REPORT on the international monetary system - how to make it work better and avoid future crises
(2000/2017(INI))

13 September 2001

Committee on Economic and Monetary Affairs
Rapporteur: Robert Goebbels

Procedure : 2000/2017(INI)
Document stages in plenary
Document selected :  
A5-0302/2001
Texts tabled :
A5-0302/2001
Debates :
Votes :
Texts adopted :

PROCEDURAL PAGE

At the sitting of 2 February 2000 the President of Parliament announced that the Committee on Economic and Monetary Affairs had been authorised to draw up an own-initiative report, pursuant to Rule 163 of the Rules of Procedure, on the international monetary system - how to make it work better and avoid future crises.

The Committee on Economic and Monetary Affairs had appointed Robert Goebbels rapporteur at its meeting of 13 December 1999.

At its meeting of 5 June 2000 the Committee decided to include the following motion for resolution in its report :

-   B5-0306/2000, by Muscardini, Nobilia, Mauro and Gemelli, on the real economy and the financial economy, referred on 12 April 2000 to the Committee on Economic and Monetary Affairs as the committee responsible.

It considered the draft report at its meetings of 5 June 2000, 12 September 2000, 7 November 2000, 28 November 2000, 20 June 2001, 10 July 2001 and 13 September 2001.

At the latter meeting it adopted the motion for a resolution unanimously with 3 abstentions.

The following were present for the vote: Christa Randzio-Plath, chairwoman, Philippe A.R. Herzog, vice-chairman, Robert Goebbels, rapporteur, Alejandro Agag Longo, Generoso Andria, Pedro Aparicio Sánchez (for Peter William Skinner, pursuant to Rule 153(2)), Richard A. Balfe, Luis Berenguer Fuster, Pervenche Berès, Hans Blokland, Hans Udo Bullmann, Gérard Caudron (for Bruno Trentin, pursuant to Rule 153(2)), Harald Ettl (for Simon Francis Murphy), Jonathan Evans, Carles-Alfred Gasòliba i Böhm, Christopher Huhne, Pierre Jonckheer, Othmar Karas, Giorgos Katiforis, Christoph Werner Konrad, Alain Lipietz, Astrid Lulling, Jules Maaten (for Karin Riis-Jørgensen), Thomas Mann (for Brice Hortefeux), Ioannis Marinos, Miquel Mayol i Raynal, Ioannis Patakis, Fernando Pérez Royo, John Purvis (for Piia-Noora Kauppi), Alexander Radwan, Bernhard Rapkay, Olle Schmidt, Charles Tannock, Marianne L.P. Thyssen, Jaime Valdivielso de Cué (for José Manuel García-Margallo y Marfil), Ieke van den Burg (for Helena Torres Marques), Theresa Villiers and Karl von Wogau.

The report was tabled on 13 September 2001.

The deadline for tabling amendments will be indicated in the draft agenda for the relevant part-session.

MOTION FOR A RESOLUTION

European Parliament resolution on the international monetary system - how to make it work better and avoid future crises (2000/2017(INI))

The European Parliament,

-   having regard to the work under way in the various international fora, in particular the IMF, the World Bank, the Bank for International Settlements and the Financial Stability Forum, and a number of international professional organisations, including the International Accounting Standards Committee, the International Federation of Accountants and the International Association of Securities Commissions,

-   having regard to the motion for a resolution by Muscardini, Nobilia, Mauro and Gemelli on the real economy and the financial economy (B5‑0306/2000),

-   having regard to Rule 163 of its Rules of Procedure,

-   having regard to the report of the Committee on Economic and Monetary Affairs (A5‑0302/2001),

A.   having regard to the recurrence and extent of monetary and financial crises on an international scale, of which, according to IMF figures, there have been close to 120 since 1975,

B.   having regard in particular to the Asian crisis in 1997 and the Russian and Brazilian crises in 1998, which, because of the devastating impact of propagation and contagion, almost turned into a global crisis and are the root cause of awareness on the part of all political and economic actors, for which there is no precedent of the need for thoroughgoing reform of the international financial architecture,

C.   having regard to the many shortcomings of the international financial architecture revealed by the crises over the last few years, in particular in terms of prudential supervision and oversight of international financial activities and international organisations' ability to prevent or effectively manage crises,

D.   whereas an international financial system can be stable only if Member States' economic policies are geared to growth and employment,

E.   whereas open financial markets ultimately produce major efficiency gains for the international economy, provided that they are contained within a more effective environment so as to minimise the risks to all countries' economic stability,

F.   whereas the real economy bears the cost of financial instability, and the crises it brings about, in terms of lost opportunities for growth, jobs and economic and social well-being,

G.   having regard to the central role played by financial engineering and innovation, which, by allowing real economic transactions to be divided into distinct and repetitive non-cash monetary operations, permits risk to be broken down and exchange on the markets,

H.   whereas, however, financial engineering leads at the same time to increasing complexity of financial transactions and risk-taking channels, posing major risk monitoring and analysis problems for regulatory and supervisory authorities, whether public or private within large groups,

I.   whereas public or private-sector overindebtedness has been the starting point for a host of crises,

J.   whereas necessary financial stability is a public good fully warranting public authorities' responsibility and role in preventing all crises, or, failing that, in managing them as well as possible,

K.   having regard, in this context, to the existence of moral uncertainties and the special challenge that poses for public authorities as regards the optimum equilibrium to be achieved between free operation of markets and the need for them to be regulated, on the one hand, and, on the other, the occurrence of crises and private-sector involvement in public bailouts,

L.   whereas all countries, including off-shore centres and tax havens, need to be subject to minimum prudential rules,

M.   having regard to the central role the European Union is duty-bound to play in the global debate on the new financial architecture,

1.   Takes the view that the aim of the reforms of the international financial institutions under way must be to make them more efficient and more transparent, in particular with regard to the IMF and the World Bank, but also more universal, in particular with regard to the BIS and other limited-multilateralism organisations;

2.   Advocates globally integrated prudential supervision and oversight, which have become essential not only because of the globalisation of financial activities but also because of their increasing disintermediation and the increased number of different players on this market; while rejecting the notion of a world super-regulator as unfeasible, appeals for much closer cooperation at international level between national supervisory and oversight authorities, in particular through exchange of information on the activities of transnationally operating groups;

3.   Calls for this role of coordinating existing national supervisory and oversight authorities to fall, at European level, to the European Central Bank; is of the opinion that, as a corollary to this role, the ECB ought also to take an active part in the introduction of close coordination at international level;

4.   Calls for the discussions and work in progress to focus on prevention of systemic crises; to that end, proposes the creation of a 'systemic risk monitoring centre' to be attached to the BIS;

