ERM Crisis: Relations with Bonn put Balladur on the spot: Premier will be expected to show France is not second fiddle

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HOWEVER well or badly the French franc fares over the next few days, Edouard Balladur, France's Prime Minister, faces a diplomatic problem.

It is how to handle relations with Bonn as Germany, because of the Bundesbank's refusal to lower interest rates, is identified as the main culprit behind the franc's woes.

If Mr Balladur does not take a new tough line with Germany - and, perhaps, even if he does - the anti-Maastricht elements in his Gaullist RPR party are likely to come to the fore when the new political season begins after this month's summer lull.

For these politicians, principally Philippe Seguin who led the fight against the ratification of the Maastricht treaty last year, the close economic co-operation with Germany, and above all the obsession with maintaining the franc- mark parity, has been a serious error which reduced the French government's control of France's economy.

Before German unification when France took the lead in political co-operation, with de facto diplomatic precedence over West Germany, this grated less. Since unification Germany has taken a more independent foreign stance, particularly over the former Yugoslavia, making political union more difficult to envisage.

Germany's unilateral recognition of Croatia, forcing other EC states to follow on, rankles in Paris, where officials say it precipitated civil war.

During the Maastricht referendum campaign, a good number of pro-treaty French politicians stressed that it had to be ratified to tie Germany down within a framework of European co-operation and to control post-unification ambitions. References to German invasions of France angered the German establishment but gave a clear pointer to the inner thoughts of the French establishment.

Mr Seguin, who was elected president or speaker of the National Assembly after parliamentary elections in March, came out of the traditional reserve imposed by his post in June to criticise successive governments' obsessions with currency which, he said, had caused them to neglect the main issue - the fight against unemployment. Mr Seguin is a strong candidate for the Prime Minister's post if, as looks likely, Jacques Chirac, the RPR president, wins the next presidential elections in May 1995.

Mr Seguin and his supporters called several months ago for the franc to float and thereby stimulate exports and boost the economy.

Pierre Beregovoy, the late Socialist Prime Minister who was the architect of the strong franc policy, and Mr Balladur replied that devaluation would bring only passing benefits.

Now, perhaps with devaluation forced upon him, Mr Balladur can expect to be urged to do something to eliminate the feeling that Paris, 30 years after making Germany its chief ally in the construction of a new Europe, is seen by Bonn and Frankfurt as nothing more than a second fiddle.

French dilemmas, page 18