European Leaders Gird Their Currencies
Financial speculators still threaten Europe's goal of a single currency, and governments are bickering over Irish devaluation, not acting together
EUROPE'S dream of achieving monetary union and creating a single currency is at risk of becoming a nightmare. As governments descend to bickering with each other, leading politicians and economic analysts are stressing the need for concerted action on currency stability.
Following the forced 10 percent devaluation of the Irish punt within the European Community's exchange rate mechanism (ERM) on Jan. 30, government ministers in European capitals engaged in a spate of bitter mutual recrimination over whom to blame.
They did so amid signs that international currency speculators, after huge profits last year, were preparing fresh runs on the French franc and other hard-pressed currencies.
Britain's Lord Jenkins, who was president of the European Commission when the ERM was formed 13 years ago and is now leader of the Liberal Democrats in the House of Lords, likens the speculators to "packs of dogs or wolves" who "move from victim to victim."
"Having got the Irish punt, a relatively small morsel, they are now turning on the French franc, a very large one," Lord Jenkins says.
A new surge of cooperation between EC governments was "urgently needed," he says.
In an attempt to impress governments with the dangers of economic decline, Jacques Delors, Lord Jenkins' successor as European Commission president, proposed on Feb. 1 a meeting of the Group of Seven industrialized nations in April - three months earlier than planned.
MR. Delors was speaking as speculators pushed the British pound to new lows against the deutsche mark, France's central bank purchased francs in large quantities, officials and bankers in Copenhagen prepared for an assault on the kroner, and governments in several EC capitals criticized each other for selfish conduct.
Ruairi Quinn, Ireland's employment minister, on Feb. 1 accused the London government of forcing his country's devaluation by unexpectedly lowering British interest rates on Jan. 28, causing pressure to mount on the punt.
Prime Minister John Major personally authorized a 1 percent interest rate cut with the aim, his officials say, of stimulating growth.
Mr. Quinn won support for his view that Britain was to blame from French Finance Minister Michel Sapin, who said that Britain was following an "every man for himself" policy.
London officials reject the criticism, saying that Britain had quit the ERM last September. The pound now floats freely against the mark and other EC currencies.
"Seeing we are no longer in the ERM," one London official says, "we can hardly be blamed for not gearing our policies to it."
Economic analysts see the Irish devaluation as part of growing turmoil within the ERM. Avinash Persaud, a financial analyst with UBS Phillips and Drew in London, notes that since September five EC currencies - the Italian lira, the British pound, the Spanish peseta, the Portuguese escudo, and the Irish punt - have all been forced to quit the ERM or devalue within it.
Mr. Persaud says high interest rates maintained by Germany's Bundesbank are a prime reason for disruption of the ERM. "Unless the Germans do something about their rates within the next two weeks or so, the ERM may be doomed to collapse," he says.
But Helmut Schlesinger, the Bundesbank president, told an audience in London on Feb. 1 that pressures on the ERM could be best dealt with by countries being "more willing to realign their currencies."
LORD Jenkins says the ERM worked well for nearly 12 years. Then because of the economic pressures resulting from reunification, "Germany, from being a center of stability, suddenly became a center of instability."
The devaluation of Ireland's currency caused anger in Dublin, where a new coalition government took office in January.
Dick Spring, the Irish foreign minister, said at a Feb. 1 meeting of EC ministers in Brussels that the ERM was being badly run.
He warned that without closer cooperation between member states, EC currencies would be "picked off one by one" by speculators.
Dublin officials expressed bitterness Feb. 2 at reports from Paris quoting Mr. Sapin as saying that it was more important to defend the franc than the punt, because France was "fundamental to the construction of Europe." "France is not Ireland," he said.
Bernie Ahern, Ireland's finance minister, said Jan. 30 that smaller EC countries were at a disadvantage within the ERM, whereas France was able to get a "separate deal" with Germany to support the franc.
Last September, when speculators turned their attention from the pound to the franc, the Bundesbank intervened massively to prop up the French currency.
"Another attack on the franc would be an attack on Europe," Sapin said. He forecast that Germany would defend the French currency again if necessary.