5.   Takes the view that the IMF is the only institution concerned about the smooth operation of the world economy in terms of its macro-economic interdependence and that, in view of the dominating influence of international financial markets over the world economy, it bears special responsibility for the surveillance of financial vulnerabilities;

6.   While taking the view that the IMF must devote itself to its main task - macroeconomic surveillance of all countries – supports taking reform, now proceeding, of the way in which the IMF is organised and operates further, involving in particular:

  • -a regular rise in both quotas and issues of Special Drawing Rights in line with the growth of trade in the world economy and any appropriate measure of capital flows in order to preserve the IMF’s ability to provide the necessary basic funding;

-   with the aim of making the Executive Board of Governors more effective, giving the 24 IMF Executive Directors independence to act;

  • -introduction of a Standing Committee of Representatives of Finance Ministers to facilitate oversight over multilateral institutions and decision-taking by the new International Monetary and Financial Committee;
  • -    reactivation of SDRs - an embryonic common world currency - the award criteria for which could be selectively targeted on the basis of the requirement of sustainable development and which could also be used in the event of a major crisis;
  • -abolition of the super-majority of 85% for all important decisions; redistribution of powers and votes better reflecting the universal nature of the IMF and the role of emerging countries;

-    recourse by the Executive Board to a regular critical appraisal by external experts of the economic analyses and measures advocated by IMF departments;

  • -intelligent rejigging of its component parts for better regrouping of the European Union's economic strength within the IMF;

7.   Appeals also, in this context, for European positions to be better coordinated and coherently represented in all international economic and financial bodies;

8.   Regards it as essential to apply joint rules and standards at international level, in particular in the statistical accounting, evaluation and audit fields, using private-sector resources and expertise to draft them and making all IMF aid subject to the implementation thereof in all the organisation's member countries;

9.   Agrees with the calls made by the Financial Stability Forum for a legal and judicial framework allowing prompt settlement of all disputes between parties, in particular where one party has become insolvent, by:

  • -creating transnational arbitration bodies;
  • -introducing a distinction between principal and non-principal insolvency;
  • -introducing 'debtor-in-possession financing', borrowed from US law;

10.   Believes that the private sector needs to be involved in crisis management; argues for the inclusion of collective action clauses, in particular for bond contracts, so as to permit monetary crises to be managed with the participation of the private sector; thinks it desirable for the European Union to show the way by means of a European directive;

11.   Considers that, in some cases, such involvement may extend as far as a freeze on debt servicing payments, which may make it possible to confine the moral uncertainties and reduce the cost of restructuring programmes; considers that the IMF would have authority to guarantee the validity of the standstill vis-à-vis the international financial community;

12.   Takes the view that better crisis prevention is not possible without enhanced surveillance of off-balance-sheet transactions, in particular all derivatives (including all OTC derivatives); they must not be able to enjoy a competitive advantage over other financial products, which is the case when they are, comparatively, less controlled and less regulated than the latter;

13.   Supports, to that end, the creation of a 'credit register' at the BIS in order to centralise all information on the exposure of all significant financial enterprises to highly leveraged institutions;

14.   Underscores the need to bolster prudential requirements imposed on banks where they serve to offset speculative funds (or hedge funds); thinks, by the same token, that refinancing of speculative funds operating in countries not covered by the Basle Accords must be made more difficult and more costly;

15.   Considers that, in connection with enhanced prudential supervision and oversight at international level, the European Union is also duty-bound to adjust its approach in this connection by designating the European System of Central Banks, in accordance with Article 105(6) of the EC Treaty, as the bona fide body to coordinate national supervisory and oversight authorities; takes the view, furthermore, that the very existence of a single currency and a single market in financial services in the process of completion makes this a necessity;

16.   Acknowledges the challenges posed by better control over short-term speculation and the destabilising effects it represents; takes the view that it is for emerging countries to protect themselves though domestic liberalisation accompanied by effective supervision, before proceeding with external liberalisation of capital movements, and, should it be necessary, to imitate the Chilean approach of requiring non-interest bearing deposits to match foreign capital on entry in order to promote the longer maturities of external obligations;

17.   Stresses that the European Union is also affected by this problem and must equip itself with prudential instruments as part of regulation of an integrated financial market; calls for a prompt discussion of these prudential instruments by the institutions on the basis of the studies available;

18.   Calls, pursuant to Article VII of the IMF's Articles of Association, for a standstill procedure on debt servicing for countries hit by a liquidity or solvency crisis, so as to give such countries enough time to develop a debt restructuring plan;

19.   Appeals to the IMF and the industrialised nations to allow the poorest countries to make a fresh start, tied to appropriate economic policy conditions, by cancelling their debt and to allow indebted emerging countries to repay their debt on the basis of a percentage of the proceeds of their exports, in accordance with a famous historical precedent;

20.   Calls for the IMF, in its structural adjustment programmes, to allow for the social aspects of the reforms to be proposed; invites the World Bank and the regional development banks to devote themselves, first and foremost, to combating poverty through educational, social and health-related programmes in particular;

21.   Instructs its President to forward this resolution to the Commission, the Council, the General Manager of the Bank for International Settlements, the President of the ECB, the Managing Director of the IMF, the President of the World Bank, the Director-General of the WTO and the Secretary-General of the United Nations.

EXPLANATORY STATEMENT

1.   Finance: The world economy's weakest link ...?

A Chinese proverb says that you can see a wall better the closer to it you stand. In August and September 1998 the global financial community stood with their backs firmly to the wall.

Following months of recurrent crises on Asian markets, the decision by the authorities in Moscow to impose a moratorium on Russian debt repayments triggered a panic on international markets to which Brazil was the first to succumb. The collapse of the Long Term Capital Management (LTCM) hedge fund, averted only by a departure from financial orthodoxy by the New York Federal Reserve and 12 leading banks, had come close to unleashing a chain reaction that would have been disastrous for the world economy. As things stood, only effective all-round mobilisation by international organisations and what rapidly became the accommodating monetary policy pursued by the leading Central Banks managed to prevent a generalised financial crash that would have been followed by deep recession.

But the margin was a narrow one. Globalised finance had in fact been walking a razor wire for some weeks. Having got their fingers burnt, the G7 decided to establish the Financial Stability Forum. The colloquies and reports on the need for a new international financial architecture and the reforms that should be made to the sector's multilateral institutions have since been numerous. But there has been little in the way of practical decision-making, apart from renaming the IMF Interim Committee, to be known henceforth as the 'International Monetary and Financial Committee'.

