Germany snubs French interest rate initiative: Optimism in UK industry is falling, CBI survey shows
Friday 25 June 1993
The German decision came within hours of an announcement by Edmond Alphandery, the French Economy Minister, that he had invited his German counterpart, Theo Waigel, and Helmut Schlesinger, the president of the Bundesbank, to Paris today to discuss an easing of monetary policy.
News of the talks sent the dollar up sharply because it suggested that interest rate differentials between Frankfurt and New York would narrow in favour of the US currency. The dollar raced more than 2 pfennigs higher to DM1.7125.
But after it emerged that the meeting had been called off, the French franc weakened by about 0.8 centimes, to Fr3.3670 to the mark. That decline flew in the face of assertions that France was now able to cut rates unilaterally. 'Alphandery's indiscretions may have lost the French the chance of a rate cut,' said Jim O'Neill, of Swiss Bank Corp.
A French Finance Ministry spokesman said the Franco-German economic council, which meets from two to four times a year, had been cancelled at the last moment because the German minister needed to stay in Bonn to complete his 1994 budget.
Although Mr Alphandery had announced that the meeting was taking place only a few hours before the postponement, it had been organised two weeks ago, the spokesman said. This conflicted with a remark by Mr Alphandery, who said he had decided to call the meeting as the EC Copenhagen summit was in progress.
Mr Alphandery said the meeting in Paris, to which he attached 'a lot of importance', had been called to discuss co-ordinated lowering of interest rates. However, the tone of his other remarks prompted speculation that the Germans might have cancelled out of pique.
'Europe suffers from monetary policies which are too restrictive, especially from a German monetary policy which is too restrictive,' Mr Alphandery said.
'The Germans must speed up their lowering of interest rates. That is why I took the initiative hot on the heels of the Copenhagen summit to ask my colleague Theo Waigel and Helmut Schlesinger to come to Paris tomorrow . . . to discuss a concerted lowering of interest rates in France and Germany.'
He added: 'We shall be able to talk as equals with the Germans. That was not the case a few months ago. Do you remember that the Germans supported the franc during the monetary storm of last September in very big proportions? Now the franc is doing well, perhaps even better than the mark.'
Mr Waigel's office said he could not attend because of a heavy schedule in Bonn. Observers said the German decision reflected irritation at France exerting public pressure on the Bundesbank.
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