Two years of ERM membership without a unilateral devaluation prior to joining the single currency is a legal precondition to joining Emu, according to the strict interpretation of the treaty's rules.Britain and Sweden are alone in arguing that this requirement became irrelevant after the 1993 currency crisis which brought the ERM to the verge of collapse and forced the grid's fluctuation bands so wide they became almost meaningless as a yardstick for stability.
If strictly applied the treaty would require Britain to join the revamped exchange rate mechanism, known as ERM 2, a mechanism designed to govern links between the Euro and those currencies which remain outside after 1999.
But according to a compromise being canvassed in a number of continental capitals a looser interpretation of the treaty would be accepted as long as some other means could be found for Britain to demonstrate exchange rate stability.
"The key thing is stability. Views are divided on how you would measure it outside of the ERM but at the end of the day this is a political decision and if they (Britain) want to join the single currency, the red carpet would be out for them," said one senior source.
"It seems to me that if ministers or heads of government know for definite that Britain wants to join then they will find a solution ... They will use a high degree of creativity to deal with it," said another senior official.
A candidate country's obedience to Maastricht guidelines should be seen as an "overall assessment", French officials say, not as a strict adherence to specific rules.
In monetary circles by contrast the view remains that the treaty's convergence criteriamust be strictly adhered to. The Bundesbank in particular will remain extremely hostile to any fudging. Some economists believe that failure by Britain to sign up to the ERM if it declared its intentions to join would send an ambiguous signal to financial markets given sterling's past volatility. But in recent days French and German government sources said there has been an "evolution" in thinking.
Bonn would not raise "unnecessary obstacles" if the UK said it would definitely join, said a senior German source, and although France would like Britain to give a clear signal on its attitude to the Euro officials in Paris accept that more work needs to be done on British public opinion.
Britain is expected to meet the other convergence criteria on debt and public deficit without much difficulty although further action would be required to render the Bank of England fully independent.Reuse content