Far from it. If anything the impression has since been given that, with the resumption of growth, governments and economic operators have gone back to relying exclusively on so-called 'financial-market intelligence'. John Kenneth Galbraith once condemned the belief that 'economic success and intelligence go hand in hand' as one of the main causes of recurrent financial crises. The International Monetary Fund (IMF) reminds us that from 1975 to 2000 the world has gone through some 120 monetary crises, defined as depreciation of a currency by more than 25% in the course of a year. It is noteworthy that nearly half of such monetary crises have happened under flexible exchange-rate systems. The 21st century will undergo other crises. If the human race can never completely avoid them, there is all the more reason to try to anticipate the severity of such crises and manage them more effectively.

1.2.   The imperfect market

Your rapporteur is a firm believer that ever since human beings made their first stumbling efforts at intelligent organisation, the market has been the most natural venue of exchange. Since man tends generally to pursue his own interests, the perfect market, motivated solely by rational and socially interdependent expectations and behaviour, does not exist. The risk of financial instability thus remains inherent in the operation of the economy.

The ultimate cause of all crises is changes in the collective psychology of men, in the form of an excess either of optimism or pessimism. Human beings like to share belief in the same illusions. In a universe exposed to an ever uncertain future, it seems rational to imitate the behaviour of those performers on the market who have been the most successful. But the sum of individual rational behaviours can often add up to an irrational form of collective behaviour. It is rational to use an individual means of locomotion to get from A to B. But if too many individuals take that rational decision all at the same time, the collective result will be disastrous.

The development of international financial services has led undeniably to greater efficiency of markets and better allocation of resources. But 'perfect mobility of capital feeds instability' (de Boissieu). Sound allocation of resources must be matched by sound allocation of risks. Which is not to say that financial markets will ever be able to spread all risks perfectly evenly. The interactions of a multiplicity of micro- and macro-economic decisions become quite simply incalculable in an increasingly globalised economy. The result will always include the unforeseen and the unforeseeable.

The acceleration in international financial activity since the 1990s has been impressive. The BIS for example estimates that instruments traded in stock exchanges on international markets (end-of-year notional amounts) practically doubled between 1993 and 1998, from 7 770 to 13 550 billion dollars. The International Swaps and Derivatives Association calculates that off-balance sheet transactions (swaps, exchange options, etc) soared from 8 475 to 50 997 billion dollars between 1993 and 1998. The volume of transactions on currency markets - again according to the BIS - oscillates between 1 800 and 2 000 billion dollars per day, whereas total annual trade in goods and services is estimated at some 4 300 billion dollars.

1.3.   A rare commodity - capital

Globalised finance consequently can seem more and more disconnected from the real economy - which it is supposed to be financing. There is no doubt that international financial transactions are playing a growing part in how money is used. That acceleration in speed of circulation in the financial sphere certainly makes for instability. (Keep in mind that 80% of money market transactions by volume are for operations of less than one week's duration.)

It will not do just to condemn these operations as speculative. The search for profit, especially instant profit, is inherent in all human activity and thus to any economic system. The development of any human enterprise requires capital, and consequently profits, without which there can be no savings.

Capital markets serve to allocate the resource, rare as it is, that capital constitutes. Insufficiency of capital, the shortage suffered by one party, can have its counterpart only in the savings of another. All financial activities serve to recycle and reward savings to enable investment by others. The expectation of profit is what generates the demand for credit.

The invention of money enabled barter and exchange to be subdivided into distinct and readily repeatable operations. Financial engineering, including derivative products and other innovations with a sometimes notorious reputation, enables real economic transactions to be subdivided into distinct and repeatable money-of-account operations.

1.4.   Division of risk

Pierre Jacquet argues that financial innovation makes it possible for risk to be broken down into distinct components and for those components to be exchanged on markets. ... It thus facilitates economic activity and resource allocation. It also leads however to a growing complexity of financial transactions and risk-taking channels, thereby confronting the regulatory and supervisory authorities, be they public or private within large-scale groupings with serious monitoring and risk-assessment problems.

Recognising the advantages of integrated and highly liquid global financial markets can be no excuse for ignoring the risks, not the least of which are the very short-term horizons of a good many investors. In seeking to maximise their return over a few months, investors have no incentive to engage in searching analysis of the real value of the assets in which they invest, but will concentrate instead on anticipating the strategy of other investors. That approach exemplifies the 'beauty contest' analogy dear to Keynes, where financiers are compared to a panel of judges whose interest lies, not in choosing the most beautiful contestant, but in guessing which one the other judges will choose.

It is mimicry, sheep-like behaviour, that has unleashed and aggravated the majority of crises in recent years. There can be no denying that these have increased in number with the globalisation of financial markets. The starting-point for recurrent crises has generally been over-indebtedness, be it in the public or private sector, exacerbated by an exchange rate suddenly perceived by the market as unrealistic.

1.5.   Retrospective clairvoyance

A feature common to every crisis is that it will generate a climate of indeterminate fear and create risks impossible to calculate at the time. Subsequently, there will always be experts and other high-profile commentators to explain - after the event - why such and such a crisis had to happen, and to criticise the lack of preparation, inaction and wrong reactions of one and all.

So it was in the wake of the series of crises that hit the Asian 'tiger' economies - long the darlings of Western economic operators. Jeffrey Sachs sums up the - of course belated - reproaches made by international institutions and ratings agencies as follows: East Asia was exposed to financial chaos because its financial systems were riddled with insider manipulation, corruption and misgovernance. … But how did it happen that countries in such a state managed to attract as much capital as they did for as long as they did? In criticising, for example, the Korean 'chaebols' system after the event (and persuading the IMF under American pressure to work towards their dismantling), how could it be forgotten that the very same system, suddenly disgraced, had served the Korean economy well for 35 years?

All this 'retrospective clairvoyance' about 'connivance capitalism' in the Asian countries must not allow it to be forgotten that investors in rich countries had at first shown every confidence in those countries. The allegations of crony capitalism, lack of transparency and defective banking systems in the borrowing countries have served to distract attention from foreign creditors who perhaps did not show the necessary prudence in making their loans, along with those who had strongly encouraged East Asia to undertake rapid liberalisation of capital and financial markets (J. Stiglitz ).

The financial crises in Asia were not caused by the textbook macroeconomic disequilibrium of the Mexican or South-American crises (budget deficits and/or excess money creation), but by financial excesses resulting from private sector over-investment.

1.6.   Crisis contagion

Holing short-term dollar debt to finance long-term - and often high-risk - projects in national-currencies was the trigger that unleashed the Asian crises. The markets are always the victims of their past excesses. When a crisis explodes, it rapidly becomes contagious. Starting out in Thailand, this one affected practically the whole of Asia and had repercussions across the world. One of the hallmarks of the crises of the end of the twentieth century has been their spread from one country to another, including, as with Russia and Brazil, countries having no significant trading or financial links with each other. But an excess of optimism engendering a crisis in one country immediately elicits an excess of pessimism that can affect other countries.

