EMI warns of danger of euro turmoil - Business - News - The Independent

EMI warns of danger of euro turmoil

The single European currency could face "unbearable strain" in its crucial "running in" period, the president of the European Monetary Institute warned yesterday.

In a speech sure to be read by the financial markets as a fresh signal of a possible delay to European Monetary Union, Alexandre Lamfalussy said members must have properly met the required budget deficit targets in order to avoid such turmoil.

Mr Lamfalussy, charged with preparing the ground for the future European Central Bank (ECB), said: "We will have to live with the possibility of teething troubles during the crucial 'running in' period, putting considerable strain on the strategy and the technical capabilities of the ECB. Such strain could become unbearable ... if it were compounded by the consequences of initially weak budgetary positions in the member countries."

With rumours of delays to the EMU start date haunting the markets, analysts expected the president's remarks to trigger further jitters when trading opened today, even though he also stressed the importance of the singe currency for the European single market.

Alison Cottrell of Paine Webber said: "Anything which sounds vaguely pessimistic or cautious about EMU at the moment is interpreted by the markets as implying a delay, even if that isn't the intention at all."

Between 1 January 1999, when member states entering EMU will lock their currencies, and 2002 when the new euro notes and coins are in full circulation, different currencies will continue to circulate in the EMU zone. Many people fear that during the transitional period if the markets do not have full confidence in the shape of the single currency, or in member states' whole-hearted commitment to EMU, they could wreak considerable damage by speculating between parallel currencies. This would put considerable pressure on the European Central Bank.

Mr Lamfalussy, speaking at a forum in London organised by investment bank Robert Fleming and the London School of Economics, made it clear he thought that the ECB's task would be even more difficult if countries entering the single currency did not have a strong and sustainable fiscal position.

In his speech, Mr Lamfalussy said: "If fiscal positions are not initially under control, there may be repercussions on the single currency from large deficits and adverse spillovers across borders affecting Monetary Union as a whole from lax fiscal policies in individual member states."

The speech echoed recent concerns expressed by Hans Tietmeyer, president of the Bundesbank, that profligate fiscal policy by governments within the euro-zone could scupper any attempt by an ECB, no matter how independent, to maintain a prudent economic policy.

As London Business School Professor David Currie explained in a recent research report on EMU: "If all countries were deeply in debt ... European real interest rates could rise sharply. This would make it harder to finance investment and would worsen the prospects for growth."

However, one city analyst pointed out that such remarks were to be expected from European central bankers, who always press the case for strict fiscal discipline and a strong currency, fearing anything that could weaken the euro.

Mr Lamfalussy spelt out what he thought the EMI's advice should be on the interpretation of the Maastricht convergence criteria. "The Treaty ... establishes two reference values that should not be exceeded: the 3 per cent deficit ceiling and the 60 per cent debt ceiling.... Deviations from the reference values should be granted sparingly."

Life and Style
tech
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Matt Damon as Jason Bourne in The Bourne Ultimatum (2007)
filmMatt Damon in talks to return
PROMOTED VIDEO
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Life and Style
tech... and together they're worth at least £100 million
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig is believed to be donning skies as 007 for the first time
Arts and Entertainment
Fringe show: 'Cilla', with Sheridan Smith in the title role and Aneurin Barnard as her future husband Bobby Willis
tvEllen E Jones on ITV's 'Cilla'
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Bono and Apple CEO Tim Cook announced U2's surprise new album at the iPhone 6 launch
tech(but you can't escape: Bono is always on your iPhone)
Sport
Tim Wiese
sport
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week