EMU: Exchange rate policies as a common interest

This blog post is dedicated to our readers in Bulgaria, the Czech Republic, Denmark, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovakia, Sweden and the United Kingdom, the member states with a derogation within the context of economic and monetary union (EMU), but the national exchange-rate policies are defined as a matter of common interest to all EU member states (and citizens).

The EU Treaty of Lisbon updates the Treaty establishing the European Community (TEC), by taking into account the establishment of the eurozone and the experiences within the exchange-rate mechanism (ERM II).

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Current treaty

The current Treaty establishing the European Community (TEC) sets out Transitional provisions in Chapter 4 of Title VII Economic and monetary policy, in Part Three Community policies (in the latest codified version of the treaties, Official Journal 29.12.2006 C 321 E/93─101)
Chapter 4 Transitional provisions contains Articles 116 to 124 TEC.

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Exchange-rate policy as a common interest

Article 124 TEC (ex Article 109m) set out the exchange-rate policy of each member state as a matter of common interest before the beginning of the third stage of economic and monetary union (EMU), when the single currency, the euro, replaced the national exchange-rate policies of the member states which adopted the euro. Article 124 TEC continues to apply ‘by analogy’ to the member states with a derogation, i.e. outside the eurozone:

Article 124 TEC

1. Until the beginning of the third stage, each Member State shall treat its exchange-rate policy as a matter of common interest. In so doing, Member States shall take account of the experience acquired in cooperation within the framework of the European Monetary System (EMS) and in developing the ecu, and shall respect existing powers in this field.

2. From the beginning of the third stage and for as long as a Member State has a derogation, paragraph 1 shall apply by analogy to the exchange-rate policy of that Member State.


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Draft Constitution

The euro currency had been introduced, and the euro banknotes and coins were in circulation, when the European Convention deliberated institutional reform of the European Union. It is hardly surprising that the Convention proposed a reworked section with the aim to simplify and to clarify the transitional provisions.

Section 4 Transitional provisions comprises Articles III-91 to III-96 of the draft Constitution (OJ 18.7.2003 C 169/45─46).

Article III-94 of the draft Constitution updated Article 124 TEC to take account of the introduction of the euro, which had left only three of the fifteen existing member states outside the euro area (Denmark, the United Kingdom and Sweden), but with twelve new member states set to join the European Union in the so called big bang enlargement:

SECTION 4
Transitional provisions

Article III-94 Draft Constitution

Each Member State with a derogation shall treat its exchange-rate policy as a matter of common interest. In so doing, it shall take account of the experience acquired in cooperation within the framework of the exchange-rate mechanism.


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Finland

The Finnish government reported on the results of the European Convention in Valtioneuvoston selonteko Eduskunnalle konventin tuloksista ja valmistautumisesta hallitusten väliseen konferenssiin (VNS 2/2003 vp). Finland had adopted the euro. A section discussed economic and monetary policy (8.5 Talous. ja rahapolitiikka) on pages 65 to 67, but I found nothing specific about Article III-94 of the draft Constitution.

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Sweden

Ahead of the intergovernmental conference, the Swedish government presented its views in a memorandum, Regeringens skrivelse 2003/04:13 Europeiska konventet om EU:s framtid (2 October 2003).

Sweden had not negotiated an opt-out from the treaty obligation to introduce the euro currency, but still the government had arranged a referendum on the adoption. The negative referendum result, which left Sweden in legal limbo, was fresh.

If the updated Article III-94 of the draft Constitution had little direct significance for Finland, Sweden on the contrary retained a national exchange-rate policy and a treatment of the ‘common interest’ would not have been out of place.

In spite of this, I found no specific mention of draft Constitution Article III-94 in the memorandum.

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de Poncins


Étienne de Poncins presented the text of Article III-94 in Vers une Constitution européenne (Éditions 10/18, 2003), page 315, without comment.

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Common interest?

Not one comment from the three sources checked; is this an indication of the significance of matters defined as common interests?

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Constitutional Treaty

The transitional EMU provisions of the intergovernmental conference (IGC 2004) are found in Section 5 Transitional provisions, comprising Articles III-197 to 202 of the Treaty establishing a Constitution for Europe (OJ 16.12.2004 C 310/86─90).

The exchange-rate policies as matters of common interest were mentioned in Article III-200:

Article III-200 Constitution

Each Member State with a derogation shall treat its exchange-rate policy as a matter of common interest. In so doing, it shall take account of the experience acquired in cooperation within the framework of the exchange-rate mechanism.


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Let us see it our standard references are more informative concerning the signed Constitutional Treaty, than they were with regard to the draft Constitution.

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Sweden

The government of Sweden, still outside the eurozone as a member state with a derogation, offered a short and bland description of the aims of economic and monetary union (EMU) in the draft ratification bill, Lagrådsremiss Fördraget om upprättande av en konstitution för Europa (2 June 2005), page 171:

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”Den ekonomiska och monetära unionen (EMU) är ett samarbete inom EU som syftar till att samordna medlemsländernas ekonomiska politik och att införa en gemensam valuta. EMU har genomförts i tre etapper. Den sista etappen inleddes 1999 och innebär en fullbordad valutaunion med gemensam centralbank (Europeiska centralbanken) samt gemensam valuta och penningpolitik. En förutsättning för valutaunionen har varit och är att de deltagande ländernas ekonomier befinner sig på ungefär samma nivå. Ett antal ekonomiska krav som ett land måste uppfylla för att få delta i valutaunionen har därför ställts upp, de s.k. konvergenskriterierna. För att säkerställa sunda offentliga finanser inom unionen har därför EU inrättat den s.k. stabilitets- och tillväxtpakten.”