It is in fact the same operators - supposedly 'intelligent', 'rational', 'calculating' as they are - who, by recklessly taking risks cause overheating on one market or another, so creating speculative bubbles that ultimately end in spectacular insolvency. Unfortunately it is rarely the real perpetrators of the speculative frenzy who have to pay to pick up the pieces. The bill for the original upsurge of greed in the pursuit of private profit too often has to be paid by the rest of society. Whole populations have had to pay, by being condemned to excess unemployment and poverty, for the irrational exuberance of financial operators or of the asset-holders they represent. (The latter can be workers in industrialised countries contributing to a pension fund, buying an insurance product or relying on a savings bank to give them a return on their assets, great or small.) If in the final analysis everyone is a 'speculator' in their own way, the speculative decisions that really matter are at all events taken by professionals, who also wield power in other ways.

1.7.   Moral hazard

It is an unfortunate fact that international financial operators, be they bankers or insurance brokers, or managers of assets, investment funds, pension funds or hedge funds, in general tend to be judged by their performance in relation to their competitors. To be graded on that basis can be invidious. All financial-service providers rely as near as makes no difference on the same market evaluation techniques. The same indices produce the same effects. Sheep-like behaviour results from applying statistical methods of risk assessment. (Aglietta/de Boissieu).

Since it is better to be in good company when you get it wrong than to be all alone, competition makes speculative-fund managers imitate the strategy of their competitors, because every indulgence is extended to those who, in common with the rest of the profession, have got their assessments wrong (Andrew Crocket, BIS).

In the event of a generalised crisis the flock remembers its public-sector shepherds. Whereas the financial community generally thinks that in normal market conditions the markets work perfectly, or at least well enough for the government not to need to intervene, any form of financial catastrophe or exchange-rate crisis causes the same community to clamour for strong government intervention (Joseph Stiglitz). There is a name for the propensity of the financial world to be resolutely monetarist in times of surging economic boom and to discover its Keynesian side only in a crisis: it is called 'moral hazard'.

Paul Krugman has defied moral hazard as: Any situation where one person takes a decision about how big a risk should be run and someone else pays the bill when things go wrong.

1.8.   The social cost

The cost of these public rescue operations to ordinary people in the countries concerned can be enormous. Huw Ewans of the UK Financial Services Authority provides edifying figures for the cost of certain financial crises as a percentage of GNP in the countries concerned:

-   Argentina   1980-82   55 %

-   Chile   1981-83   41 %

-   Côte d'Ivoire   1988-91   25 %

-   Finland   1991-93   8 %

-   Indonesia   1997-99   45 %

-   Korea   1997-99   15 %

-   Thailand   1997-99   40 %

-   Sweden   1991   6 %

-   Israel   1977-83   30 %

-   United States   1984-91   3 %

(savings and loans)

2.   Financial stability as public good

As these sometimes overwhelming costs confirm, it would be irresponsible to allow finance to be left to the financiers. The public authorities must create the conditions necessary for anticipating every crisis, not to say managing it by the best means possible.

There has been a good deal of activity in that connection since 1998, even if very few practical decisions have been taken. The IMF has been highly active, in particular in seeking to improve its own transparency and that of the market: extending the scope of macroeconomic supervisory operations; drawing up reports on standards and codes of conduct; re-appraising the 12 key norms and codes set out in the Financial Stability Forum's standards register; joint financial sector assessment programmes drawn up by the IMF and the World Bank. The IMF continues to be responsible for drawing up national liquidity and capitalisation risk indicators. IMF loan mechanisms have been simplified. Some instruments have been abolished. A new facility, the contingent credit line (CCL) has just been created. The new Director-General, Mr Köhler, seeks dialogue with both the financial community and the public.

The Forum's work on financial stability is progressing. The reports of 5 April 2000 by the four working parties (high capital-leverage institutions; capital movements; extra-territorial financial centres; standards implementation) are of interest from more than one point of view, even if the experts fail, in their (provisional) conclusions - especially in relation to hedge funds - to show the courage of their convictions.

Other work is in progress, in particular within the BIS, where one of the most important workshops is devoted to the re-weighting of capital requirements for banks on the basis of risks actually incurred. There are more than a dozen international bodies currently involved in debating the necessary reforms to international financial architecture. That underlines the complexity of the collective undertaking. The establishment of rules for the supervision of financial conglomerates presupposes cooperation by supervisors in the banking, stock-exchange and insurance sectors. Since practically all those organisations will have to seek consensus, progress will be slow.

2.1.   Action by the European Union

The first point to be made is this: the European Union is prominent by its absence in the debate on the new financial architecture. There have of course been some initiatives by different European governments. (It was Gordon Brown's proposal that led to the creation of the Financial Stability Forum (FSF) chaired by Mr Tietmeyer; the French government that proposed turning the IMF Interim Committee into an effective decision-making body; the British government that proposed setting up a committee to supervise simultaneously the IMF, the World Bank, the FSF and the work of the BIS; Carlo Ciampi who proposed establishing a kind of COREPER to pave the way for decisions by the IMF Interim Committee; and Chancellor Schröder who launched the initiative at the Cologne G7/8 Summit in favour of cancelling poorest-country debt.)

But all these isolated initiatives do not amount to a European policy. In particular, the European Central Bank, although participating in some activities through the intermediary of experts, remains astonishingly aloof in the international debate.

3.   IMF reform

In their report to Heads of State and Government the G7 Finance Ministers rightly spelt out at their 8 July 2000 meeting in Fukuoka (Japan) that the IMF was a universal institution whose central role must continue to be to promote macroeconomic and financial stability. The IMF had to continue to be in a position to come to the assistance of all the member countries. That assertion by the G7 amounts to a refutation of the main proposals by the Meltzer Commission, in particular the call for IMF financial assistance to be restricted to the poorest countries. And Secretary of State to the Treasury Larry Summers had already, in June 2000, rejected practically all the recommendations adopted by 8 of the 11 members of that commission, set up by the US Congress.

The operation of the IMF at all events leaves something to be desired. It is first and foremost a cumbersome bureaucratic apparatus that, for all its thousand economists, still cannot claim to know better than the 182 member countries.

3.1.   The preponderance of the United States

As valuable as the proposals on IMF transparency and assumption of responsibility are, the main problem with this multilateral institution is that it is too close, geographically, intellectually and, in the final analysis, politically to the United States. The IMF is in fact one of the main vehicles of the 'Washington consensus', whose credo it propagates - budget discipline and tax reform; public-spending cuts; trade and financial-market liberalisation; privatisation; deregulation - whether or not these objectives are suited to local realities or the traditions or real situation operating in countries applying for IMF assistance.

