Britain 'will be pressed to rejoin ERM': Problems feared after Maastricht ratification

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The Independent Online
(First Edition)

BRITAIN is likely to come under increasing European Community pressure to rejoin the exchange rate mechanism, the Commons Treasury and Civil Service Select Committee warned yesterday.

In a report on the prospects for European Monetary Union the all-party committee said that, following a fact-finding tour of several European capitals, it believed that political pressure from some community partners would grow.

Despite the government view that ratification of the Maastricht treaty does not imply a return to the ERM, the committee said European officials expressed a different view, cautioning of 'difficulties' if Britain remained outside the mechanism.

The report followed a warning by the chairman of the EC committee of central bankers, Wim Duisenberg, that any future membership application by the UK should secure the unanimous support of other member states for the rate at which sterling re-enters - a view known to be held by the German Bundesbank.

Foreshadowing the forthcoming report on ERM reform by the committee of EC central bankers, the Treasury Committee said it did not find support for a fundamental overhaul of the system on the Continent. The broad consensus appeared to favour a return to the original concept of the ERM as a 'crawling peg' rather than 'fixed rate' system, with members more willing to contemplate currency realignments to reflect changes in their economic circumstances.

However, it is understood that the EC report on ERM reform amounts to a bland compromise, neither coming out in favour of a more flexible approach nor urging more robust support of weak currencies by strong member states such as Germany.

The Commons committee said that a return to a more flexible ERM, which has the support of the Bundesbank, appeared to be at odds with a requirement of the Maastricht treaty that currency parities should be maintained to help economic convergence.