An historic step toward greater European economic unity is now the widely expected outcome of crucial negotiations between the government heads of the nine-nation European Economic Community, who meet here Dec. 4-5 to discuss proposals for the creation of the long-heralded European monetary system.
Following a rush of last-minute diplomatic activity, informed opinion now appears to concur that the EMS, which seeks to create a zone of monetary stability for the 250 million Europeans within the EEC's borders, will start on schedule on Jan. 1, but initially without Britain as a full participant.
Agreement on this ambitious new scheme, first discussed by EEC commission president Roy Jenkins in late 1977 and since emphatically endorsed by the Franco-German axis of President Valery Giscard D'Estaing and Chancellor Helmut Schmidt, would be Europe's initial response to the collapse of the dollar-based Bretton Woods monetary system.
The dollar's dizzy drop, spurred by what EEC officials term the "benign neglect" of U.S. monetary policy since the abandonment of dollars-gold convertibility in August 1971, is seen here as the chief destabilizing factor undermining the prospects for renewed economic growth in Europe.
In response, the EMS, say sources close to Jenkins, seeks gradually "to isolate the (European) community from the effects of the fluctuating dollar."
The aim is to build a firm monetary platform from which the EEC could meet U.S. demands for reflating the European economy.
These demands were formulated at the latest Western economic summit in Bonn in July, which also "welcomed" Europe's scheme for "closer monetary cooperation."
The fundamental aim of the highly complex proposals facing EEC leaders meeting here next week is to limit fluctuation margins for all currencies involved in the system.
As in the case of the "snake," the present European exchange arrangement tying Danish and Benelux currencies to the mighty German mark in a joint float against the dollar, the maximum fluctuations of any one currency against another basically would be set at 2.25 percent either side of parity, but this margin could be enlarged temporarily to 6 percent for new members with weaker currencies, such as the Italian lira. The French and the Irish are expected to apply the more restricted margins to their currencies.
The proposals also call for currency parities to be defined in terms of the European currency unit (ECU), itself a "basket" of European currencies weighted to reflect the importance of the national economies to which they are linked. On this basis, the basket would be mark dominated.
A key element in the proposals is the intervention system proposed to keep the new European arrangement, already dubbed the "supersnake," together. Central bank interventions would be carried out as far as possible in European currencies, not dollars. Dollar avoidance aims to limit further speculation against the American currency, whose excessive fluctuations might endanger the intended advance in European monetary cohesion, officials here say.
The other major feature of the system would be a swap facility for settlements between participating central banks, which they would create by depositing 20 percent of their gold and dollar reserves in return for credits in ECUs. This facility wpuld be worth 20 billion ECUs (about $25 billion).