Nor does the United States hide the fact that it uses the IMF as an instrument for the defence of its own interests. In the above answer by Larry Summers to the Meltzer Commission, it is stated in a number of connections that it is in the political interests of the United States for the IMF to continue its activity by, for example, granting its financial assistance to countries like Brazil, Indonesia, Turkey or South Africa, where, as it acknowledges, important US strategic and economic interests are at stake.

3.2.   Democratising the IMF

Nor is the United States the only country seeking to enlist the IMF in the service of its interests. Other leading countries, in particular the 8 out of 24 countries holding permanent seats on the Executive Board of Governors, are seen to be especially active on items of business where their national interests are at stake.

If the IMF's international credibility is to be raised, it will have to be democratised. Developing countries are generally under-represented, some others are over-represented. There should be a reallocation of quotas, 75% of which are protected by the existing statutes. To decide on a reallocation of quotas, a specific majority of 85% is required. The United States, which holds 17.56% of total votes, thus commands an effective right of veto. A first step towards 'democratisation' would be to abolish the 85% 'supermajority', retaining only the 'special' majority of 70% for the most important decisions (or, better still, a two-thirds majority).

3.3.   Federating the European presence

To counterbalance the invasive influence of the United States, EU Member States would do well to bring Europe's true weight in the world to bear in the IMF. That would mean insisting on an intelligent realignment of the different 'constituencies', in particular those on which some EU States are somewhat isolated. Germany, France and the United Kingdom are directly represented on the IMF Administrative Council. Belgium, Austria and Luxembourg are in a constituency that includes Belarus, Kazakhstan and Turkey. The Netherlands sits with Ukraine, Georgia and Israel, among others. Italy, Greece and Portugal are partnered with Albania, Malta and San Marino. Ireland sits with Canada and the Caribbean countries. Finland, Sweden and Denmark meet together with 5 other Nordic countries. Spain sits under Mexico's chairmanship with 7 other Latin American countries. And whereas the United States commands some 371 000 votes (as at 31 July 2000), the 15 countries of the Union could, if they were not so widely dispersed, together deploy more than 544 000 votes.

3.4.   Independence and control

One means of increasing the IMF's efficiency (specifically recommended in the report by De Gregorio, Eichengreen, Ito and Wyplosz) would be to give independence of action to the 24 administrators. It might well be arranged for the latter always to be proposed by their respective governments, but for their appointments (to a non-renewable term of, say, 6 or perhaps 9 years) only to become operative on confirmation by the respective national parliaments. To strengthen European Union influence and enable directors from our part of the world to act consistently, the European Parliament should also be invested with the power of hearing and confirming appointees.

Supervision of this more operational executive, which would elect the Director-General and appoint the Directors, would then fall to the former Interim Committee, now the International Monetary and Financial Committee (IMFC) and representing the Governors (generally the Finance Ministers of the countries concerned). To facilitate decision-making by Ministers or the IMFC, it would be useful to set up a Standing Committee of Representatives of Finance Ministers , as previously proposed by Carlo Ciampi. This financial 'COREPER' might in particular be instructed also to supervise, on behalf of the Finance Ministers, other multilateral institutions, in particular the World Bank and the Regional Development Banks. Such a structure would certainly bring greater consistency to the activities of what are at present sometimes competing institutions.

3.5.   Sharing multilateral operations

A memorandum of understanding should in any event be drawn up between the IMF and the World Bank, and between the latter and the Regional Development Banks. The purpose would be to combine the most efficient division of labour possible with the closest possible cooperation.

To enable the IMF to keep the closest possible track on real developments in member countries, regional supervisory and early-warning systems should be set up.

In March 2000 the IMF commanded 289 billion dollars in total resources, 138 billion of which were available for mobilisation. That is little enough by comparison with the enormous fluctuations on financial markets. It consequently is unrealistic to expect the IMF to operate as a lender of last resort. It does not have the resources, not least because the IMF cannot itself create money. The only real last-resort lender is the Federal Reserve. The European Central Bank will, as the euro develops into a major reserve currency, of course automatically inherit the same function.

4.   Prevention, prediction and crisis management

Since responsibility for international financial stability is a universal public good, it is essential that all operators - public and private - in international finance be expected to live up to that responsibility. In a global economy, regulation should be global. For the foreseeable future it will be unrealistic to expect the creation of a United Nations organisation exercising universal regulatory and supervisory powers. That leaves intergovernmental cooperation and inter-professional acceptance of responsibilities.

The reforms under way in international institutions must aim at increasing not only their efficiency and transparency, but also their universality. That applies especially to the BIS, hitherto a highly exclusive club of central bankers in the countries hosting the world's main financial centres. The BIS has only just hesitantly opened its doors to new members. The need for universality also affects other, perhaps less well-known but important organisations. The International Organisation of Securities Commissions includes some 150 affiliated agencies from 94 countries, including the US Securities and Exchange Commission, but neither the New York Stock Exchange nor NASDAQ, which are supposed to regulate themselves.

4.1.   Private sector expertise

For all sectors of the financial market to be brought within a regulatory framework will require the implementation of international norms and standards. In establishing these, the public authorities would be well advised to rely on the resources and expertise of the private sector. That could include for example the work of the International Bar Association's 'J' Committee, or that of the International Corporate Governance Network, the International Accounting Standards Committee, etc.

The IMF, which has just launched a scheme to disseminate 17 categories of macroeconomic and financial data, to be drawn up in accordance with a set of standardised norms, should be given responsibility for the universal implementation of existing standards and norms, and possibly also those in preparation. An effective channel could be provided by making all IMF financial assistance conditional on transposing these in all 182 member countries.

Joint public-private establishment of such a regulatory framework would guarantee close proximity to markets and could evolve in line with market practices.

Any such modern and evolving contractual legislation would also have to include rules for keeping accounts, standards of assessment and auditing - in short everything necessary to conducting effective external checks. Another vital component of financial infrastructure is efficient payment and settlement Given, as the BIS points out in its year-2000 report, 'that such systems in the industrial countries alone are now processing around $6 trillion of transactions a day, it is clearly imperative that they function flawlessly'.

4.2.   Crisis management

One essential infrastructural component will be a legal and judicial framework enabling conflicts between parties to be settled rapidly, in particular in the event of default. In most States property law and insolvency legislation are too complicated and do not allow for forms of restructuring that can avoid the contagion effect in the event of a major crisis. Hence the importance of continuing to consider the creation of 'bankruptcy ombudsmen', 'workout czars' and other arbitration bodies. To increase the chances, in the event of an insolvency crisis, of arrangements being worked out either before a tribunal or before an arbitration body, certain proposals by the Financial Stability Forum should be implemented. The legislation applicable to insolvency should give market participants the firms assurance that positions can be liquidated and the guarantee come into effect in such an event.

