EU call for action on currencies

The United States needs to take action to help stop the turmoil in currency markets, Jacques Santer, the president of the European Commission, said yesterday after a week in which sterling fell to levels at which analysts warned that the Chancellor would have no choice but to raise interest rates.

"What is happening is a crisis of the US dollar," Mr Santer said after a meeting of European Union foreign ministers in Carcassonne, south-western France. "We are suffering the results of benign neglect."

The unusually outspoken criticism of US behaviour reflects growing European concern that another week of pressure on the foreign exchange markets could deal another deadly blow to the European monetary system.

A devaluation of the Spanish peseta and Portuguese escudo has not assuaged the markets, where cash continues to pour into the mark and out of weaker European currencies.

Last week the pound closed five pfennigs down at DM2.19 after Kenneth Clarke, the Chancellor, admitted that the feel-good factor might not return in time for the general election.

Analysts expect sterling to hit new lows in the coming weeks with some saying that a level of DM2.15 would be the trigger for a rise in base rates.

Echoing several of the foreign ministers, Mr Santer called for the involvement of of the Group of Seven leading industrialised countries.

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