MEPs from the Economic and Monetary Affairs Committee completed their two-day debate with national MPs with a detailed examination of the euro zone's risks from global economic imbalances and of ways to improve the governance of international economic bodies, the International Monetary Fund in particular.
EP President Hans-Gert Pöttering opened proceedings by stressing the success of the euro project, which some, notably in America, had questioned at its outset. "The independent monetary policy of the ECB is an important basis for the success of the euro," he added, expressing confidence that the EU was on its way to a more coherent economic policy and to adopting the necessary economic reforms. He also said that the euro - with some countries going ahead with a project and inviting others to join when they wished - could be a model for other areas, such as EU foreign policy.
Economic and political globalisation - IMF role under fire
Joseph Stiglitz (Columbia University) told the MEPs and MPs that economic globalization had gone much faster than political globalization. While Europe was a major cause of the problem - large US trade deficits and borrowing while Asian countries had trade surpluses and huge dollar reserves - it would be adversely affected by an abrupt correction of the imbalances. "Markets by themselves are not stable and self-correcting," he said, and there was no international body capable of dealing with global economic imbalances. The G8 did not include China, so was not able to deal with the problem. The IMF, he said, should be helping, but many of its actions had in fact made the problem worse. He said it had helped cause the 1990s east Asia crisis by pressuring countries prematurely to liberalize their financial markets.
Asian countries were now building up reserves to avoid being "crushed" by the IMF if there was a future crisis. It also often engaged in pro-cyclical lending, he said. Representation was the central problem at the IMF, he said: only the United States had a veto (making it, he said, the "G1") and developing countries were under-represented. The type of representative was also an issue, leading to a dominance of a "central bank mindset," he said.
Europe, he concluded, should articulate calls for a more representative structure. These points were supported and developed by Ngaire Woods (Oxford University) who stressed that the IMF staff and board naturally paid far more attention to the views of the G7 countries, who controlled 47% of the votes than to those of 24 African countries who between them controlled just 1.4%. She called for the introduction of a double majority system, requiring a majority of shareholdings and a majority of countries to support key votes, which would give more authority to the opinions of developing countries.
Defending the IMF
Pierre Duquesne, French Executive Director in the IMF and World Bank, argued that it was an "optical illusion" that Europe was over-represented. He saw no political will for and many practical problems in trying to unite EU or eurozone representation, though there was room for more coordination. His Belgian counterpart at the IMF, Willy Kiekens, said it was a misunderstanding to say the IMF had pressed for premature financial market liberalization. In terms of managing global financial problems, he pointed out that while in 1945 IMF members had agreed binding powers for the institution, since the 1970s all its activity had been voluntary.
Europe's response to global imbalances
Portuguese Finance Minister Fernando Teixeira dos Santos said that Europe should best prepare for a possible abrupt adjustment of global imbalances even if these were not of Europe's making. The best way to do this would be to seek real convergence rather than just the nominal convergence on the euro entry criteria, and to continue structural reforms: "An economy that increases is output and growth potential will impact on world demand and favor a soft adjustment. More convergence will minimize the likely costs for Europe of any adjustment, and lesson the chances of an asymmetric impact."
Summing up the two days of debate with members of the European and national parliaments, Economic and Monetary Affairs Committee Chair Pervenche Berès said it was clear that having a single currency did not of itself do away with economic divergence between Member States. There was a need, she said, to strengthen the Eurogroup and improve the economic pillar of Economic and Monetary Union. "When it comes to international bodies, national parliaments and the European Parliament should work in tandem. The accountability of national representatives in such bodies is a vital question for our democracies," she said. (EP Press)