Markets wary of German inflation

Clifford German

For the second week running the experts have left their forecasts of the probability of EMU going ahead unchanged. However, currency markets yesterday reflected concern at the prospect of stronger inflation in Germany following higher preliminary figures for August from north-Rhine Westphalia and Bavaria.

Indications that German inflation rates could climb back up to 2 per cent could trigger a rise in the Bundesbank's repo rate as early as next Tuesday.

Attention will then switch to the next round of meetings between the French and German governments, says Alison Cottrell at Paine Webber.

Chancellor Helmut Kohl and Prime Minister Lionel Jospin meet in Bonn next Thursday but no decisions of substance are expected at that stage.

The European Union's finance ministers and central bankers will take their discussions forward when they meet at Mondorf in Luxembourg on 12- 14 September. The Franco-German summit will follow on 18-19 September, bringing together the heads of state for a discussion on the timing of the moves towards monetary union and any changes to budgetary policies the leading candidate countries may need to make to ensure they meet the criteria.