BOMBSHELL ANNOUNCEMENT FROM BREMEN, WEST GERMANY On the eve of the seven nation economic summit conference in Bonn this coming weekend, the leading Common Market powers — West Germany and France — have come up with a startlingly ambitious plan.
Meeting July 6 and 7 in Bremen, West Germany, the nine Common Market countries agreed to set up by the end of the year a system to stabilize European currencies by cutting down speculation on the dollar and on European currencies themselves.
And they will create a European Currency Unit (ECU) which will be freely interchangeable among Common Market countries at a fixed rate.
Under the plan, drawn up by West German Chancellor Helmut Schmidt and French President Valery Giscard d' Estaing, each nation would put 20% of its dollar and gold reserves plus a matching amount in its own currency into a central fund. Then, when speculators tried to buy or sell dollars on European currencies, the Common Market could make such transactions unprofitable by making counteroffers with a portion of the anywhere from the $25 billion to $50 billion available behind the new reserve unit. (This ECU, at least at the outset, would not be a separate currency as such, but an artificial accounting unit, similar to IMF special drawing rights, or SDR'S.)
Progress toward creation of this fund was made at the last EC summit in Copenhagen in April (and reported a few weeks ago in this column in the Pastor's Report.) However, no one expected so much progress to be made on the scheme so quickly. As Dan Cook, the Los Angeles Times reporter noted: "The agreement to create a new monetary system, which was the great achievement of this meeting, goes much further than has been expected, a great deal more rapidly than had been thought possible."
The ECU plan is still in the planning stage. It will be further refined at a July 24 EC finance ministers' conference. The framework for the new system is expected to be completed by the end of October, with final presentation to the EC heads of government at their next semi-annual conference in Brussels in early December.
Thus the plan could be approved — which appears likely — before the year is out.
The variable figures in the size of the ECU fund's backing (ranging from $25 billion or $30 billion up to $50 billion) reflect the fact that no one knows for sure now how many EC countries, and/or others, will join the project, inspired mainly by West German Chancellor Schmidt (who is totally dismayed over the fall of the dollar) and French President Giscard d'Estaing. It is felt the Benelux countries have no choice but to line up behind it. Italy — in hock to Bonn — has reservations, but probably also no choice. Some think non-members Austria, Switzerland and the Scandinavians may also join up.
The big question is Britain. Will the British be willing to commit much huge amounts of money to a fund they can't control by themselves? The current small EC treasury is one thing — but this is another matter entirely. The British also have grave reservations about being ordered around by the West Germans and the French. The new plan is most definitely not London's creation.
Reports the Christian Science Monitor's Elizabeth Pond: "The new political will of West Germany and France in promoting this currency cooperation is a striking development. West German Chancellor Helmut Schmidt...is showing his resolve with the unprecedented volunteering of one-fifth of ample West German foreign reserves for a common European pool."
One has the feeling that when the dust settles in Europe a few months from now, we could be witnessing a quite different economic arrangement among the nations than presently exists in the Common Market today.