Bernd Posselt

SUBJECT: THE EURO IN THE FORMER YUGOSLAVIA

To what extent is the Commission involved in the introduction of the euro in Bosnia-Herzegovina, Kosovo and Montenegro, where the currency is at present the German mark, and what is its view of this development?

Solbes, Commission. - (ES) Mr President, I will try to respond to Mr Posselt with a degree of detail. Firstly, I would point out to him that the Commission is not responsible for the introduction of notes and coins. As he knows, notes are the responsibility of the Central Bank and the system of central banks and, in the case of coins, it is the national authorities who are responsible. However, with regard to the changeover process, we must distinguish between activities within the eurozone and those outside it. Within the eurozone, it is the central banks and the mints, or the Finance Ministries, who have decided on the changeover plans. Outside the eurozone, it is considered basically as a commercial activity and it is left to the whim of the market. That means that the national banks are not, therefore, involved in the logistics and channels for distributing the new coins or recovering the old coins, and they must maintain the systems they have traditionally used for this type of operation.

Nevertheless, it is true that there is concern within the European Central Bank and in some national banks, in particular the German Central Bank, as a result of the enormous number of German Marks in existence outside the eurozone, that action should be taken to support the changeover situation in the countries outside the zone. In this respect, on 14 December 2000, the European Central Bank took the decision to allow frontloading or the pre-supply of euros to those financial institutions which are branches or subsidiaries of European banks in the countries outside the eurozone. Clearly, if the Central Bank is working on the possibility of pre-supply, the first step has been taken for this type of financial body to be able to move ahead with the process following the change of currency.

In the former Yugoslavia there are three different cases: Bosnia-Herzegovina, Kosovo and Montenegro. In the case of Bosnia-Herzegovina, we are talking about a currency board with a national currency linked to the Mark with an exchange rate of 1 to 1. However, it is the case that that currency belongs to Bosnia-Herzegovina and will not undergo any change in itself. It will no longer have a relationship with the Mark, but a set relationship with the euro and will be approximately half of the euro, which is the same as the Mark-euro relationship. With regard to Kosovo, there is a significant level of possession of physical currency. It is an economy where the currency circulation is based on notes which are not normally from the area and which, in particular, are not from the Mark zone. The Yugoslavian Dinar is still legal tender, but it is also the case that the Mark is in circulation and it was recognised as a currency which can operate and the circulation of the euro will clearly not change that situation. There is a specific problem of how to change these Marks which are circulating into euro notes and coins. According to my information, the German Central Bank, which, at the time, became aware of this situation, is thinking about which solution to adopt for this type of situation. The problem of Montenegro is similar. In November 1999, it decided to unilaterally establish a double currency system between the Mark and a parallel currency; on 1 December, the Government of Montenegro declared the Mark to be the only legal currency in the territory of the republic and, as in Kosovo, the Commission has no powers to act and, in our opinion, it will also fall to the Federal Republic of Germany' s Central Bank to take the relevant decisions in order to carry out operations other than frontloading operations which, as I said before, will be carried out using branches and subsidiaries of the European banks which work in that area.

Posselt (PPE-DE). - (DE) Commissioner, thank you very much for your very helpful and detailed reply. I would just like to ask a supplementary question. Just today there have been major reports in the German press according to which the accession countries are planning to circumvent the euro criteria by introducing the euro unilaterally, as it were. On the strength of what you have said, this seems somewhat unlikely to me, but I would nevertheless like to ask you if this is a concern and whether the Commission is dealing with this issue in the accession countries.

Solbes, Commission. - (ES) Mr President, this issue has been widely debated and the position is clear for both the Central Bank and the Commission and Council: to participate in the euro means to fulfil the conditions of the Treaty of Maastricht. That basically means maintaining a period of exchange rate stability for two years, approximately, not from any old moment but logically from the moment they are members of the European Union and, in accordance with the interpretation of the Council of Ministers, they must be part of the exchange rate mechanism for a period of two years.

Some countries have raised the difficulties caused by reversing stable exchange rate systems such as they have at the moment (this is the case with Estonia, with its currency board linked to the Mark) and that it would mean returning to a system of greater flexibility and of currency flotation in order to retrieve a situation of stable exchange rates. For that reason, the official interpretation and application is that the situation of the countries which have a currency board, if they are linked to European currencies, is compatible with the exchange rate mechanism, although these decisions are clearly adopted unilaterally by the countries involved. To put it another way, the responsibility to maintain stability of the exchange rate falls to the national authorities and they will not receive any type of privileged treatment, apart from that resulting from their presence in the exchange rate mechanism. This is the situation which has been maintained and clearly, sensu contrario, the interpretation must be that neither the Central Bank nor the Council nor, of course, we in the Commission, are in favour of 'euroisation' processes which in some cases have been suggested and which, in our view, in no event should allow entry to the euro through the back door or allow countries which do not fulfil the conditions set for all Member States of the European Union to benefit from the advantages of being in the euro legally.

Purvis (PPE-DE). - Mr Commissioner, you have primarily concentrated on the logistical and technical aspects, and you have only just begun to touch on the monetary risks that could ensue from what you call the gigantic holdings by foreigners of German marks but also presumably of other euro zone currencies. If these holders begin to get concerned about how they are going to exchange these holdings, or about what the euro is going to be, is there a risk of them moving into the dollar or other currencies and thereby destabilising the euro even more than it has been?

Solbes, Commission. - (ES) When there are people who possess significant quantities of notes, above all within the eurozone, and of national currencies outside the eurozone, two types of situation arise: normal saving by these people and the quest for protection in the face of their exchange rate situation. In both cases it is perfectly justified to possess these holdings. And there is no problem in changing these holdings into the new euro, via their commercial banks, via the European banks which have branches or subsidiaries in the area.

Certain different cases are raised: the possible existence of European currency on unofficial or black-market networks. There must clearly not be any favourable treatment for this type of situation. The same rules must be applied as for exchange in the European Union, that is, in those cases where somebody is identified as the holder of a quantity of a currency, the exchange takes place without any type of risk, even for quantities greater than the minimum amounts laid down in the money laundering directive. When quantities are exchanged which do not reach the limits of the directive on money laundering, the exchange may take place without requesting identification of the holder of the funds. However, in my opinion, when the quantities are high and exceed those laid down, identification should be demanded.

You have raised a different problem. Since this requirement is going to be maintained, is it not possible that some of these holdings will move to the dollar. Firstly, we do not have that impression, given the figures for the inflow of notes into the different central banks; secondly, in the countries which have signed up to the obligations of the money laundering convention, the same criteria I have mentioned must be applied for exchanges from European currency to the dollar. The situation you mention could only arise in certain countries which have more lax legislation, which today allow a European currency to be exchanged for another currency, the dollar or any other, without being subjected to those requirements.