Mr Leigh-Pemberton said that he expected EMU to be achieved 'at some time' but the path to it would have to be 'pragmatic, free of political prejudice, and on the basis of independent central banks'.
The Governor was critical of several features of the exchange rate mechanism as it had operated before September 1992 when the Italian lira and sterling suspended their membership. He made three main criticisms.
First the upward pressure on the anchor currency, the German mark, had combined with weakness of the dollar to create excessive strains in the exchange rate mechanism. While he still believed that sterling at DM2.95 was a reasonable rate at that time, it was clear that the pound at dollars 2 was not.
Second, there had been excessive rigidity of parities as governments had been 'mesmerised' by the apparent success of the ERM between its last big realignment, in 1987, and September 1992.
Third, there was the 'almost accident' of the Danish referendum, which made people question the goal of EMU, towards which the European currencies were supposed to be heading.
The lessons were that the ERM must be much more flexible, and that there should be a greater frankness of discussion about disequilibrium before governments forced markets' hands.
Looking ahead, there had to be a new attitude of commitment; if a parity was sustainable, it should be defended, but if not, governments should face the fact.
The need for changes to the ERM was also recognised by Helmut Schieber, a board member of the Bundesbank. Speaking immediately after Mr Leigh-Pemberton, he called for 'timely and more frequent realignments' of ERM parities. The European Monetary System was not the same as economic and monetary union; it was 'a system of stable currencies, not stable exchange rates'.
However, it made it clear that the EMU goal should be retained despite the problems of the exchange rate mechanism. The troubles of recent months were an argument for monetary union, not against it.Reuse content