Mark rises on rumours of convergence delay

Rumours that EMU might be delayed sent the mark rising against the dollar yesterday. Meanwhile international investors continued to move away from bonds affected by EMU uncertainty, and into US bonds and UK gilts which have been less affected by EMU speculation.

The mark rose to its highest level against the dollar in two weeks amid worries about European monetary union. The dollar fell to DM1.67 compared to Friday's close of DM1.688.

The prospect of delays to EMU reduces the likelihood of a broad-based EMU encompassing the weaker lira and peseta as well as the mark at an early date, and so raises traders' confidence in the mark.

Meanwhile analysts claimed that investors were switching funds away from bonds which had been heavily affected by EMU speculation and into gilts instead. "We're advising switching out of Spain into the US, and out of Italy into the UK," said Phyllis Reed, European bond strategist at BZW in London.

Speculation that the starting date for EMU might be delayed was provoked by a poll in Germany's weekly news magazine Der Spiegel on Sunday, showing 77 per cent of Germans favoured a delay to EMU. At the same time, a report in another German magazine, Focus, claimed the German finance ministry expected the country's national debt to rise this year to 61.5 per cent of GDP from 60.5 per cent last year, above the Maastricht ceiling of 60 per cent.

If Germany cannot meet the Maastricht criteria, it will make it far more difficult for EMU to go ahead without countries such as Italy, which may also miss the criteria only by a small amount. Analysts suspect that Germany will push for a delay in EMU rather than go ahead on a fudged basis with Italy as part of the first wave.

Comment, page 17

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