular growth as referred to in paragraph 2 for the least favoured regions and, consequently, for the various regions' entitlements to Structural and Cohesion Fund assistance?

4. What possibilities does the Commission see following the introduction of the single currency for the restoration of economic stability through the adoption of different interest rates in different regions?

5. Should the possibilities for different interest rates in future be limited, what alternatives does the Commission envisage in order to achieve the same advantages as those which could be enjoyed were the possibility to set different interest rates to be maintained?

Answer given by Mr Solbes Mira on behalf of the Commission

(18 September 2001)

1. The Commission confirms that it has been impossible for the Member States participating in Stage III of the Economic and Monetary Union to adopt different interest rates since 1 January 1999. According to the EC Treaty the European Central Bank (ECB) has full responsibility for monetary policy and sets interest rates for the euro area as a whole. While money market rates are uniform throughout the euro area, small differentials prevail for long-term interest rates mainly reflecting market size.

2. The Commission is carefully watching all risks possibly linked to the introduction of the euro. In doing so the Commission is also taking into account pieces of information from monetary history that could matter for the economic analysis of the euro area. Concerning comparisons between the euro area and the United States there is a consensus among experts that stories found in the United States are of limited relevance for the euro area, because the set-up (e.g. federal state and budget) and the structures (e.g. labour mobility across all areas, common language) are rather different.

3. In general, if an economy grows at a lower rate than another one and if both display the similar population growth, per-capita income will also grow at a lower rate. Obviously, if this economy had already the lower income, the discrepancy will increase. But past experience shows that the least favoured regions benefited from higher growth. This catching-up process is triggered by Community policies and instruments, in particular by structural policies.

4. At no time since the introduction of the euro the Commission has found evidence for the absence of economic stability: the Community economy has been growing in all years, inflation has been moderate, unemployment has been on a falling trend and other indicators support this interpretation. Thus, there is nothing to be restored. However, the Commission is carefully watching macroeconomic differences across the Member States at different levels (documentation may be made available upon request). In doing so various types of differences have to be distinguished. Not all of them are necessarily unwarranted, some might even be necessary and triggered by Community policy (e.g. stronger growth in lagging areas).

5. Without any possibility left to determine interest rates to match the needs of single Member States, other measures have to be chosen (e.g. fiscal policy, structural policy, wage adjustment). Such measures can tend to affect the profitability of investments and thus the attractiveness of doing business in the country looked at. In that sense there is a possibility to affect the expected real rates of return and to have an impact on relative growth performance in an economy with a single currency.