Barry Eichengreen suggests applying at international level the 'debtor-in-possession financing' provision of American business law, which allows priority status to be given to financial backers injecting new liquidity into an insolvent firm. To prevent a minority of creditors from blocking a settlement procedure in the event of a crisis, collective action clauses would have to be inserted in all contracts, in particular bond contracts.

Since this measure is of some sensitivity to emerging countries, being disliked by the markets, the European Union would have to set an example, possibly by way of a directive.

The creation of an international legal framework enabling coordinated intervention in the event of a serious crisis is an essential precondition for any attempt to have the private sector participate in the joint financing of restructuring measures. Involving the private sector more closely in crisis prevention and resolution would limit the moral hazard.

4.3.   Disintermediation and consolidated supervision

In the world of global finance, financial innovation plays an increasingly important part. Disintermediation and its corollary, the increase in different types of market operators, further complicate regulation and supervision.

In its opinion of 8 April 2000 on financial stability, the EU's Economic and Financial Committee notes that the levelling out of distinctions between different financial establishments and sectors leads to financial market integration of a kind that makes the financial system more resistant to asymmetric local disruption but that can at the same time facilitate transmission of the risk of contagion.

Integrated markets require integrated supervision. There are those who call for a global or at least European 'super-regulator'. Any such super-regulator having the power to impose norms and standards would be very powerful, perhaps too powerful. By virtue of dealing with everything he or she would necessarily become bureaucratic. To be efficient, supervisory authorities have to stay close to the markets. They must be able to rapidly to assess new products so as not to stifle innovation while guaranteeing adequate supervision. Good supervision has to be built from the bottom up, i.e. from respective national capital and economic operators, culminating in consolidated supervision at European or international level.

To guarantee a level playing field and avoid distortions of competition will require common rules: equal markets mean equal risks, thus equal charges. In most countries, financial market segmentation has produced regulators specialising in banks, stock exchanges, insurance, etc. Since regulation remains largely national in confronting what is now a global market, rationalisation is a necessity. The United Kingdom has shown the way with its Financial Services Authority. The American financial market, by contrast, has four federal supervisory authorities and 50 separate state authorities.

Faced with the elimination of traditional boundaries between banks, insurers, institutional investors and other market operators, and with no means whereby supervision can be consolidated, it must at least be coordinated.

4.4.   A coordinating function for the ESCB

At European level, the obvious choice of coordinator should be the European System of Central Banks (ESCB). Article 105(6) of the EC Treaty stipulates that the Council 'may confer upon the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings (emphasis added)'. Following the wide variety of mergers or cross holdings between banks, insurance companies and institutional investors, it would make good sense to delete the restriction on the insurance sector, not to enable the ESCB eventually to regulate that sector, but to coordinate the activities of the different supervisory authorities at European level or possibly also in their international relations.

The road to follow in supervising the 'financial galaxy' is for the ESCB to appoint ad hoc coordinators to be chosen from the authorities in the different segments of the market. These would be instructed to organised exchanges of information on financial conglomerates or on certain transnational activities. Some prudential authorities already practice such cooperation on the basis of memoranda of understanding. The point will be to organise and systematically structure such cooperation at EU level and beyond.

4.5.   No grey areas

To reduce the risk of serious crises, consolidated supervision will have to cover the grey areas of international finance. Not least because virtual explosions in the derivative instruments sector, which are essentially traded on unlisted markets, will generate greater instability (William H. White, BIS). In particular swaps, which have become the principal derivative instrument for foreign currency financing, make it possible partly to avoid prudential regulations, circumvent monitoring of capital requirements and enjoy higher debt leverage (Aglietta/de Boissieu). For the same authors, the advantage in the derivatives market of being able to separate lower cost risks is also its Achilles heel, since the corollary of the markets' ability to separate risks is that market intermediaries take higher risks than before.

It will be essential to improve supervision of off-balance sheet operations, viz. swaps, options, own-account trading, speculative-fund credit lines and other financial-market black holes. Improving supervision and regulatory monitoring of all types of credit suppliers is an important facility that can help to guarantee the implementation and maintenance of sound practices, according to the Monetary Stability Forum, which envisages the establishment of a 'credit register' with the BIS in Basle. The register would be used to centralise information relating to the exposure of all regulated financial institutions of significant size to high-leverage financial institutions significant from a systemic point of view. The data collected relating to credit granted to all counterparts of high-leverage institutions would then be accessible, subject to confidentiality rules, to those counterparts, to the supervisory and regulatory authorities and to other interested bodies.

4.6.   The lessons of LTCM

Such a measure seems essential. The near default of the LTCM hedge fund shows the extent of the risk. At the beginning of 1998, LTCM held assets to a value of 4.8 billion dollars against commitments of 120 billion dollars, or a leverage of 25. On 23 September 1998, the net worth of LTCM had fallen to 600 million dollars as against commitments of some 100 billion dollars, a leverage of 167! The LTCM rescue package - without penalties or any other consequences for the fund's directors - prevented a chain reaction. But who can guarantee that the same thing will not happen again on a scale putting it beyond the reach of any rescue package? The capital LTCM worked with initially came in the main from banks that were, in principle, subject to supervision. There is a clear case for strengthening the prudential requirements imposed on banks when they act as counterparts to speculative funds.

Since many such funds are located in scantly regulated offshore centres, the easiest way of counteracting hedge funds seeking to remain 'opaque' would be to make it more difficult and more expensive for them to be refinanced by banks operating in countries covered by the Basle agreements. Bank loans could be limited strictly in proportion to the collateral put up by the offshore funds. Both the Financial Stability Forum and the International Organisation of Securities Commissions or 'Basle Committee' have made important recommendations and suggestions in that connection, in particular in the January 2000 Brockmeijer report. To date, none of those proposals has materialised.

If the Basle rules on minimum capital levels, solvability ratios and bank liquidity are to be strengthened, the international authorities cannot continue effectively to exempt certain increasingly high-profile operators in global finance.

4.7.   More risk - less transparency ..?

Strengthening the rules and increasing transparency on certain movements of capital but not on derivatives products will give markets an incentive to use more of the latter. In the long run, the world will be exposed to higher risks and less transparency.

As Patrick Artus asserts, the use of high leverage by speculative funds to finance their positions induces them to sell their assets as soon as their strategies begin to show losses, or to offset losses suffered on one operation by the profits that subsist in others. This - in itself rational - behaviour by hedge fund managers exacerbates market instability and can spread contagion in the event of a crisis. The losses taken at the time of the Russian bonds crisis were an incentive to many operators to liquidate their positions in South America, creating a dangerous domino effect. The market value of any holding whatsoever depends less on the financial soundness of the issuer than on that of its holders (Eric Barthalon).

