ERM Crisis: What the European newspapers are saying today

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The Independent Online
Irish Times

NONE of the participants in Sunday's stormy meeting of finance ministers and central bank heads tried to pretend that they had come up with the best solution.

It would have been preferable if the German government and the Bundesbank could have been persuaded to lower interest rates, thereby taking speculative pressure off the weaker currencies. Failing that a realignment (a revaluation upwards) of the Deutschmark might have done the trick, but the Germans opposed that.

The French government suggested that the Deutschmark should be suspended from the mechanism. This was a preposterous suggestion: kicking out the strongest currency is no way to effect and improvement. The President of the European Commission, Mr Delors, did the European Community no favours in publicly backing the French suggestion. He will hopefully be told this in strong language whe the commission holds its emergency meeting next Friday.

The French franc has been devalued against the Deutschmark and other currencies, but the French government can argue that it successfully resisted an official devaluation. The Deutschmark has risen against the weak ERM currencies but the Germans have resisted a revaluation which would have pushed the Deutschmark's value up against all currencies. In short, the member states of the ERM, having failed dismally to pull together, have now been told to pull separately. Every state for itself.

The place and the purpose of the EC has been dealt a serious blow by the unwillingness of certain member states to put the community first and individual electoral considerations second.

Le Monde

WHAT worth have the words of a chancellor, who said recently that there was no reason to speculate against the franc, when he lets his finance minister, Theo Waigel, push the country into debt until the Bundesbank can only respond to this by maintaining interest rates which are murderous for the depressed economy of its neighbours?

All of Europe is today paying for the mistakes made by the Bonn government in its application of the German unification process . . .

The Bonn government does not seem to have understood the degree of fragility that the changes in the world have brought to a laboriously constructed Franco-German edifice. Attempts at monetary 'virtue' by various French governments since 1983 only meant something if accompanied by a constant deepening of economic and political concert between Bonn and Paris.

Le Figaro

IF BONN took the understandable decision in favour of fast re-unification, it also unfortunately gave politics priority over economics. By choosing the most expensive route - the parity of one-for- one between the two marks - and the most painless route - borrowing rather than increasing taxes - the government across the Rhine landed itself with a huge financial millstone.

It also gave birth to justified fears of a return of inflation. But how could it have imagined that bringing up a country destroyed by five years of war and communism to a Western level could be achieved without inflation?

Because he did not understand, or at least because he did not know, Helmut Kohl saw the Bundesbank, the keeper of the temple of monetary stability, lift its interest rates little by little to fight inflation.

From then on, the breakdown of the EMS, in whatever form or with whatever palpitations, was difficult to avoid.

Frankfurter Allgemeine

NOT LONG ago people in Paris were thinking half-aloud whether, given the state of the German economy and the public deficit in Bonn, the Franc could not become the EMS's anchor currency.

Now, despite massive economic efforts, the battle over a fixed parity with the Deutschemark, which had become a matter of national honour, has been lost. Perhaps this intransigence was never economically reasonable.

The criticism of the Bundesbank was to a great extent to distract from the home-made origins of France's economic weakenesses.

El Pais

The agreement to widen the margin of fluctuation between currencies to 15 per cent, far from putting an end to the uncertainty afflicting the exchange rate mechanism, and to speculators preying on it, has only prolonged the agony.

The pact weakens the main objective of the system: the stability of the exchanges - a precondition of the normal development of the single market and a key foundation stone of the plan for the transition towards economic and monetary union.

It is also worth noting difficulties facing those responsible for the EC's economy and finances, who needed more than 20 hours of intense meetings to reach agreement on questions whose dimensions were strictly technical. This reveals the weak base underpinning the scaffolding of a united Europe. In current conditions it is difficult to accept this framework of integration as the only way of legitimising national policies.

Behind these difficulties lie distinct positions on economic and monetary integration and, in any case, a clear shift in priorities, in which European objectives are subordinate to domestic problems. This is understandable, given the deep recession affecting all European countries.

Wall Street Journal Europe

SPECIES become extinct when they fail to adapt to change. The exchange rate mechanism and the dream of European union have come unstuck in part because European leaders refused to adapt to the collapse of communism.

It's not the stubbornness of the Bundesbank that caused the strains on the system, and certainly not currency 'speculators' as the European Commission's economics minister Henning Christophersen foolishly believes. The strain resulted from the knock-on effects of German reunification, specifically the inflationary consequences of the Kohl government's extravagant scheme for financing the new unity.

Then was the time to step back from the rush to political and monetary union in the EC to consider what effects the liberation of eastern Europe was likely to have on the process. Instead, European leaders pulled their hoods around their faces and forged ahead.

The decision of the finance ministers early yesterday is a classic case of blind devotion to form. The ministers effectively let EC currencies float against one another, widening the ERM bands from a low of 2.5 per cent for some countries all the way up to 15 per cent (meaning the currencies could effectively fluctuate 30 per cent). They gave up the ERM in effect, but they could not bring themselves to give up the ERM in name.

They cling to the husk, because not to do so would be to publicly admit that the old framework is obsolete. In the Maastricht treaty we see this situation replicated on a larger scale . . .

To their credit, the finance ministers knew enough to discard one suggestion, to rush immediately into a single European currency to cement the currencies together. A middle of the night ecu would have caused a massive counter-reaction all over Europe. One can imagine the rage in German holiday camps if vacationers had awakened to discover the covert sacrifice of the D-mark.

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