Blair tries to halt markets' euro jitters

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The Independent Online
TONY BLAIR yesterday rejected criticism of his handling of the fudged deal over the appointment of the head of the European Central Bank, and sent a clear signal to the financial markets before they open for trading today that "the euro is going to be a success".

Amid fears that Britain may pay the price for the nearly botched compromise between the Germans and the French, brokered by Mr Blair, the Treasury will be anxiously watching the markets today.

The European currencies and bond markets are expected to give the euro a damp welcome, with sentiment dented by fears that the European Central Bank's policy could be politically influenced.

The European Union's move to split the term of the European Central Bank presidency between Dutch and French candidates opened the way for the independent central bank to be subject to political interference, many analysts said yesterday.

"The market reaction will be disappointment at the split term of the ECB," said Cesar Molinas, co-head of European economic and fixed income research at Merrill Lynch.

"It's an example of how far politicians will go to defend national pride. It's not a good omen of how the relationship with the ECB and governments will develop in the future."

But in a clear signal to steady the market, Mr Blair said: "The euro is a strong currency and the provisions of the [Maastricht] treaty are to be upheld in full without any derogation at all."

Defending his role, he added: "We could have wrapped this whole thing up 8, 10, 11 hours ago, but then it would have been something which we could not say was in accordance with the treaty."

Some of his European partners blamed Mr Blair, as holder of the EU presidency, for being ill-prepared for the most important decision that the European Union may ever reach. Austria's Prime Minister Viktor Klima said they had "never seen anything like it"; Jean Claude Juncker, the Luxembourg Premier, criticised Mr Blair for focusing on Chancellor Helmet Kohl of Germany, French president Jacques Chirac and Wim Kok of the Netherlands, and not briefing the others.

Irish Republic sources say they were kept in the dark and the Irish Prime Minister, Bertie Ahern, who praised Mr Blair on the peace settlement in Northern Ireland, said: "Personally, I think if it had been left to 18 in the room we would have got to bed earlier."

There was also strong reaction from Bonn yesterday where one of Chancellor Kohl's leading economic advisers said the deal was against the spirit of the Maastricht treaty, while a leader of the business community said the EU leaders had come up with a "lazy compromise". The Italian Prime Minister Romano Prodi accused the British of being "ill-prepared".

The talks were plunged into crisis when Mr Chirac refused a compromise unless it was in writing, leading to a night of desperate haggling to avoid a disastrous collapse. It ended with a "family photo" at midnight with the strain showing clearly in the faces of the leaders.

The deal brokered by Mr Blair gave the Germans their demand for someone they could trust at the head of the bank, to ensure the Euro is a hard currency. Mr Blair announced that Helmet Kohl's choice, Wim Duisenberg, would have an eight-year term as president of the ECB. But he had given a verbal assurance to a special late-night council of ministers at Mr Chirac's insistence that he would step down for a Frenchman, expected to be Mr Chirac's choice, Jean-Claude Trichet, after the notes and coins begin circulating for the euro in 2002.

Mr Blair said: "If this currency is to succeed, it has to be a strong currency and a currency run in accordance with the treaty, not a currency that is pushed this way and that way with the treaty by the independent European Central Bank."