All current efforts to secure more transparency, more responsible behaviour by operators, better governance or stronger supervision on the basis of norms and standards recognised at international level will never succeed in eliminating all risk of crisis, be it of debt, of banking or currency-exchange operations. The defaults by Barings, Sumitomo, Daïwa, Metallgesellschaft and others were a matter of traders evading internal checks and, a fortiori, external ones. High-risk speculative operations, all the more criminal in that the perpetrators are gambling with other people's money, will never be prevented entirely.

4.8.   Anticipating systemic crises

The international community will have to concentrate its preventive efforts on systemic crises. One useful measure would be to establish a 'systemic risk monitoring centre' which, for practical reasons, could be attached to the BIS in Basle.

For the world economy, exchange-rate crises are the most destabilising component. A country's macro-economic integrity is not necessarily rewarded by the markets. As Bergsten, Davanne and Jacquet conclude in their report on the international financial architecture, the currency-exchange market tends to take on a life of its own, and is thus capable of reacting aggressively without having any real economic information. There is often talk on the market of 'technical corrections', which does little to hide real ignorance of some of the factors at work. They same authors also claim that analysis of economic fundamentals does not have the place it deserves on the exchange market. Discussion between market operators seldom relates to such fundamental concepts as long-term equilibrium, risk premiums or even long-term interest-rate differentials.

4.9.   The computer screen as sole horizon

Only those who have lived the life of the dealing room can understand how the traders, those modern-day incarnations of Sisyphus driven by the constant compulsion to arbitrage, sell or buy, look to no horizon but the computer screen as it incessantly displays its unbroken stream of raw data that must be evaluated minute by minute in the effort to 'beat the market'. Since the sources of the data are all identical - Reuters, Bloomberg, perhaps also the Financial Times or Wall Street Journal - reactions are all stereotyped. Everyday life in the dealing room is lived to the accompaniment of minutely detailed parcels of information - labour-market trends in the United States, the index of construction-industry activity, the latest trade-turnover figures, and other such items of data, each of which may help to pinpoint a potential trend, yet all of which are insignificant as part of the bigger picture. For tens of minutes before the time at which some such item of information is expected, the market seems to hold its breath, the stream of on-screen offers and bids slows to a crawl, then, as soon as some new and fateful statistic has finally been revealed, the mad rush of figures again surges across the screens, the sum total of the trader's private world.

That everyday reality of the dealing room is disturbing because it derives from a rationale from which the long-term necessities of economic life are practically absent.

5.   Stability as goal

The real economy of producers of goods and services, of operators in international trade, fundamentally needs currency stability.

Can the currency markets be stabilised by taxing movements of capital? Your rapporteur finds James Tobin's idea intellectually seductive - putting a tiny spoke against speculation in the wheels of international finance.

But apart from the fact that - in the Internet Age - it would take a World Government to eliminate all risk of misappropriation of any form of Tobin tax, recent work has shown that any such approach rests on an illusion. Olivier Davanne, in his report to France's prime minister Lionel Jospin, draws attention to the inherent usefulness to economic life of these routine transactions, suspect though they be on account of their huge size. The great majority of exchange-market transactions amount to risk-free arbitrage operations aimed at improving the market's technical efficiency. … When a seller comes forward, the broker agrees to act as counterpart even although there is no real buyer available, and sells his position on to another intermediary (at the same price - in the absence of a tax this amounts to a blank transaction) who will in turn do the same thing until a counterpart is found outside the banking system. The multiplicity of such transactions inflates their volume to a point where the flows seem totally disconnected from real economic life.

But, as Jean-Pierre Landau stated in a hearing before the French Senate, some very short-term capital movements can on the contrary stabilise the market, only to continue: it is not obvious that restricting transactions - the purpose of the Tobin tax - will be the most effective means of reducing market volatility … The broader and more liquid the markets are, the more price variations caused by sudden shocks will be limited.

5.1.   Limits to Tobin

If the Tobin tax were to be implemented, it would probably not have the effect expected by its supporters, and certainly not in terms of the expected tax yield. And who specifically would be the beneficiaries of such a tax? International development organisations, the governments, good or bad, of Third World countries, organisations of civil society representing everyone or no one?

In bidding farewell to the Tobin tax, your rapporteur seeks in no sense to deny that speculation exists, or that it can have devastating effects on emerging economies. Yet less than 4% of routine transactions affect emerging-country currencies. Why then penalise operations involving the dollar, the euro and the yen on the pretext of protecting developing-country economies?

5.2.   Penalising entry

A better way of preventing the destabilising impact of short-term (and thus generally speculative) capital entry on an emerging economy is the longstanding Chilean practice of taxing entry of foreign capital so as to create an incentive for the rolling-over of maturing debt. Even a commentator like Hans Tietmeyer, hardly open to suspicion as eager to restrict the free movement of capital, has sung the praises of the Chilean 'encaja', which penalises short-term investments, thus creating incentives for the long term.

As the Asian crisis has shown, the speed with which capital can be withdrawn from the market, in particular by way of communications technologies, has an enormous destabilising effect. As a means of restricting the influx of short-term capital, the Chilean tax would provide more effective protection, by being targeted on specific countries, than a Tobin tax penalising all movements of capital, whether purely speculative or simply being placed at the service of the real economy.

5.3.   Poor-country dilemma

The dilemma for emerging countries is real. It goes without saying that the poorest countries are the ones with the weakest capital markets. To develop, such countries need to attract capital, in particular private capital. As one African leader has remarked, while it is not pleasant to be exploited by the multinationals, it is even worse to be ignored by them! No capitalist, big or small, will lend money without security or without the prospect of seeing it grow. And by opening the door to foreign capital, emerging countries can develop more rapidly, but are also taking some risks. The IMF puts it like this: Financial integration, including liberalisation of capital movement, creates substantial advantages. But it also includes risks that must be scrupulously managed and organised.

To operate effectively, i.e. to promote economic efficiency, any financial market must be highly developed. The United Nations report on Global Financial Turmoil and Reform does not mince words: The bigger (in terms of operator diversity) and more active (in terms of number of transactions made per day) a market is, the firmer is price-formation on that market and the less unstable are prices.

5.4.   Controlled liberalisation

Any such objective can only be achieved in well-interlinked stages; hence the need, for certain countries, possibly to restrict the entry of short-term capital, as Chile has done with great success. There is no one single and unique method of ensuring the advantages that derive from international capital movements while limiting the risks, as the IMF asserts.