The Swedish government did not mention Article III-200 of the Constitution specifically, although Sweden through its national central bank (Sveriges Riksbank) has a national exchange-rate policy, defined as a common interest for the European Union as a whole.

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Finland

In Finland, the government’s ratification bill, Hallituksen esitys Eduskunnalle Euroopan perustuslaista tehdyn sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta (HE 67/2006 vp), mentioned Article III-200 of the Constitution on page 185. The government remarked that Article III-200 corresponds with Article 124 TEC without substantial change:
”III-200 artikla, joka koskee valuuttakurssipolitiikkaa niiden maiden osalta, joissa euroa ei ole otettu käyttöön, vastaa asiasisällöltään SEY 124 artiklaa.”


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Original Lisbon Treaty

In Article 2, point 104, of the original Treaty of Lisbon (ToL) the intergovernmental conference (IGC 2007) updated Article 124 TEC by adopting the Convention and Constitution proposals, but the amendments were inserted in the ‘usual’, i.e. unreadable manner adopted by the IGC 2007 (OJ 17.12.2007 C 306/79):

104) An Article 118b shall be inserted, with the wording of Article 124(1); it shall be amended as follows:

(a) the words ‘Until the beginning of the third stage, each Member State shall treat’ shall be replaced by ‘Each Member State with a derogation shall treat’;

(b) the words ‘of the European Monetary System (EMS) and in developing the ecu, and shall respect existing powers in this field’ shall be replaced by ‘of the exchange-rate mechanism.’.


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Renumbering

The Treaty on the Functioning of the European Union (TFEU) table of equivalences confirms that the new Article 118b TFEU (ToL) in the original Treaty of Lisbon was to be renumbered Article 142 TFEU in the consolidated version, under the title ‘Economic and monetary policy’, renumbered Title VIII, and in the renumbered Chapter 5 ‘Transitional provisions’ (OJ 17.12.2007 C 306/215).

(In the consolidated version of the Lisbon Treaty, OJ 9.5.2008 C 115, the Tables of equivalences start on page 361, but the ToL numbers have been omitted.)

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Consolidated Lisbon Treaty: TFEU

A readable Article 142 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/110:

Part Three Union policies and internal actions

Title VIII Economic and monetary policy

Chapter 5 Transitional provisions

Article 142 TFEU
(ex Article 124(1) TEC)

Each Member State with a derogation shall treat its exchange-rate policy as a matter of common interest. In so doing, Member States shall take account of the experience acquired in cooperation within the framework of the exchange-rate mechanism.

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We notice that Article 142 TFEU repeats the wording of Article III-94 of the draft Constitution and Article III-200 of the Constitutional Treaty almost exactly. Only ‘it’ remains ‘Member States’ as in the current Article 124(1) TEC, second sentence.

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Sweden

Even if Sweden is one of the EU member states with a derogation, the most artificial one at that, I found nothing about Article 118b TFEU (ToL) in the Lisbon Treaty ratification bill of the Swedish government, Regeringens proposition 2007/08:168 Lissabonfördraget (3 July 2008).

Is common interest of no particular interest?

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Priollaud and Siritzky

In ‘Le traité de Lisbonne ; Commentaire, article par article, des nouveaux traités européens (TUE et TFUE)’ (La Documentation Française, 2008), François-Xavier Priollaud and David Siritzky present the Lisbon Treaty provisions of Chapter 5 (Dispositions transitoires) on page 260 to 261. Their characterization of Articles 141 to 144 TFEU is succinct:

« Les art. 141 à 144 TFUE comprennent les dispositions applicables aux États membres faisant l’objet d’une dérogation, sans changement notable. »

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United Kingdom FCO

‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon (Cm 7311, 21 January 2008) offers the following comment on Article 142 TFEU (on page 13):

“Draws on and updates Article 124(1) TEC.”

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UK House of Commons Library

The UK House of Commons Library presented the amending treaty in ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Communities’ (Research paper 07/86, 6 December 2007. There was a short explanation of Article 118b TFEU (ToL), on page 64:

“Article 118(b) (Constitution Article III-200) largely corresponds with present Article 124(1) on the exchange rate policy of Member States with a derogation.”


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Common interest

Naturally, materials on amending treaties, such as the Treaty of Lisbon, tend to concentrate on the substantial changes. Still, it is notable that ‘common interest’ seems to raise no interest at all among our government and parliament sources.

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ERM II

For a closer look, you have to turn to the European Central Bank and the national central banks. Here are a few introductory pointers:

Exchange-rate cooperation and the exchange-rate mechanism (ERM II) are outlined in the Agreement of 16 March 2006 between the European Central Bank and the national central banks of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union (2006/C 73/08), published in the Official Journal of the European Union (OJ) 25.3.2006 C 73/21, since amended.
The ERM II Agreement contains provisions concerning the national central banks of all the non-euro area member states, but especially with regard to the countries participating in the ERM II.

The amending Agreement of 21 December 2006 (Slovenia out of ERM II when adopting the euro, Bulgaria and Romania in) was published in the OJ 20.1.2007 C 14/6 and the amending Agreement of 14 December 2007 (Cyprus and Malta out of ERM II on joining the euro) in the OJ 29.12.2007 C 319/17.

A corresponding amendment concerning Slovakia is to be expected.

For an accessible overview, you can go to the Scadplus web page Exchange rate mechanism (ERM II) between the euro and participating currencies (last update 22 March 2007):

http://europa.eu/scadplus/leg/en/lvb/l25082.htm




Ralf Grahn