AREAS AND POLICY OPTIONS
This paper deals with three interrelated problem areas in the general context of European monetary arrangements. They include exchangerate management, policy coordination, and European financial markets. In each case, outstanding issues will be identified and possible solutions indicated.
In recent months several proposals have been put forward to establish target zones for exchange rates in the European Economic Community (EEC, or Common Market). Such a proposal was first made by C. J. Oort in a talk delivered at the Royal Institute of International Affairs on June 18, 1976. It was followed by the proposal of the Villa Pamphili group, reported in the July 23, 1976, issue of the London Times and other leading European newspapers and subsequently published.1 A similar proposal was submitted by the Netherlands authorities to the Council of Ministers of the EEC (the so-called Duisenberg proposal), and issues related to the establishment of target zones were examined in a report of the Monetary Committee of the EEC to the council on November 4, 1976.
Proposals for establishing target zones for Common Market currencies draw on the guidelines for floating established by the International Monetary Fund (IMF) in June 1974, which have not been implemented. Under the IMF guidelines,2 a country should intervene on the foreign exchange market to smooth out temporary fluctuations in the value of its currency. But it should not act aggressively to accelerate movements in its exchange rate, except to bring this within, or closer to, a target zone of rates that the fund considers "to be within____________________