That applies in particular to the choice of an appropriate exchange rate: The new international consensus tends to represent floating rates as the only satisfactory option (Bergsten, Davanne, Jacquet). But linking up with any one currency seems tantamount to an invitation to speculation. As against that, exchange rates that float at the whim of the markets do not give economic operators the stability they need. Many countries are now discovering the virtues of the crawling peg, or at all events of pegging to a basket of currencies put together taking into account the external exchange-rate structure of the countries concerned.

It can be no business of a European Parliament report to pontificate on matters of vital significance to any country. But it seems obvious that for emerging countries seeking to benefit from the allocation of international financial resources, internal liberalisation accompanied by effective supervision must precede external liberalisation of capital movements.

Were the opposite the case, the risk of falling into the trap set by external debt becomes too high. As described by Joseph Stiglitz, who derives great authority from his past experience at the World Bank, markets are more and more focused on the ratio of foreign-exchange reserves to short-term debt, forcing countries seeking to head off a crisis to increase their foreign-exchange reserves in parallel with short-term loans taken out by those of their economic operators who are in debt to foreign investors.

Stiglitz gives an edifying example: When a private firm in an emerging country borrows, for its own development, 100 million dollars from an American or European bank, the rate of interest payable is generally higher, allowing for risk premiums, than 15% (and often much higher). The government of that same country should, so as to offset any future exchange-rate risk, also set aside 100 million dollars from its reserves, which it would invest for example in US government bonds yielding 4 or 5%. Big deal!

6.   Third-World debt

This report must conclude with some comments on Third-World debt and continuing globalisation.

In 1982, when the developing-country debt crisis first hit the headlines, the 15 most indebted countries owed 270 billion dollars to international banks - and did so, moreover, at an average interest rate of 13.7%. In an initial stage, new credit was mobilised for the indebted countries to enable their debt to be restructured and address the problem of maintaining interest payments. According to World Bank data, the stock of emerging country debt has tripled since the start of the 1980s, to reach 2 171 billion dollars in 1997. Debt-interest servicing, as at that date, amounted to some 250 billion dollars, or practically the equivalent of the principal of the 15 most indebted countries at the start of the 1980s.

The different initiatives taken to alleviate this burden have achieved only modest results. In both the G7 and the Paris Club, the creditors are both judge and jury. In all such bodies the talk is more of the 'moral hazard' of total debt relief, or even of compensation for creditors (to whom moral hazard seems not to apply) than of the appalling situation of the peoples of the indebted countries.

If it is true that developing country elites have often been well served (in imitation of a long-standing tradition among elites in the developed countries) it is no less true that the main beneficiaries of the Third World debt crisis have been the rich countries, since the return flow in principal and interest has widely exceeded the initial outlays. By eradicating poorest-country debt the international community would at worst be committing an 'injustice' against the less indebted - and thus 'well behaved' - poor countries. At all events, any fresh start in efforts to secure growth and combat poverty will have to include debt cancellation.

6.1.   The German precedent

Most developed countries have legislative provisions allowing the insolvency of natural and legal persons. Why not give Third World countries the chance of making a fresh start, - even if that were to mean placing the former 'bankrupts' under long-term supervision?

On 27 February 1953, the allied powers, under the London agreement, wiped out 50 % of Germany's debt, standing at 14.6 billion DM in the currency of the time. The 50% of debt remaining was refinanced so as to enable the German authorities to repay the balance on the basis of 5% of Germany's annual export earnings. The post-war German economic miracle had its foundations in that process of debt restructuring.

Poor countries today are expected to honour their financial commitments by allocating 20, 30, 40% and more of their export earnings. No way can that be done. It is essential that poorest-country debt be written off. And deeply indebted emerging countries must, moreover, be enabled to stagger their debt servicing as a function of their integration into the global economy, i.e. as a function of their export earnings.

6.3.   The gap widens

The OECD countries are today on average between three and four times richer than before the 1970s. Official statistics underestimate, perhaps substantially, the abundance enjoyed by the great majority of the peoples of the developed world, since the qualitative improvements in most products and some services are hard to measure. A PC or a telephone not only cost considerably less that they did five years ago, but are also much more powerful.

Since the 1970s the standard of living of Third World peoples has improved only in very relative terms. But the gap between the one group and the other is growing constantly. Lionel Jospin, in his speech on 26 June 2000 to the World Bank European Conference on Development made the following point: We are living in a world of unprecedented global wealth. But in that world economy, half the planet's inhabitants - or 3 billion men and women - live on less than 2 dollars a day, one billion have no access to drinking water and nearly 800 million suffer from hunger … The concerns of the prosperous countries, essential though they be, are not necessarily shared by all

In recent years, in the wake of globalisation, international trade has increased faster than internal transactions within countries. But world trade only accounts for 15 % of world GNP. The OECD countries account for 75 % of that product. The economic weight of countries like China or India is no greater than that of California.

Globalisation, heaped with blame for many ills by some in our regions of the world, is far from being universal. It is asymmetric, applies essentially to the countries of the triad and leaves the developing countries in the lurch, referring to them euphemistically as 'emerging'. Globalisation is in fact confined essentially to three sectors:

-   transport,

-   communications,

-   finance.

It is the last sector in particular, relying as it does on new communications technologies, that can truly be said to have gone global, operating as it does for 24 hours out of 24.

Financial stability and globalisation are closely bound up with each other. International mobility of capital is a fact. The problem posed for politics is how to take effective action to ensure that the benefits of capital mobility exceed the costs and contribute substantively to all-round human development.

MOTION FOR A RESOLUTION

21 March 2000   B5-0306/2000

pursuant to Rule 48 of the Rules of Procedure

by the following Members: Muscardini, Nobilia, Mauro and Gemelli

on the real economy and the financial economy

Resolution on the real economy and the financial economy

The European Parliament,

having regard to the Bretton Woods agreement of 1944, the mechanisms of which helped to achieve monetary stability and economic reconstruction in the post-war period,

-   having regard to the disparity which has developed between the real economy and the financial economy since the removal of the dollar from the gold standard,

-   having regard to the financial crises which have occurred in various parts of the world since 1997,

-   having regard to the failure of international monetary and financial institutions to perform their tasks properly,

-   whereas the ‘speculative bubble’ has had devastating effects on the economies of the developing countries, having totally transformed world economic structures and having reached a level of at least 300 000 billion dollars, compared to a global GDP of 40 000 billion dollars,

Calls on the Commission to:

1.   propose that a new Bretton Woods-type conference be held in order to introduce a new international monetary system capable of gradually eliminating the mechanisms which have produced the ‘speculative bubble’;

2.   examine the possibility of tying currency values to a real point of reference and exercising greater control over exchange rates;

3.   propose the establishment of new lines of credit designed to promote investment in sectors of the real economy and encourage the development of Europe-wide infrastructure projects.