The preparations of the Community Institutions
for the changeover to the euro

 
Johan Verhaeven*
 

A. INTRODUCTION

Both the European Commission and the other Community institutions are now finalising their internal preparations for the changeover to the euro. As far as the Commission is concerned, this preparatory work has involved most of its services, while an interservice group has been charged with the overall steering and coordination. The Commissionís preparations have covered the following areas:

- the practical consequences for Community policies;
- the euro-compatibility of Community legislation;
- the impact in the technical and operational sphere (information technology, administrative changes, information and training of staff, etc.).

On 5 November 1997, the Commission has adopted a communication entitled "The impact of the changeover to the euro on Community policies, institutions and legislation" (COM(97)560) which is largely based on the work performed by the interservice group and which provides a comprehensive assessment of the practical consequences of the transition at Community level and the possible resulting effects on Member States (e.g. when legislation needs to be changed). The present article provides a summary description of the main elements covered in this communication.

From a sectoral perspective, the main impacts of the changeover will arise in relation to the Community budget, agricultural policy and administrative expenses (see sections B, C and D). Section E summarizes the consequences for Community legislation, while section F illustrates the implications in the operational sphere.
 

B. IMPACT OF THE CHANGEOVER ON THE COMMUNITY BUDGET

The Communityís budget is cast in ECUs, but both revenues and expenditure are wholly or partly realised on the basis of national currency values:

- On the revenue side, the contributions are paid by Member States in national currency. This covers both the traditional own resources (customs duties, agricultural levies), which are paid as collected, and the VAT and GNP contributions;

- On the expenditure side, a significant part of the overall appropriations are presently committed and paid in ECUs (e.g. Structural Funds, research, other operational sectors, etc.): see the third column of table 1. Generally speaking, all expenditure is executed in ECUs, except for the payments under the "Guarantee" window of the Common Agricultural Policy (CAP), and most of the payments under the administrative budget (of which staff remunerations and pensions form a major part). In relative terms however, CAP expenditure represents more than half of total Community budget expenditure, while administrative expenditure represents a further 3.5 %: see the second column 2 of table 1.

Operations carried out in national currency, as opposed to ECUs, result in the Community budget having to bear the exchange risk associated with the movement of national currencies. As explained above, this is presently the case for the revenue side of the budget and, to a lesser extent, the expenditure side. With the introduction of the euro, both the participating Member States and the Community budget will switch to the euro, and the exchange risks will disappear for all operations relating to these countries.
 

C. CONSEQUENCES FOR THE AGRICULTURAL POLICY

Under present agrimonetary rules, prices and other amounts are established in ECUs, but in practice they are paid or collected by Member States in national currency. To this effect, the "agricultural conversion rates" are being used. For each individual currency, several conversion rates are in use, depending on the area of intervention (e.g. market prices and amounts, aid per ha for arable crops, etc.).

The agricultural conversion rates differ from daily exchange rates as they follow the evolution of the latter with certain lags. The lags are more important in case the national currency appreciates vis-à-vis the ECU than in the opposite case. In the course of 1997, the gaps between agrimonetary conversion rates and market rates were for instance generally below 3 to 4 % in most areas of intervention, although temporary peaks in excess of 15 % have been reached for certain currencies and intervention regimes. As a rule of thumb, an overall difference of 1 % between conversion rates and market rates roughly corresponds to ECU 400 million of budget expenditure.

Each month, Member States are reimbursed in their national currency for the expenditure made under the CAP. For budgetary accounting purposes, these payments are converted into ECUs at a monthly "accounting rate". The agrimonetary system thus gives rise to systematic discrepancies between prices and other amounts as fixed in ECUs in the CAP, and the amounts which are eventually entered into the budgetary accounts.

The introduction of the euro on 1.1.1999 will significantly affect the agrimonetary regime:

- for participating Member States, the need for monetary conversions will disappear: the Community budget will simply reimburse earlier expenditure made in euros by the Member State concerned. The difference on 31.12.98 between the agricultural conversion rates and the fixed and irrevocable conversion rates will have to be dismantled in a way which remains to be defined;

- for the "pre-in" countries, the need for a conversion rate will persist, but this does not necessarily imply that the existing system should be carried over in its present form. Some or all of the key elements (agricultural conversion rates, operative events, accounting rates, etc.) could, for instance, be redefined.

The Commission intends to table legislative proposals towards the end of the first half of 1998, taking account of the list of "ins" and the evolution of markets in the run-up towards monetary union.
 

D. CONSEQUENCES FOR ADMINISTRATIVE EXPENDITURE

For all Community institutions and organs combined, administrative expenses correspond to about 3.5 % of the overall budget. The largest part is made up of remunerations and pensions, while office rents and corresponding maintenance expenditure also represent a significant part.

