European Council Resolution on the new exchange-rate mechanism
The European Council intends to establish a suitable exchange-rate system in order to guarantee exchange-rate stability and solidarity between the euro and the national currencies of those countries not participating in the euro area from the outset.
European Council Resolution on the establishment of an exchange-rate mechanism in the third stage of economic and monetary union (Amsterdam, 16 June 1997) [Official Journal C 236 of 02.08.1997].
The Council has decided to establish an exchange-rate mechanism to replace the existing European monetary system (EMS) at the beginning of the third stage of economic and monetary union (EMU).
The exchange-rate mechanism will link the currencies of Member States outside the euro area to the euro. The euro will be the centre of the new mechanism, whose operating procedures will be laid down in an agreement between the European Central Bank (ECB) and the national central banks of the Member States outside the euro area.
The smooth functioning of the single market is dependent on sustainable exchange-rate stability, the prerequisite for which is a convergence of economic fundamentals. During the third stage all Member States must pursue sound fiscal and structural policies, as well as disciplined monetary policies directed towards price stability. Moreover, each Member State has an obligation to treat its exchange-rate policy as a matter of common interest.
The exchange-rate mechanism will:
- foster convergence and assist the Member States outside the euro area in their efforts to adopt the euro;
- help to protect these Member States, and those within the euro area, from unwarranted pressures in the foreign-exchange markets.
The exchange-rate mechanism will function without prejudice to the primary objective of the European Central Bank and the national central banks, which is to maintain price stability.
Participation in the exchange-rate mechanism will be optional for the Member States outside the euro area. A Member State which does not participate from the outset may join at a later date.
A central rate against the euro will be defined for the currency of each Member State outside the euro area that participates in the exchange-rate mechanism. There will be one standard fluctuation band of plus or minus 15 % around the central rate. Intervention at the margins will in principle be automatic and unlimited, with very short-term financing available.
The flexible use of interest rates will be an important feature of the mechanism and there will be the possibility of coordinated intra-marginal intervention.
Decisions on central rates and the standard fluctuation band will be taken by mutual agreement of the ministers of the euro-area Member States, the ECB and the ministers and central bank governors of the non-euro-area Member States participating in the new mechanism, following a common procedure involving the Commission and after consulting the Economic and Financial Committee.
All parties to the mutual agreement will have the right to initiate a confidential procedure aimed at reconsidering central rates.
On a case-by-case basis, formally agreed fluctuation bands narrower than the standard one and backed up in principle by automatic intervention and financing may be set at the request of the non-euro area Member State concerned. Such a decision to narrow the band would be taken by the ministers of the euro-area Member States, the ECB, and the ministers and the central bank governors of the of the non-euro-area Member States participating in the new mechanism, following a common procedure involving the European Commission and after consulting the Economic and Financial Committee.
The standard and narrower bands will in no way prejudice the convergence criterion for the exchange rate provided for in the third indent of Article 121 (1) of the Treaty.
The details of the very short-term financing mechanism will be determined in the agreement between the ECB and the national central banks, broadly on the basis of the present arrangements.