The government made no new announcements or policy moves over the weekend and has attracted no criticism for raising interest rates to protect the franc. It is sticking to its line that the currency's parity with the mark is viable.
London market sources believe a franc devaluation and even the future of the exchange rate mechanism depend on how far Germany swallows its pride and cuts interest rates this week.
France would not devalue, said Bernard Godemont, of the Nomura Research Institute in Paris. 'There would be too much political hell to go through,' he added. The prime minister, Edouard Balladur, was newly elected but was one of the architects of the franc fort policy.
The Bundesbank meets this week to consider further cuts in interest rates. If it undermines the EMS by its policy the political damage between Germany and France would be irreparable. Bankers in Paris said at the weekend that the government seemed reassured about German support.
But British political sources said that Kenneth Clarke, the Chancellor, had heard disparaging comments about the EMS when he visited Frankfurt recently.
French officials continually hint at the 'special relationship' between Paris and Bonn. 'All these decisions are taken with great care and and in co-operation with our European partners, especially the Germans,' said the economy minister Edmond Alphandery, last week. But a joint statement from the Bundesbank and the Bank of France did little to stop the pressure.
The looming crisis was seen by French newspapers this weekend as primarily a political problem, reflecting an assault by British and American capital on the EMS.
This reflects the government's view that there is no economic justification for what is happening and that saving the EMS means saving the franc. Any retreat from this position would attract enormous criticism from the anti-European right and the pro-European left.
Mr Godemont said that a British-style exit, or devaluation, would probably not help the country's faltering economy.Reuse content