It is well known that Italy is a strong supporter of the idea of creating a European central bank, although its motivations are often misrepresented by the media.
It is said, for example, that through a European central bank Italy hopes to reduce the Bundesbank's independence and force it to adopt a more accommodating stance of monetary policy and hence to accept a relatively higher average rate of inflation in Europe. Or sometimes Italians are accused of being daydreamers putting forward airy-fairy schemes to conceal their inability to operate in free, competitive markets.But Italy's motives are very sound and practical. As a highly open economy that exports goods manufactured with imported inputs, it is especially vulnerable to external shocks in relative prices that are quickly translated into domestic price rises.
Thus, Italy needs exchange rate stability to maintain and protect price stability. The European Monetary System has provided Italy the anchor it needed to achieve this goal.
Italy's main objective in the European negotiations is to protect the European Monetary System and its achievements. We believe that the scheme outlined in the Delors report does that without limiting the freedom for capital movements in a truly integrated market for financial services.
Alternative schemes, based on vague concepts of "currency competition," seem to us just another name for a system based on floating exchange rates and independent monetary policies.
This is the system we had in Europe in the 1970s, before the European Monetary System, and it is fair to say that it did not work at all, contributing instead to the propagation of the inflationary impulses of the first oil shock in 1974. In contrast, the European Monetary System proved able to contain and eventually quench the impact of the second oil shock of 1979 and 1980.
Is the progress toward economic and monetary union in the European Community being jeopardized by the events of Eastern Europe?
There is broad consensus that the development of new forums for political cooperation in Europe and the deepening of economic and monetary integration in the community are not mutually exclusive undertakings. Indeed, they may be reinforcing each other.
But no country, not even the largest, can satisfy alone the huge demands for resources, investment and technology that are coming from Eastern Europe.
There is a need to coordinate the various initiatives vis-a-vis Eastern Europe that individual countries may want to undertake, either through their governments or through private corporations and financial institutions.
The total indebtedness of Eastern Europe to the banks of countries reporting to the Bank for International Settlements stood at $92 billion at the end of September 1989.
The largest share of this indebtedness is owed to European banks, of which Italian banks alone account for over $8 billion. The European exposure is likely to be already much bigger now and is bound to increase rapidly over the coming months. There is every interest in the community to cooperate to prevent a disorderly competition among lenders that may lead to a new debt problem on the old continent.
For these reasons the community has taken a series of initiatives that include the establishment of a European Bank for Reconstruction and Development.
Negotiations on this complex project are well under way. A majority share of the bank's capital would be held by EC countries, but the United States, Japan and other non-European countries are expected to have a significant position in the new institution. The community and the European Investment Bank also are expected to become shareholders.
Among the crucial issues to be resolved is whether the bank, which will raise funds in international capital markets like the World Bank, would lend its resources to existing state-controlled agencies or would attempt to promote the creation of private-sector entities.
Moreover, there is a question of whether the Soviet Union should participate in the new institution only as a contributor to its capital or could receive loans from it. None of these issues currently appears to pose insurmountable difficulties and it would be perhaps not too optimistic to assume that the bank may indeed see the light before the end of this year.
A similar cooperative spirit seems to prevail among the EC central banks regarding monetary unification between the West Germany and the East Germany. The matter was thoroughly discussed by the committee of governors on Feb. 12.
It would be reasonable to expect that community resources and institutions would be called upon to play a role in addressing the problems of East Germany, just as they have done in the case of southern Italy or other less developed regions of the community.
No doubt all these problems will be considered in the context of the intergovernmental conference that will negotiate the treaty on economic and monetary union.
The preparation of the agenda and the convocation of the conference will be the responsibility of the Italian government, which will assume the chairmanship of the European Council as of July 1.
Italy will assume this role after having eventually abolished all exchange controls and joined the narrow band of the EMS; our government therefore will enjoy the status and the credibility to play the role of promoter of monetary and financial integration in Europe.