The Communityís staff regulations specify that remunerations are calculated and paid in the national currency of the country in which the official is established. The monthly remuneration level in national currency remains fixed (subject to one or two annual adjustments in order to take account of the evolution of prices and of the purchasing power of national officials). As a consequence, the budgetary expenditure expressed in ECUs varies each month. With the introduction of the euro, this exchange risk will obviously disappear for all remunerations or pensions paid to officials established in participating Member States.

The large majority (about 90 %) of the 30.000 Community officials working for the different institutions and organs are actually concentrated in Brussels and Luxembourg, while 55 % of the 8.500 pensioners also live in Belgium or Luxembourg. In the area of administrative expenditure, the impact of the changeover will thus primarily depend on whether Belgium and Luxembourg joint the euro zone.
 

E. THE CHANGEOVER OF COMMUNITY LEGISLATION

The legal framework for the transition to the euro is provided by the two euro Regulations. As Community legislation is directly affected by these regulations, the Commission wanted to ensure that all legislation would remain fully "euro-compatible" after the transition. A guided search through the CELEX data base (which includes all Community legal acts and which is notably accessible via the Commissionís "Europa" server), has been carried out in order to identify the texts which will be directly concerned by the changeover i.e. texts containing references of a monetary nature, such as amounts (thresholds, ceilings, Ö) expressed in ECUs or national currency, references to interest or exchange rates, etc. About 4000 texts have been identified in total; each Commission service has carried out a detailed review of all relevant legislation under its responsibility.

It appears that the large majority of these texts only contain simple references to ECU amounts. In a number of other cases, the ECU figure is accompanied by a clause allowing for the conversion to the different national currencies, for example in the case of a Community directive which needs to be transposed into national legislation. An important variety of such clauses exist, notably as regards the definition of the reference date to be used for the conversion, the option to round national currency amounts, mechanisms for periodical revision of the national currency figures, etc. For the currencies of the participating Member States, such conversion clauses sometimes become difficult to read as from 1.1.1999, because both the ECU and the national currency will become one and the same. Based on the precise wording used in the legal texts concerned, and in order to ensure consistency across policy areas and to avoid unnecessary legislation, the Commission has worked out guidelines providing a coherent legal interpretation of the different varieties of these clauses.

The outcome of the Commissionís detailed examination of Community legislation, and any complementary measures envisaged, is described in a series of technical fiches annexed to the communication COM(97)560. Most of the time, these fiches take the form of "clarification notes", providing the legal interpretation of the meaning and effect of the various clauses in the light of the introduction of the euro. In other cases, the fiches describe why and when the Commission intends to table legislation. These relate to a few specific cases where the application of legal continuity would lead to an unsatisfactory result, either by not providing the answer to a technical problem or by leading to a legal or economic anomaly.
 

F. OPERATIONAL CONSEQUENCES OF THE CHANGEOVER
 

Treasury and financial management

As from 1999, the Commissionís foreign exchange transactions will represent a much smaller proportion of budgetary receipts and payments than is presently the case, for two main reasons:

- As explained in section B, all inflowing budgetary revenues are contributed in national currencies, while about half of the expenditure is paid out in ECUs. This results in an important and structural shortfall of ECUs, and the Commissionís treasury department therefore needs to buy between ECU 33-35 billion per year on the open market. The changeover to the euro, and the accompanying inflow of budget resources paid in euros, will tend to close the loop and make these forex operations unnecessary;

- Member States pay their contributions to the budget via "own resource" accounts, kept at the Treasury or the central bank of the Member State concerned. The Commission draws on these accounts to cover the Communityís payment obligations. Once or twice a month, the Commission issues a series of transfer orders between these accounts, so as to ensure that the outstanding amounts on these 15 accounts are roughly proportional to the budgetary contribution of each Member State. This monthly rebalancing exercise presently gives rise to forex operations around ECU 1.5 billion per month on average. These operations will be greatly reduced from 1 January 1999 onwards, as most transfers will be carried out in euros without a need for conversion.

The Commission presently keeps at least two commercial bank accounts in each Member State, one of which is used for operations in national currency, while the other is used for ECU operations. In the participating countries, the two accounts will eventually be merged into a single one, perhaps already at an early stage of the transitional period. Working relations could also be established with the ECB as far as the conduct of financial operations is concerned, notably with a view to further simplifying and rationalising existing money flows whenever possible and appropriate.

