Select Committee on Treasury Eighth Report


Greek Membership of Stage Three of EMU

30. The decision for Greece to join Stage Three on 1 January 2001 was taken by the European Council of Economic and Finance Ministers on 5 June 2000 and endorsed by the Council of Ministers meeting in Portugal on 19-20 June 2000. The decision has aroused some controversy, not least because of the opinion of the ECB's 2000 Convergence Report on Greece that "there must be ongoing concern as to whether the ratio of Government debt to GDP will be 'sufficiently diminishing and approaching the reference value at a satisfactory pace' and whether sustainability of the fiscal position has been achieved".[170] Witnesses, and many of those who briefed us in Germany, were mostly sanguine about the prospect of Greek entry. Professor Begg said "it is not a big difficulty for the drachma joining because there is strong political commitment behind it ... the Greek economy is around one percentage point of the EU total. That does not alter monetary policy". Professor Buiter and Mr Barty broadly agreed, although the latter argued that "the jury is going to be out on exactly how they cope once they are inside the monetary union".[171]

Enlargement of the EU

31. Prior to this inquiry and Report very little had been published on the impact enlargement of the EU might have on EMU.[172] We requested and received a wide range of evidence, from firms and private sector organisations, academics and commentators, and the Government on this important issue. The Treasury's memorandum explained the formal position with respect to the enlargement of the EU and EMU: "Full EU accession will commit the accession countries to ultimately joining the single currency and adopting the euro ... on entering the EU, accession countries will also sign up to membership of EMU, but with an initial derogation, meaning that they will not adopt the euro immediately upon accession ... suitability for entering the euro will be assessed on the same basis as for current EU members".[173] Commissioner Solbes explained that new Members of the EU would need to wait at least two years from entry to join Stage Three of EMU in order for them to meet the Maastricht Treaty's exchange rate criterion, which implied the eastwards expansion of the euro-area being delayed until 2006 at the earliest.[174]

32. Some witnesses were relatively unconcerned by the distant prospect of the admission of accession countries to Stage Three of EMU. Professor Begg and Mr Ardy, for example, wrote that "if the five front runners [for accession] were to join the EU, they would increase its population by about a sixth, but boost real GDP by less than half that proportion if measured in purchasing power parities and by about three per cent if measured in euros ... it would be the equivalent of adding a country of the economic weight of the Netherlands to the euro area".[175] Corus wrote that the implications for EMU of EU enlargement "should be negligible" but warned that "it cannot be excluded that changes in sentiment affect the value of the euro more than is justified",[176] and the Chemical Industries Associations recommended "institutional reform to improve flexibility, transparency and competitiveness" as a necessary complement to enlargement.[177] Some witnesses expressed concern at the prospect of central and eastern European countries participating in Stage Three. Mr Forder concluded that "if the EU is enlarged and the new members join the euro, this will make the area larger and more diverse and thereby exacerbate the problems that already exist".[178] The Institute of Directors expressed the view that "the main implication for the euro of enlargement is the potential burden on the EU's finances ... an increased burden of taxation may be the outcome with its negative implications for the euro".[179] It is vital that the economic criteria used to assess whether countries should participate in Stage Three are fully respected for all applicants, including those which are deemed too small to have significant effects on the euro-area economy.

170   Convergence Report 2000, European Central Bank, p25; App 27 Back

171   Qq78-9 Back

172   For instance see The Euro, P. Temperton (ed.), second edition, 1998, chapter 16; Deutsche Bank Research paper No. 82, 28 Feb 00; and European Economy, Supplement C, Economic Reform Monitor, European Commission, No 3, Oct 99 Back

173   Ev, p107 Back

174   Q106; see App 15 paragraph 3.4.ii Back

175   Ev, p6; also Apps 1, 14 Back

176   App 6 section 4 Back

177   App 8, section 6; and App 15 paragraph 3.4.v, App 27 Back

178   App 23, paragraph 23 Back

179   Ev, p77 Back

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