French cause further turmoil

The French threw another spanner into the great monetary union debate last week, after the insistence of the new government led by Lionel Jospin that the participants make a commitment to employment. The apparent failure of yesterday's three-way meeting between Chancellor Helmut Kohl of Germany, Mr Jospin and Jacques Chirac, the French President, to reach agreement on the issue helped send the pound to its highest level for nearly five years at DM2.84 as dealers saw the currency as a safe haven from EMU turmoil.

Even so, early alarmist fears that the return of the socialists could prove fatal to the project are receding. Many expect this weekend's meeting of European finance ministers to hammer out a suitable compromise with the French. Success would then allow the principles of the stability pact regulating the operation of economic and monetary union to be agreed on at next week's Amsterdam summit.

These hopes mean our panel of EMU-watchers are now growing marginally more optimistic that the project will start on time in 1999, reversing some of the slide in confidence of the previous fortnight. Graham Bishop of Salomon Brothers said: "After the nervousness, all the signs are that the stability pact will drop into place."

The political will is there, he said, and French concerns are likely to be met by a separate statement from the heads of state reinforcing the European Union's role in tackling unemployment. Alex Garrard of Union Bank of Switzerland also points to this as a possible way to deal with the French.