 
Statistics

Many of Eurostatís statistical time series are expressed in monetary units and therefore concerned by the changeover. A first category of series are the ones which are expressed in national currencies and which are usually the primary series. All such series relating to participating Member States will need to be rescaled, by dividing them by the conversion rate for the currency concerned, as far as the data prior to 1.1.1999 are concerned; data expressed in the currencies of the "pre-in" countries obviously remain unaffected. This rescaling operation ensures the mathematical continuity of statistical figures, while leaving all further statistical properties of the series intact (e.g. growth rates, etc.).

Another category of series are the ones expressed in ECUs. These are usually common reference series, mostly used for comparisons and/or aggregations (e.g. computation of Community GDP). Such series remain unaffected as far as the pre-1999 figures are concerned, while subsequent data will be expressed in euros. Eurostat also intends to produce new statistical aggregates for the euro zone, together with corresponding statistics for the pre-in countries which do not yet belong to this zone.

 
Informatics

The introduction of the euro will have an impact on existing information systems in the different Community institutions, as will the millennium problem which is largely concurrent. A specific working group "Euro/Year 2000" has been created in order to support the efforts of the different services in preparing their systems for both events. The group has established an inventory of all major systems and programmes which will be concerned be either of these two questions, and acts as a provider of support and co-ordination. From a first survey, it appears that the main efforts will be concentrated in the following areas: statistical data bases, treasury operations, contract follow-up and agricultural monetary systems. Finally, the Commission is preparing the integration of the euro symbol into the standard Commission informatics configurations.
 

Information and training

An important information campaign has recently been launched, in order to inform Community staff on how the euro will affect them as officials/pensioners, but also as citizens in their daily life. They are moreover expected to act as "ambassadors" for the euro and hence need to be equipped with the necessary information to take on this role.

With the start of Stage Three approaching, the Commission is becoming increasingly involved in information and communication activities relating to the practical aspects of the changeover. Special emphasis is therefore being put on technical documentation, which is destined to facilitate the preparation of enterprises and other economic agents. A new series, entitled EURO PAPERS, has recently been launched in order to cover particular needs of a technical or practical nature. In addition, EUROPA, the Commissionís official Internet server, and the EURO site in particular (http://euro.eu.int) are increasingly being used to publicise these documents and all other material aimed at the general public.
 

G. COORDINATION AT INTER-INSTITUTIONAL LEVEL

As all Community institutions and organs are concerned by the changeover to the euro, an informal inter-institutional network of contact points has been created with a view to foster the exchange and dissemination of information. The network also ensures coordination and monitoring of all actions of common interest (e.g. the information campaign on the euro for Community staff).

 
H. CONCLUSIONS

As far as the Community and its institutions are concerned, the changeover to the euro is expected to occur in a smooth and orderly manner as most Community policies and legislation are ECU-based. Some direct consequences, in the form of simplifications and improvements, will arise in the areas of budgetary policy, agricultural policy and the management of administrative expenditure. Existing Community legislation will be unaffected, apart from a few exceptions.
 

17-12-1997

EXECUTION OF PAYMENTS FROM THE 1996 BUDGET
 
 
 
(1)
ECU million
(2)
As % of total budget
(3)
% paid in ECUs 
(4)
% paid in national currency
Agricultural spending
39,082
51.8 %
0.1 %
99.9 %
Structural operations, structural and cohesion expenditure
24,636
32.7 %
98.0 %
2.0 %
External actions
3,803
5.0 %
97.1 %
2.9 %
Research and technological development
2,898
3.8 %
90.3 %
9.7 %
Guarantees, reserves
936
1.2 %
100.0 %
0.0 %
Training, youth, culture, audiovisual media, information and other social operations
685
0.9 %
95.6 %
4.5 %
Consumer protection, internal market, industry and trans-European networks
557
0.7 %
96.7 %
3.3 %
Energy, Euratom nuclear safeguards and environment
174
0.2 %
94.4 %
5.6 %
Administrative appropriations (staff)
1,701
2.3 %
5.5 %
94.5 %
Administrative appropriations (buildings, equipment, Ö)
349
0.5 %
47.5 %
52.5 %
Administrative appropriations (other)
613
0.8 %
62.0 %
38.0 %
TOTAL 
75,434
100.00 %
44.5 %
55.5 %
 

 
* The author is principal administrator at the European Commissionís Directorate-General for Economic and Financial Affairs (DG II); Directorate for Monetary matters. This article reflects only the opinion of the author and does not commit the position of the Commission.
1 See the text in full (47 pages) on <http://www.ecu-activities.be/document/europapers9en.html> (edit. note).
2 Council Regulation 1103/97 of 17.06.1997 on certain provisions relating to the introduction of the euro and Council Regulation Ö/98 on the introduction of the euro.
3 See foot note 1 (edit. note)

 


 

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