Tony Blair as summit chairman will try to steer a compromise today which ensures that the job goes for eight years to the Dutch Central Banker Wim Duisenberg, but allows the French to walk away with some grace.
French President Jacques Chirac was officially clinging to his demand last night that a Frenchman - not the majority-backed Dutch candidate - should head the future European Central Bank.
The bank, to be established in July, will set interest rate policy for the euro zone and its president will hold one of the most powerful positions in Europe. The French European Affairs Minister, Pierre Moscovici, said the eight-year term of office should be split de facto and that France should be in charge at the bank when euro notes and coins go into circulation in 2002.
Amid mounting concern, particularly in Germany, that splitting the term of office would rob the post of independence and undermine the credibility of the euro, a number of sweeteners for the French were being discussed.
The presidency of the European Bank for Reconstruction and Development could now go to a Frenchman, while the European Commission signalled a major concession to the French in a long-running dispute over Credit Lyonnais, the troubled French bank. Jacques Santer, the European Commission president, indicated that the commission may not block a French government move to channel millions of pounds in state aid to the bank.
The French were also handed another olive branch as Germany backed away from a bid to tighten budgetary discipline for the "in" countries. France, faced with a massive and growing unemployment problem, had objected to German demands that single currency countries freeze public spending and commit themselves to doing so in writing, for the rest of this year.
The text of a declaration which was set to be agreed by EU finance ministers last night omitted the key passages which the French had rejected.
Failure to settle the ECB row today would send a damaging signal to the financial markets. Central bankers are nervous at the prospect of the key job falling victim to political influence. An initial compromise was for the eight-year term of office of the president to be halved, with the French candidate, Jean-Claude Trichet, taking over from the Dutchman midway through 2002.
But this would be in flagrant contravention of the Maastricht treaty and would invite claims that the custodian of the euro was not independent. The European Commission repeated its view yesterday that the term of office could not be split under the rules of the treaty.
Another option would be for a gentleman's agreement allowing Mr Duisenberg to retire although this would not be a formal agreement.
One of the main obstacles to a deal along these lines is that the Dutch government, facing elections next week, is reluctant to be seen to have caved in to French pressure.
Tony Blair was in the Netherlands last night attempting to agree a strategy with the Dutch Prime Minister, Wim Kok.Reuse content