'We shouldn't crow about this and start singing the Marseillaise,' the Commission's president said, referring to France's decision to cut its official short-term interest rates below German ones for the first time in 26 years. But he emphasised that interest-rate cuts by France and the Benelux countries meant that now, 'not all decisions depend on the decision of a single country.'
But his views were contradicted in Germany by Helmut Schlesinger, the Bundesbank president, who said he did not believe the mark was losing its role as anchor currency of the European exchange rate mechanism in spite of the wave of interest-rate cuts in other ERM countries.
Otmar Issing, another Bundesbank board member, added that a decisive reduction in the German public sector deficit would have to take place before further cuts in key rates could occur. 'There have to be clear signals that the deficits will be reduced clearly in the future.' The Bonn government is due to finalise the 1994 budget next month.
Mr Issing also dismissed suggestions that the mark was weakening and described recent developments on the currency markets as a recovery in the dollar from the very weak levels of last autumn.
The French interest-rate development is highly significant, coming only six months before the European Community begins the second phase of economic and monetary union on 1 January 1994. The French central bank will now play a more influential role in setting the priorities for EMU.
The European summit in Copenhagen failed to agree on co-ordinated interest-rate cuts, largely because the German government continued to stonewall in the face of the intransigence at the Bundesbank. But Mr Delors said that there was now greater room for manoeuvre, adding that the speed of cuts was more important than their amount. A reduction in interest rates could cut budget deficits in the EC by 1 per cent of the Community's GDP, he said.
In the absence of any agreement on cuts, EC leaders agreed that ecu1bn of a new ecu3bn lending facility would be made available for subsidised loans to small and medium-sized businesses. The subsidies would be of a maximum of three percentage points below market rates over five years.
The idea of interest-rate subsidies has raised doubts among British officials, as it would mean increased spending by the Community, and may meet resistance when it is discussed by finance ministers. But the meeting left open the question of again raising the amount in six months.
The new ecu3bn facility is on top of an existing ecu5bn facility agreed at the Edinburgh summit, which will be extended.
The Irish central bank has cut its base rate by 0.25 percentage points to 7.75 per cent, its lowest level for 16 years. The reduction is Ireland's 12th cut since the punt's 10 per cent devaluation last January. The base rate remains ahead of money market levels, with the one-month Dublin wholesale rate currently at 7 per cent.