II. The European Union in the G8The Future of G7 Monetary Coordination
The future status of the EU within the G7 Finance Ministers and Central Bank Governors group will be altered with the implementation of Stage III in the process toward Economic and Monetary Union (EMU). This final stage, set to begin 1 January 1999, will bring into operation the European System of Central Banks (ESCB) composed of the European Central Bank (ECB) and the national banks of the Euro11 member states.52
The Treaty on European Union, drafted in Maastricht in 1991, provides the institutions of the EU similar competence over monetary policy as they possess on issues related to multilateral trade. Article 109:4 provides that:
With the legal authority to speak for all the member states participating in EMU, the EU should therefore gain the right to speak with a single voice. However, the question remains whether this single voice will speak with more force in the Finance G7 than the multiple voices of the four European members of the G8. Controversy continues to surround this significant transformation due to the lack of clarity within the EU concerning whether the institutions of the EU, the ECB, or indeed the individual member states will speak on this subject.
Regarding international agreements, Article 109:3 states:
While observers have criticized EU officials for not addressing the question of who will represent the Euro11 in external forums such as the Finance G7 at an earlier date, C. Randall Henning correctly points out that the decision of who will represent the EU monetary union could only be made after the establishment of the ECB on 1 June 1998.55 On 26 September 1998, EU Finance Ministers moved a step closer to agreement. Wim Duisenberg, the current president of the ECB, was named as the monetary representative. He will participate in meetings of the G7 Finance Ministers and Central Bank Governors.
However, controversy continues on the question of whether there should be an additional political representative. At the conclusion of the Council, Rudolf Edlinger, Austrian finance minister and current chair of the Council, stated the reason why separate monetary and political representatives are necessary: "We have to make it visible to the outside world that we are not just a monetary union but an economic and monetary union."56 While Germany led the resistance to the proposal of a political representative in addition to the monetary representative due to the fear that it would decrease the independence of the ECB, France and Italy, the other Euro11 members of the Finance G7, were also reluctant to see their voices diluted at future meetings.
The fact that Britain, while participating in the Finance G7, is not a member of the Euro11 further complicates matters. As pointed out in The Economist, "If the euro were represented at political level on the international stage, it would become absurd for a country as small as Britain to play the role it does today. The G7 might quickly shrink to the G3..."57 In order to avoid this from occurring and thus opening the Finance G7/G3 to accusations of being unrepresentative, Henning has proposed a 'monetary G3' within the current G7 framework.58 In this scenario, exchange rate management and monetary policy coordination would be discussed within the G3, while broader issues, including fiscal policy would continue to be discussed within the G7.
Observers have expressed the additional concern that the relinquishment of sovereignty by the three Euro11 members of the Group of Seven Finance Ministers as well as the transfer in power to Brussels and Frankfurt, may result in a democratic deficit.59 However, regularly scheduled hearings between the ECB and the European Parliament has been put forward as one possible solution.
A final decision on EU political representation in the G7 has been postponed until December 1998. While last minute resolution of contentious political questions is relatively common in the EU, effective partnership in the G8 will require increased sensitivity of the importance that its partners place on clarity and stability.
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Updated: June 25, 1998
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